What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-28 compared with 2024-03-29 · 51 added, 61 removed, 193 unchanged (37% of the section changed)

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Cautionary Statement Concerning Forward – Looking Statements

The statements made in this Form 10-K, other materials the Company has filed or may file with the Securities and Exchange Commission, in each case that are not historical facts, contain “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “projects,” “estimates,” “believes,” “seeks,” “could,” “should,” or “continue,” the negative thereof, and other variations or comparable terminology as well as statements regarding the evaluation of strategic alternatives and liquidation contingencies.

The statements made in this Form 10-K and in other materials the Company has filed or may file with the Securities and Exchange Commission, in each case that are not historical facts, contain “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “projects,” “estimates,” “believes,” “seeks,” “could,” “should,” or “continue,” the negative thereof, and other variations or comparable terminology as well as statements regarding the evaluation of liquidation contingencies.

These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements.

Such risks and uncertainties include, but are not limited to, risks and uncertainties relating to our efforts to enhance the values of our remaining properties and seek the orderly, strategic sale of such properties as soon as reasonably practicable, risks associated with the Article 78 Proceeding against the Company and any other litigation that may develop in connection with our efforts to enhance the value of and sell our properties, ongoing community activism, risks associated with proxy contests and other actions of activist shareholders, risk related to the recent banking crisis and closure of two major banks (including one with whom we indirectly have a mortgage loan), regulatory enforcement, risks inherent in the real estate markets of Suffolk and Westchester Counties in New York, the potential residual effects of the COVID-19 pandemic, the risk of inflation, rising interest rates, recession and supply chain constraints or disruptions, and other risks detailed from time to time in the Company’s SEC reports.

Such risks and uncertainties include, but are not limited to, risks and uncertainties generally relating to our efforts to enhance the values of our remaining properties and seek the orderly, strategic sale of such properties as soon as reasonably practicable, risks associated with the Article 78 Proceeding against the Company and any other litigation that may develop in connection with our efforts to enhance the value of and sell our properties, risks relating to our national marketing campaign led by JLL for the sale of our Flowerfield property, community activism risk, proxy contests and other actions of activist shareholders, regulatory enforcement risk, risks inherent in the real estate markets of Suffolk and Westchester Counties in New York, the potential residual effects of the COVID-19 pandemic, lingering risks relating to the 2023 banking crisis and closure of two major banks (including one with whom we indirectly had a mortgage loan which the FDIC transferred in December 2023 to a new holder following the banks closure), ongoing inflation risk, ongoing interest rate uncertainty, recession uncertainty and supply chain constraints or disruptions and other risks detailed from time to time in the Company’s SEC reports.

These and other matters the Company discuss in this Report, or in the documents it incorporates by reference into this Report, may cause actual results to differ from those the Company describes.

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New factors emerge from time to time, and it is not possible for us to predict which factors will affect future results.

In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

In particular, it is difficult to fully assess the impact of the residual effects of the COVID-19 pandemic, the risk of inflation, rising interest rates, the banking crisis and possible recession at this time.

In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results, including the timeline to complete the liquidation, to differ materially from those contained in any forward-looking statement.

In particular, it is difficult to fully assess the risks of persistent inflation, high interest rates and possible recession at this time.

The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

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The Company also owns undeveloped land parcels adjacent to developed properties for which alternative entitlement plans are currently being considered in order to increase development flexibility of the relevant primary property.

Factors Which May Influence Future Operations

Leasing Operations

Our operating focus is on maximizing cashflows and market value of our operating properties while we are securing entitlements with the objective of increasing development flexibility with respect to our remaining properties and maximizing distributions to our shareholders as soon as reasonably practicable.

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As of December 31, 2023, our properties were 86% leased to 35 tenants.

The reduction in occupancy is mainly attributable to one tenant who occupied two suites in Cortlandt Manor that as of December 31, 2024 vacated according to an early termination agreement.

Our leasing strategy for 2025 includes focusing on leasing vacant space, negotiating early renewals for leases scheduled to expire through 2026 and identifying new tenants or existing tenants seeking additional space.

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However, tenant improvement incentives may be offered in certain cases where concessions are not effective in meeting the demands of the existing or prospective tenant.

The Company has approximately 15% of its annual leasing revenue up for renewal in 2024, which is the same as the leases up for renewal in 2023.

The Company has approximately 31% of its annual leasing revenue up for renewal in 2025, in 2024 it was 15%.

General economic conditions, coupled with rental markets in which we operate, will dictate how rental rates on new leases and renewals will compare, favorably or unfavorably, to those leases that were signed in 2024.

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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, 2026.

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 has involved 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 with increased development flexibility.

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.

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.

In June 2022, Gyrodyne and the Town of Smithtown filed motions to dismiss the Petition.

During the third quarter, the Article 78 Proceeding was re-assigned to a different judge for the second time.

On February 6, 2024, the Supreme Court of the State of New York, Suffolk County issued an order (the “Order”), denying the Motions in part and granting them in part.

Specifically, the Order (i) denied the Motions as to three individual Petitioners and the St.

James-Head of the Harbor Neighborhood Preservation Coalition, Inc., (ii) granted the Motions as to the remaining twenty (20) individual Petitioners and the Village of Head of the Harbor, (iii) denied the branch of Gyrodyne’s motion alleging that Petitioners failed to state a claim, and (iv) requires Gyrodyne to serve an answer within twenty (20) days of service of the Order The parties will submit their respective briefs on the merits of the remaining Petitioners’ contentions after which we believe the Court will render a decision.

The Article 78 Proceeding could take an additional six months or more for a decision given the impact the pandemic has had on the court system with additional time needed for an appeal, if one is filed.

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 2025, 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 (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.

The Flowerfield subdivision will remain subject to the Article 78 Proceeding unless Gyrodyne and the Town of Smithtown prevail in their defense of the Planning Board’s determinations against the Petition.

Nevertheless, the Company will continue its efforts to identify one or more purchasers for Flowerfield and execute purchase agreements, and it is unclear at this time what impact, if any, the Article 78 Proceeding will have on such efforts.

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

Nevertheless, although there can be no assurances, the Company believes, for Flowerfield, subdivision approval will be received in mid-2024, and for Cortlandt Manor, contingent on the timing for entering contracts (which we anticipate will include closing terms conditioned upon receiving site plan approval), the subdivision and site plan approval could be received by mid-2025 and that we will generally be able to seek to identify purchasers for such properties after subdivision approval is received.

The Company believes that standard market terms for real property transactions in both Cortlandt Manor and the Town of Smithtown would include final subdivision approval, final unappealable site plan approval and the resolution of the Article 78 Proceeding as conditions to closing.

Based on the aforementioned factors, the Company believes the process of negotiating purchase agreements, securing final approvals and consummating the sale of our properties will culminate by year-end 2025.

The Company intends to aggressively market its properties and negotiate contracts in an effort to complete the process as soon as practicable 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 2025.

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, litigation fees, 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, 2026.

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Actual results could differ from those estimates.

The real estate market is cyclical in nature.

Property values are affected by, among other things, the availability of capital, occupancy rates, rental rates, interest rates and inflation rates.

As a result, determining real estate values involves many assumptions.

Amounts ultimately realized may vary significantly from the net assets in liquidation values presented.

The Company’s most significant accounting estimate relates to the determination of the value of net assets in liquidation.

Fair Value of Real Estate - The Company also considers in its valuation estimates the receipt of any expressions of interest/letters from perspective buyers adjusted to reflect the Company’s best estimate of any contingent financial terms inclusive of approval density and related site plans.

Cash equivalents - The Company considers all certificates of deposits, money market funds, treasury securities and other highly liquid debt instruments purchased with short-term maturities to be cash equivalents.

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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.

Industry Segments - Gyrodyne’s corporate strategy is to enhance the value of Flowerfield and Cortlandt Manor by pursuing entitlement opportunities to provide purchasers increased development flexibility, and by enhancing the value of our leases, and then selling our properties in an orderly manner at higher values.

The Company manages this strategy on an aggregated, single segment basis for purposes of assessing performance and making decisions (inclusive of capital allocation, leasing, entitlements and sales).

Therefore, the Company has only one reporting segment.

As reported in footnote two, the Company is on a liquidation basis of accounting.

The detailed information regularly provided to the chief operating decision maker (“CODM”), President and CEO, is reported in Note 4 in detail supporting the estimated liquidation and operating costs net of estimated receipts.

This information allows the CODM to manage and forecast any impact the operations have on the estimated real estate value and in the aggregate allows the CODM to calculate estimated distributions.

The net assets as of December 31, 2024 ($30,596,313) and December 31, 2023 ($30,721,034) results in estimated distributions of approximately $13.91 and $19.51 per common share, respectively, based on 2,199,308 and 1,574,308 shares outstanding, respectively.

New accounting pronouncements - Management has evaluated the impact of newly issued accounting pronouncements, whether effective or not as of December 31, 2024, 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 Statement of Net Assets

The increase of $353,535 is mainly attributable to the reduction in Retention Bonus Plan benefits stemming from the adoption of the Restricted Stock Plan and Amendment 5 of the Retention Bonus Plan ($3.6 million) ( See 2023 Transactions above ) offset by expenses responding to and resolving a shareholder activism campaign and addressing feedback from shareholders ($1.2 million), costs net of receipts associated with a one year extension on the timeline ($1.5 million) and professional fees relating to the rights offering and loan closing fees ($411,000).

Net assets as of December 31, 2024 and December 31, 2023 would result in estimated liquidating distributions of $30,596,313 and $30,721,034, or approximately $13.91 and $19.51 per common share, respectively, based on 2,199,308 and 1,574,308 shares outstanding, respectively.

The decrease of $124,721 in estimated liquidating distributions is mainly attributable to the decrease in real estate value of $3,392,000 and the increased costs associated with the one year time line extension ($1,912,000) offset by the cash raised in the rights offering (net proceeds of $4,418,380) which closed on March 7, 2024, savings in costs associated with the decrease in real estate value of $336,283 and other savings (approximately $425,000 of which approximately $350,000 is a result of a negotiated reduction in legal fees from the shareholder activist campaign).

Approximately $3.39 per share of the $5.60 decrease in net assets per share is attributable to the issuance in the Rights Offering of 625,000 shares at $8 per share (reflecting a discount of $8.12 per share to the proforma net assets in liquidation as of December 31, 2023).

The cash balance at the end of the liquidation period (currently estimated to be December 31, 2026, 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, 2026:

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820, Fair Value Measurement.

The Company also considers in its valuation estimates the receipt of any expressions of interest/letters from perspective buyers adjusted to reflect the Company’s best estimate of any contingent financial terms inclusive of approval density and related site plans.

The cash flow models include estimated cash inflows and outflows over a specified holding period.

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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.

Net assets as of December 31, 2023 and December 31, 2022 would result in estimated liquidating distributions of $30,721,034 and $30,367,499, or approximately $19.51 and $20.48 per common share, respectively, based on 1,574,308 and 1,482,680 shares outstanding, respectively (inclusive of the issuance of shares and net proceeds from the Rights Offering, the December 31, 2023 estimated net assets in liquidation would be $35,463,133 or $16.12 per share based on 2,199,308 shares outstanding – See Subsequent Business Events – Rights Offering ), based on estimates and other indications of sales value 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 December 31, 2023 and 2022 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 ultimately enhance estimated distributions per share through the improved aggregate 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 entitlements 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.

There is inherent uncertainty with these projections, and they could change materially based on the timing of the sales, change 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.

There is inherent uncertainty with these projections, and they could change materially based on the timing of the sales, change in values of the Cortlandt Manor and/or Flowerfield properties (whether market driven or resulting from the land entitlement efforts) net of any bonuses, 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 December 31, 2024 (dollars are in millions).

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The Company estimates interest income will be offset by interest expense and the settlement of its working capital accounts resulting in a balance of ($4.06).

See Subsequent Events for impact of the Rights Offering.

Discussion of Changes in Net Assets

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Remeasurement of assets and liabilities

Issuance of common shares, net

Change in value of real estate

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Net assets on December 31, 2024

(a) The increase in net assets in liquidation during 2022 was the result of an increase in real estate value offset by an increase in selling costs and retention bonus payments (both of which are due to the increase in real estate value) as well as an increase in legal fees mainly attributable to the Article 78 proceeding.

(b) The increase in net assets in liquidation during 2023 was the result of the change in the retention bonus plan, adoption of the restricted stock plan and an increase in real estate value offset by a one-year extension in the timeline and an increase in legal fees mainly attributable to shareholder activism.

(a) The increase in net assets in liquidation during 2023 was the result of the change in the retention bonus plan, adoption of the restricted stock plan and an increase in real estate value offset by a one-year extension in the timeline and an increase in legal fees mainly attributable to shareholder activism.

Liquidity and Capital Resources

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Under the DCP, officers and directors may elect to defer a portion of their compensation to the DCP and receive interest on such deferred payments at a fixed rate of 5% (per annum).

All DCP benefits will be paid in a single lump sum cash payment on December 15, 2026, unless a Plan of Liquidation is established for Gyrodyne before the distribution date in which case all benefits will be paid in a single lump sum cash payment after execution of an amendment to terminate the DCP ( See Deferred Compensation Plan above) .

All DCP benefits will be paid in a single lump sum cash payment on December 15, 2031, as amended, 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) .

On December 27, 2023, the Company, through its subsidiaries GSD Cortlandt, LLC (“GSD Cortlandt”) and Buttonwood Acquisition, LLC (“Buttonwood”), secured a term mortgage loan (the “2023 Mortgage Loan”) in the principal amount of $1,500,000 with LLYR Resources, LLC.

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As of December 31, 2024, the Company had cash and cash equivalents totaling approximately $5.9 million.

The Company anticipates that its current cash and cash equivalent balance (plus the net proceeds from the aforementioned Rights Offering of approximately $4.4 million will be adequate to fund its process of seeking entitlements and selling assets and subsequent dissolution.

The cash will be partially used to fund our efforts to generate the highest values for the Flowerfield and Cortlandt Manor properties while simultaneously pursuing the strategic sale of these properties.

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The Company is estimating and reporting in the consolidated statements of net assets total gross cash proceeds from the sale of its assets of approximately $50.39 million.

Based on the Company’s current cash balance and the above forecast, the Company estimates distributable cash stemming from the liquidation of the Company of approximately $30.72 million (or $35.46 million inclusive of the net proceeds from the Rights Offering – See Subsequent Business Events – Rights Offering ).

Based on the Company’s current cash balance and the above forecast, the Company estimates distributable cash stemming from the liquidation of the Company of approximately $30.6 million.

The Company intends to seek to modify any of its existing loan facilities to strengthen its financial position through the end of 2026, the forecasted completion of the liquidation process.

The Company’s goal with respect to any such modification is for its current cash and cash equivalent position post-loan modification to be adequate to fund our process of seeking entitlements and selling assets through the end of 2026, the forecasted date for the completion of the liquidation and subsequent dissolution.

There can be no assurance, however, that the Company will be successful in securing any such loan modification on terms that are satisfactory to the Company or on any terms at all.

The Company’s primary sources of funds are as follows:

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Nonoperating Cashflows:

$1,431,297 in loan proceeds net of expenses.

$4,418,380 of net proceeds from the issuance of common shares.

($87,718) of land entitlement costs incurred for the Cortlandt Manor property.

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($1,987,749) of corporate expenditures including interest expense.

($199,567) in professional fees relating to the rights offering.

($288,976) of principal payments on our loans.

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Nonoperating Cashflows:

$18,500 in proceeds from an easement agreement.

$1,431,297 in loan proceeds net of expenses.

($60,718) of land entitlement costs incurred for the Cortlandt Manor property.

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($3,514,348) of corporate expenditures including interest expense.

($185,643) of costs incurred to secure non-revolving credit line.

($268,439) of principal loan payments.

($199,567) in professional fees relating to the rights offering.

($279,014) of principal payments on our loans.

$1,195,022 in changes in working capital.

Public Health and Macroeconomics :

Impact of Pandemic and Macroeconomics:

The following discussion is intended to provide shareholders with certain information regarding the impacts of the COVID-19 pandemic on the Company’s business and management’s efforts to respond to those impacts.

Unless otherwise specified, the statistical and other information regarding the Company’s properties and tenants are estimates based on information currently available to the Company, may change, potentially significantly, going forward, and may not be indicative of the actual residual impact of the COVID-19 pandemic on the Company’s business, operations, cash flows and financial condition for the year ended December 31, 2024 and future periods.

The COVID-19 pandemic has adversely impacted, and may continue to impact adversely, the timeliness of local government in granting required approvals.

The COVID-19 pandemic has also adversely impacted, and may continue to impact adversely, the timeliness of local government in granting required approvals, as state and local staff charged with processing our subdivision applications all postponed activity due to work-from-home transitions.

Accordingly, COVID-19 has caused, and may continue to cause, the completion of important stages in our efforts to secure entitlements to be delayed.

Until recently, the U.S economy had been growing as COVID-19 vaccinations were increasingly administered and many commercial activities returned to pre-pandemic practices and operations.

However, this favorable outlook could be affected materially by adverse developments related to the extent to which U.S Federal Reserve interest rate hikes in reaction to persistent inflationary pressures have led or could lead to a recession in the U.S and more recently to the crisis in the banking industry, including the second and third largest bank failures in U.S.

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.

Concurrently, the war between Russia and Ukraine increased uncertainty during 2022 and 2023 with such uncertainty being exacerbated by the war between Israel and Hamas in Gaza and a threat of a broader conflict.

Inflation has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a recession.

Due to increased inflation, the U.S.

Federal Reserve raised the federal funds rate a total of seven times during 2022 and four times in 2023.

In response, market interest rates have increased significantly during this time.

At the same time, the labor market remains historically tight, and companies continue to look to add employees, pushing unemployment lower.

The extent of the impact of these public health and macroeconomic risks on the Company’s operational and financial performance and ultimately its Net Asset Value, will depend on current and future developments, including the residual effects of the COVID-19 pandemic and the extent to which interest rate hikes to combat inflation and the banking crisis have a recessionary effect.

The pandemic has also 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, although medical office has faced less of a challenge from work-from-home shifts.

We are affected by the fiscal and monetary policies of the United States Government and its agencies, including the policies of the Federal Reserve, which regulates the supply of money and credit in the United States.

The combination of elevated interest rates and persistent inflation (or the perception that any of these events may continue) have contributed to continued weakness in commercial real estate markets, including in those real estate markets in which we operate.

Changes in fiscal and monetary policies are beyond our control and are difficult to predict.

Although the Federal Reserve decreased the federal funds rate multiple times in 2024, the rate continues to be elevated and there can be no assurance that the rate will continue to decrease or that it will not be increased in 2025 and beyond.

While lower market rates and increased capital markets liquidity supports commercial real estate property transactions and values, regulated lending institutions are adjusting their business models to increase capital requirements for direct loans to real estate and thus continue to be constrained in providing capital for commercial real estate properties.

Changes in the federal funds rate as well as the other policies of the Federal Reserve affect interest rates, which have a significant impact on our financial condition.

The extent of the continuing impact of these public health and macroeconomic risks on the Company's operational and financial performance and ultimately its Net Asset Value, will depend on current and future developments, including the residual effects of the COVID-19 pandemic and the extent to which persistently high interest rates continue to have an adverse impact on the real estate industry and a recessionary effect generally.

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 of proceeds and distributions from those sales.

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The healthcare industry may experience a significant expansion of applicable federal, state or local laws and regulations, previously enacted or future healthcare reform, new interpretations of existing laws and regulations or changes in enforcement priorities, all of which could materially impact the business and operations of our tenants and therefore the marketability of our properties.

Our tenants are subject to extensive federal, state, and local licensure laws, regulations and industry standards governing business operations, the physical plant and structure, patient rights and privacy and security of health information.

Our healthcare tenants are subject to extensive federal, state, and local licensure laws, regulations and industry standards governing business operations, the physical plant and structure, patient rights and privacy and security of health information.

Our tenants’ failure to comply with any of these laws could result in loss of licensure, denial of reimbursement, imposition of fines or other penalties, suspension or exclusion from the government sponsored Medicare and Medicaid programs, loss of accreditation or certification, or closure of the facility.

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Our tenants may also face significant limits on the scope of services reimbursed and on reimbursement rates and fees, all of which could impact their ability to pay rent or other obligations to us.

Referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients.

Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.

Any reduction in rental revenues resulting from the inability of our medical office buildings and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.

Property Value Enhancement

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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 7. Management’s Discussion and Analysis