Gyrodyne (GYRO) – Liquidation – 28% Upside

Current price: $19.6

Expected Liquidation Value: $25.20 (reduced to $15+)

Upside: 28% (IRR of 8% or greater)

Expiration Date: December 2021

This idea was shared by Dave.

 

GYRO’s liquidation commenced nearly a decade ago and is still proceeding, albeit at a glacial pace.  In management’s defense, they have been seeking value-add modifications to the company’s remaining two properties prior to disposing of them, which has slowed the process significantly.

However, a recent sale agreement coupled with a conservative management estimate of value portend good shareholder returns if the modifications are ultimately approved.

This is a summary write up.  Ample detail can be found in the GYRO filings if you wish to dig deeper.

 

Summary of Opportunity

  • GYRO is liquidating and management currently estimates a 12/31/21 end date.
  • Management’s estimate of Net Asset Value, pro forma for a recently (8/29/19) announced agreement, is $20.20.
  • In our estimation, this NAV understates the value in liquidation because management did not include a revaluation of certain other for-sale real estate to reflect the agreement price.
  • Even adjusting for a potentially longer liquidation timeline, a reasonable IRR is possible at the current stock price ($20.00).

GYRO’s remaining assets consist of two properties: (i) a largely undeveloped 64-acre parcel referred to as “Flowerfield,” in Smithtown, NY, close to SUNY Stony Brook and (ii) a 10.5-acre parcel in Cortlandt Manor, NY with an existing medical office building and space for additional development.

For the last few years, GYRO has been working with consultants and the respective municipalities to secure: (i) approval to subdivide the Flowerfield parcel and (ii) a zoning change for the Cortlandt parcel.  The company argues that these modifications, or “entitlements,” will result in accretive, increased sale values for the properties.

 

Recent Events

On 8/29/19, GYRO announced that it had entered into an agreement to sell roughly 9 acres of land (Lot 4) at Flowerfield for $16.8mm.  While the deal has a number of contingencies, including approval of GYRO’s proposed subdivision plan by the Town of Smithtown (NY), the price is attractive – nearly $1.7mm per acre.

As a result of this agreement, GYRO updated the value of its Net Assets in Liquidation to $20.20 per share, reflecting a $4.10 per share increase in “real estate held for sale” offset by an increase in the expense reserve of $1.72 for a net increase in NAV of $2.38 from the June 30, 2019 value.  The increased reserve largely resulted from an 18-month increase in the liquidation timeline, extending the projected end date from June 2020 to December 2021.

Importantly, according to the 8K, the updated NAV ($20.20) does NOT include a revaluation of the other acreage for sale at Flowerfield based on the contract price.  In other words, despite a contract price per acre meaningfully in excess of the 6/30/19 carrying value of the undeveloped Flowerfield acreage — as demonstrated by the $4.10 (or 17%) increase in gross “real estate held for sale” mentioned above — GYRO did not undertake a revaluation of the other acreage.  Instead, management just added the incremental value implied from the Lot 4 sales proceeds to NAV, less sales commissions.  Management likely did not want to conduct a full appraisal at this time and instead went with this expedient, if conservative, approach.

This is the essence of the current investment opportunity.

 

Valuation

Rather than outline a bottom-up valuation of GYRO in light of the recent Flowerfield agreement, we instead invert, and explore the implied values for the remaining properties based on the pro forma NAV of $20.20 provided by GYRO.

To begin with, based on an exhibit to the 8/29/19 8K, here is the proposed subdivision of the overall Flowerfield (“FF”) parcel. Lot 4 is the parcel under agreement and Lot 2, the well-reviewed Flowerfield Celebrations parcel, is not owned by GYRO (but it makes a hotel on adjacent Lot 5 a compelling opportunity):

 

GYRO1

Here is the pro forma balance sheet adjustment to reflect the agreement based on the company’s recent 8K filing:

GYRO2

Now, let’s break down the pro forma “Real estate held for sale” line item:

GYRO3

In rows 81-83, we deduct the contract value of the parcel under agreement.  Row 85 deducts our estimate of the gross value of Lot 1, the existing leased industrial/office property at Flowerfield.  Row 86 therefore shows the implied value of all of the unsold, undeveloped proposed subdivided lots at Flowerfield (Lot 3 and Lot 5) as well as the entire Cortlandt Manor property.

GYRO’s current subdivision application indicates that the best use for Lot 3 is Office and for Lot 5 is Hotel.  In lines 88 and 89 we assume that Lots 3 and 5 are sold at a significant discount to Lot 4 (on a $/acre basis) given the different expected uses.  These discounts may prove conservative as this is a unique property in eastern Long Island, but true comparables are difficult to find.  At those discounted values, the “Implied gross value of Cortlandt Manor” in row 90 is unreasonably low.

The Cortlandt property is well-located across the street from NY Presbyterian-Hudson Valley Hospital and, according to GYRO management, there is considerable demand for its expected uses: medical office space and multi-family residential.  In January 2018, a neighboring property (“Evergreen Manor”) went under LOI. The asking price for the neighboring property at the time was roughly $1.2mm per acre.  That property is no longer on the market. For this analysis, we assume a value for Cortlandt of $1mm per acre.

Totaling it all up, and deducting incremental sales commissions and management bonus accrual (see GYRO filings for bonus detail), you get the value in row 104.

Expected net proceeds from the sale of Lot 4 are as follows and we believe it is reasonable to think that this transaction closes in 2020 and the net proceeds are distributed at closing:

GYRO4

Here is a look at IRRs at varying liquidation distribution timelines (with an extra $1 per share ($1.4mm) deducted in 2022 scenarios to reflect one year of additional operating expenses not reflected in $20.20 NAV):

GYRO5

In summary, since both parcels are unique, with new entitlements, comparables are hard to find.  For instance, in 2017 undeveloped commercial “comparables” around Flowerfield traded in the $400k per acre range – a far cry from the Lot 4 contract price of $1.7mm per acre.

The key question is to what extent the Lot 4 price translates to Lots 3 and 5.  There may also be upside to our Cortlandt Manor estimated value.  We have tried to be conservative above and we still see reasonable IRRs depending on your estimate of time to completion.

 

Timing

Management’s past estimates of the timing to complete this liquidation have been inaccurate.  However, in our view, this is largely due to the time-consuming municipal approval process in both Smithtown and Cortlandt Manor and not poor execution by GYRO management, per se.

GYRO offered the following update on the two approval processes in the 6/30/19 10 Q:

Cortland Manor

GYRO6

Flowerfield

GYRO7

Considering these comments and my recent conversation with a representative at the Cortlandt Manor planning department, I think it is reasonable to expect both the FF and CM municipal approvals are secured in 2020.  In a recent conversation, management of GYRO indicated that they intend to have all of the parcels under contract prior to entitlement approval.  This comment may indicate there are currently interested buyers for all parcels, which would not surprise me given the fact that we are three years into this process.

Importantly, GYRO management indicated that the Assisted Living operator under contract to purchase Lot 4 is pursuing their Site Plan Approval with the town of Smithtown at the same time that GYRO finishes the overall subdivision approval.  This is a good sign because the town would likely dedicate its staff resources to Lot 4 Site Plan Approval only if the overall subdivision approval was anticipated.

 

Management Incentives

Management incentives here are not ideal.  Rather than share in the net proceeds distributed to shareholders, management and the board are entitled to receive a share of the net proceeds from real estate sales to the extent they exceed a pre-entitlement appraised value (more detail can be found in the GYRO filings).  Importantly, cash invested to secure the entitlements is added to the appraisal basis for purposes of the bonus calculation. Having said this, in years of following this stock, we have not witnessed poor conduct by management and the recent contract price for Lot 4 is an encouraging indication that the entitlement investments will generate a positive return.

We would like to see further expense reduction, notably a delisting, but to date certain stockholders seem to have prevailed on this issue of keeping a NASDAQ listing.

For what it’s worth, recently reported holders include notable value investors, albeit with small $ exposure due to the FMV of what is left of GYRO.  These folks may keep pressure on management for cost reduction efforts:

GYRO8

Risks

  • GYRO is illiquid.
  • Each estimate of the end date for this liquidation over the past 10 years has been wrong.  Management currently estimates it will be completed by 12/31/21, but it may take longer.
  • GYRO is now an LLC, so you will receive a K-1 (and it has historically been late).
  • Despite GYRO’s diligent efforts to date, there is no guarantee that either the Flowerfield subdivision or the Cortlandt Manor re-zoning will be approved by the respective town political leaders.  However, the economic incentive (property taxes) for both communities to approve the entitlements is significant and current elected officials in both communities are on record supporting approval.

31 COMMENTS

  1. na

    Why do you feel that management’s incentive structure is not ideal?

    “Management incentives here are not ideal. Rather than share in the net proceeds distributed to shareholders, management and the board are entitled to receive a share of the net proceeds from real estate sales to the extent they exceed a pre-entitlement appraised value (more detail can be found in the GYRO filings). Importantly, cash invested to secure the entitlements is added to the appraisal basis for purposes of the bonus calculation. Having said this, in years of following this stock, we have not witnessed poor conduct by management and the recent contract price for Lot 4 is an encouraging indication that the entitlement investments will generate a positive return.”

    Is it because this structure may encourage delays in the liquidation? However, you attribute the delays to municipal approval process.

    “Management’s past estimates of the timing to complete this liquidation have been inaccurate. However, in our view, this is largely due to the time-consuming municipal approval process in both Smithtown and Cortlandt Manor and not poor execution by GYRO management, per se.”

    Thanks for bringing this one back.

    1. davea500

      My point was not that management/board has delayed (or will delay) the liquidation per se, but that their incentives could result in their rejecting a “good” offer in the hopes of a “great” offer because a modest timing delay (resulting in additional liquidation expenses) would not impact the management bonus pool per se.

  2. davea500

    Cortlandt Manor parcel update: The Town of Cortlandt Manor (“CM”) recently posted the Draft Generic Environmental Impact Statement (DGEIS) for the proposed Medically Oriented District (“MOD”) and site plans for the proposed GYRO project and another adjacent project. This is an important, if expected, step forward in approval of the zoning change GYRO requires to sell its parcels in CM.

    Here is the Town’s website for the MOD with links to the DGEIS: http://www.townofcortlandt.com/cn/webpage.cfm?TID=20&TPID=16459

    A public meeting to for the Town Board to hear public comment on the proposed re-zoning and development project is scheduled for 11/19/19. It is important to note that Gyrodyne has been working closely with the Town over a number of years to complete the DGEIS and the town leadership is supportive of the project. I am planning to attend the meeting and will report back.

  3. davea500

    Link to 11/19/19 initial public hearing on Draft Environmental Impact Statement for Cortlandt Manor project: https://vimeo.com/374826269

    Starting at 13:50 the town attorney gives an overview of process, followed by presentation from GYRO (@36:00) and the other developer and the public comment.

  4. jwestern

    Any insight on the decline in price over the past few months? It’s currently priced at $18.76, implying ~7.5% upside to management’s conservative NAV of $20.20.

    1. davea500

      I have not seen anything negative. To the contrary, as I pointed out above, there has been good news in my view.

      In new news, the public hearing on the Draft EIS for the Flowerfield subdivision took place last week. The public comment period will end 1/24/20 as the Town moves towards a Final EIS.

      Link here for anyone who wants to view it. http://smithtownny.iqm2.com/citizens/Default.aspx (See Planning Board 1/8/20 video link)

      In addition, you can read the Draft EIS for Flowerfield here. https://www.smithtownny.gov/601/Gyrodyne-Subdivision-EIS

  5. Ilja

    Annual update was released. The liquidation is still expected by the end of ’21 – subdivision plan approval of Cortlandt Manor property is expected now by the end of 2020/early 2021, while the final EIS for Flowerfield is expected to be accepted in Q2/Q3 ’21. Management estimates that by the end of ’21 its liquidation value should be $21.16/share (49% upside). “These estimated distributions are based on values at December 31, 2019 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 company is expected its business to be strongly affected by the current coronavirus situation as 39% of its rental revenues are generated by the small/non-profit companies.

    1. Zulu Investor

      So far the whole thesis Is centered on the fact that management may be offering an overly conservative number. Is $25.2 per share still a thesis intact and running? It’s true that if you factor in and Model a higher cash burn rate due to the affected rental revenues from covid, the NAV may change a bit.

      1. davea500

        Clearly some new uncertainty overall in the economy. However, both towns, Smithtown and Cortlandt Manor, are going to face tougher budgets from COVID-19 (and Cortland Manor already staring at loss of Indian Pt nuclear). Consequently, the importance of building permit revenue (and future property taxes) has increased. I sit on my town’s finance committee (similar in size to GYRO communities) and the building permit fees are important – that “new growth” is money you don’t have to find from existing taxpayers. This may help focus the respective elected officials on approving the required subdivision and zoning changes being sought by GYRO.

      2. davea500

        Did some more digging on the budget question at the respective towns.

        GYRO estimates that full build-out of the property in Smithtown will add nearly $3 million annually in new property tax revenue to the town’s school budget. That $3 million represents roughly a third of the growth in the school budget being sought from taxpayers this fiscal year.

        In Cortlandt Manor, the town was already facing a budget challenge with the imminent closing of the Indian Point nuclear plant in 2021. COVID is compounding the budget challenges, as evidenced by an April 2, 2020 presentation by the local school Superintendent proposing a cut to the school budget of nearly 6% for the upcoming year. GYRO’s proposed development plans in Cortlandt Manor were thoroughly vetted, and their approval would meaningfully improve the town budget situation in the coming years.

        All of this is to say, if I was an elected official in either community, I would approve the requested entitlements ASAP; the complaints from some neighbors will be outweighed by generating some much needed revenue (building permits and then property taxes) for the town.

  6. davea500

    3/31/20 10Q update.

    Cortlandt virtual public meeting scheduled for June (postponed from April). Slow progress.

    Flowerfield, on the other hand, appears to be moving forward. First, they have a new contract for 5-acre zoned residential I believe at FF @$100k/acre (signed deal this week.)

    As for the subdivision approval, this is the relevant update from the Q:

    “The company reviewed the public comments and responded by submitting a Final EIS (“FEIS”) on April 20, 2020. The FEIS is anticipated to be accepted by the Planning Board with SEQRA completed in the second quarter or early third quarter of 2020. ”

    Looks increasingly like FF will be the first to approve requested entitlements. From my perspective sitting on my (population: 25k) town’s finance committee, I can tell you that municipal budgets are under significant pressure due to COVID – not least because State aid will be cut. As such, I remain optimistic that any sane municipal leader would close his/her hand around any new development project ASAP and GYRO has two contracts to sell to developers at Flowerfield contingent on subdivision approval.

  7. davea500

    Cortlandt (Zoom) Town meeting on Tuesday 7pm. As you might expect, a large neighborhood concern about the proposed GYRO development is more traffic and associated delays.

    However, it is worth noting that the *Town’s* traffic consultants have concluded that *without* the GYRO development, and the associated developer-funded traffic mitigation roadway improvements, traffic is expected to get *worse*. That’s because planned new developments in municipalities neighboring Cortland are not required to mitigate associated traffic impacts in neighboring towns.

    Further, NYS has no budget for traffic improvements in Cortlandt (on the state highway at issue) so only the GYRO and Evergreen Manor developers are able to underwrite the improvements, and they have committed to do so if the Medical Oriented District Zoning is approved.

    You can see the thoughtful traffic analysis here: http://www.townofcortlandt.com/cn/webpage.cfm?TID=20&TPID=16459

    All in all, once the public has a chance to vent, I continue to believe the Cortlandt MOD will be approved as will the subdivision at Flowerfield in Smithtown. And, low interest rates will attract capital to fund the developments.

  8. g4734g

    Dave thanks for the update…I was reviewing the opportunity again last night and I do like it. Problem is the bid ask are a couple bucks apart……If you are able to be lucky enough to acquire some shares you’re definitely in it for the long-haul otherwise you’re going to take a 10% haircut potentially getting in and getting out. Unless you have found a broker or market showing a tighter bid ask. Thanks for Sharing the opportunity

  9. davea500

    The Town of Cortlandt closed the public hearing on 6/16/20, but they are allowing further public comment (written) until the end of June. Following that, GYRO and the neighboring parcel’s developers will prepare and submit a Final EIS. The final EIS has to address any and all issues raised in the public meeting/comment period.

    I listened to the 6/16/20 meeting and did not hear any particularly new issues raised – as compared to the two previous public hearings in NOV and JAN. Given that the last public hearing was held in January, I suspect the developers have been working on the Final EIS in the interim. And, having heard few new issues, hopefully there is not additional work created based on the 6/16/20 hearing.

    In sum, closing the Cortlandt public hearing is a step forward.

  10. davea500

    From Newsday Page A24 6/25/20:

    *********************
    Gyrodyne sewage treatment proposal gets initial approval
    by Nicholas Spangler

    Gyrodyne’s proposal for a sewage treatment plant to support development of its St. James property advanced this week with a conceptual certification from the Suffolk County Sewer Agency.

    The nonbinding measure is intended for projects like Gyrodyne’s where applicants seek broad guidance on the type of wastewater disposal methods the agency would like to see before they seek its final approval for a specific design. In this case, the sewer agency cannot grant that approval until Smithtown officials finish an environmental review of the company’s broader proposal to subdivide its 75-acre property for various uses.

    The agency’s board, composed of four Suffolk officials and three county legislators, voted 7-0 Monday to approve the measure. The plant would handle up to 100,000 gallons of wastewater per day, replacing on-site septic systems currently in use. There is no municipal sewer district in the area.

    Opponents including residents and some local elected officials — though not, notably, Smithtown Town Board members — have said Gyrodyne’s plans couldcause traffic, water and environmental woes. Assemb. Steve Englebright (D-Setauket) warned in a letter to the agency’s commissioner last week that the plant would create “significant impacts” for the environmentally sensitive Stony Brook Harbor, which is nearby. Brookhaven civic leaders including George Hoffman and Cindy Smith also pleaded for no votes at Monday’s Zoom hearing, suggesting that the certification would be little more than a marketing tool for Gyrodyne as the company attempts to sell its lots and warning that the county may be left in charge of the plant after the company liquidates and goes out of business, a plan company leadership announced in 2017.

    “They will leave everybody stuck with the problems and expenses” of biohazards and nitrogen pollution, said Carl Safina, a Stony Brook University ecologist.

    A Gyrodyne engineer said Monday the proposed plant would use a sequencing batch reactor, which would actually reduce the amount of nitrogen leaving the site and going into the watershed, though a Suffolk Health department representative said she had not seen the engineering report that would confirm that claim. 

    Smithtown Supervisor Edward Wehrheim and town board members, wary of the possibility of industrial development at the site and excited over the economic development prospects, have been generally supportive of the project and Wehrheim underscored their position in a letter sent to the agency Monday.

    Town officials have also asked the company to consider building a treatment plant with capacity to serve downtown St. James, where work is underway to lay a dry sewer line in anticipation of future hookup. Gyrodyne representatives said Monday that their application does not include plans for a plant of that size, though there is room for expansion to treat the additional 71,000 gallons per day the St. James hookup would bring.

    That hookup would reduce the total amount of nitrogen now leaching into the ground from septic systems, they said.

  11. iFindValue

    Link: https://www.sec.gov/Archives/edgar/data/1589061/000143774920015516/ex_194779.htm

    CEO’s remarks during 2020 Annual Shareholders Meeting, dated July 22, 2020

    Rent collections during Covid-19: “During the second quarter, the rent and pass throughs for April through June, totaled approximately $806,000 and we collected approximately 590,000 through mid-July and believe the balance will be paid without any material rent abatements.”

    Update on review, Cortlandt: “In June 2019, the Town of Cortlandt adopted a resolution accepting the Draft Generic Environmental Impact Statement (“GEIS”) as complete for public review. The Town closed the public comment period affective June 30, 2020. The Town is in the process of reviewing the public comments and preparing the Final GEIS. We anticipate the adoption of the final SEQRA findings in the fourth quarter of 2020 followed by the Town adopting the Medical Oriented District (“MOD”) in the first quarter of 2021. Upon adoption of the MOD, we believe the Town will then approve our requested entitlements in mid-2021. As with all anticipated dates, these are subject to change due to unforeseen circumstances or events.”

    Credit facilities: “Through June 2020, we procured non-recurring credit line facilities totaling $6 million with approximately $2.2 million drawn upon to address certain leasing and related capital improvement needs as well as approximately $2.1 million for working capital needs. The debt facilities were necessary to ensure we had sufficient funding available to operate the Company through the entitlement and liquidation process. In addition, this month we closed on a bridge loan for $2.5 million on the Cortlandt Manor property to further enhance our access to credit while we weather the economic headwinds previously discussed.”

  12. davea500

    GYRO is making a new proposal to Cortlandt NY, eliminating the proposed multi-family use and replacing it with more medical office. You can see the new info here: https://www.townofcortlandt.com/cn/webpage.cfm?tpid=16459

    GYRO will present to Town on 11/2/20 via Zoom. I don’t know, but I would expect, that prior to developing these new plans GYRO sought some guidance from the Town as to what would be an acceptable modification to their initial proposal. As the site is directly across the street from a hospital, medical office makes sense, though they already have one parcel under contract at Cortlandt for Medical Office use. Perhaps this modification is also driven by developer demand (as expressed to GYRO) for the second parcel if zoned for additional medical office. Hard to know from the outside.

    As for valuation, the parcel under agreement at Cortlandt is referenced above in the comments. This proposed parcel is larger in size, but it looks like the proposed office square footage would be roughly comparable.

    It will be interesting to see how the Town Board reacts publicly to the new proposal. The Town Supervisor has been quite negative (in public) about the “scale” and “density” of GYRO’s multi-family proposal. My guess (and sincere hope) is they will be much more supportive given the clear need to support the hospital. Politically it seems easier to support new, modern, medical offices across the street from a hospital than a new, 200-unit multifamily apartment building.

  13. dt

    GYRO presented the revised proposal but the Town board raised concerns about additional traffic issues it will bring to an already overburdened roadway. Gyro is adjusting the project and plans to significantly enhance traffic flow with new traffic signals, turning lanes, and sidewalks. EIS on the project is expected to be submitted to town officials by the end of the year or early 2021. A public hearing is likely to be held in March.

    Apparently, due to the amended Cortland site plan and market conditions the estimated liquidating distributions decreased from $21.16/share in Jun’20 to $18.55/share currently (see Q3 filling). The estimations are likely underplaying the eventual distributions as there may be some additional value that may be derived from the land entitlement efforts. However, the company states that “result from such efforts is too difficult to predict with sufficient certainty.”

    Dave, would appreciate your thoughts on this situation.

    1. davea500

      Hi dt

      First, the only way traffic improves is IF these projects (GYRO and VS) are approved. Absent the approval, the town acknowledges it has no money to make the traffic improvements; this is part of GYRO’s leverage with the Town. Second, I think the change of plans for the second parcel, from multi-family to additional medical office, makes approval considerably more likely, even if marginally less valuable. The Cortlandt Town Board has consistently complained about the “density” of the previous GYRO proposal, and the Supervisor in particular in her public remarks gave herself no way to approve the previous GYRO plan without looking like she caved. The new proposal gives her something she can approve, IMO. Finally, the parcel already under contract at Cortlandt is being purchased by a sophisticated medical officer developer. I think there is a real chance that they contract to purchase the second parcel too, which could expedite a conclusion.

      As for the reduced NAV estimates, I too suspect (hope) they are conservative. If you are going to write down NAV, one would hope that management did so to a level that ensures they don’t have to write down further between now and YE 2021 (the projected end date).

  14. dt

    GYRO received a notice from BSL, which terminates the sale of a nine-acre parcel in the Flowerfield property for $16.8m. This is the same sale from 2019, which is referred to in the write-up. Apparently, BSL had an option to cancel the agreement prior to the expiration of an inspection period if the buyer was not satisfied with the property. BSL intends to continue the discussions with the company, probably to lower the price. Although the buyer intends to continue the discussions, termination indicates the risk that management’s NAV assumptions might appear overly optimistic.

    Additionally, GYRO has extended the liquidation timeline to Dec’22. The company expects that BSL sale termination won’t affect the subdivision application.

    https://www.sec.gov/Archives/edgar/data/1589061/000143774921006741/gyrllc20210322_8k.htm

    1. davea500

      The timeline here has been super disappointing. I share everyone’s frustration…Having said that, the Final Environmental Impact Statement was recently accepted by the planning board in Smithtown, which is an important step forward in the subdivision process. There is also a coalition of businesses other than GYRO indirectly supporting the subdivision application so they can access an expanded sewer treatment plant contemplated for one of the Flowerfield subdivided parcels.

      Slow, to be sure…but I think there is still value here…the IRR is the open question.

  15. ChrisZat

    This has been a long running saga. I have been in this thing for years with no return.

  16. dt

    GYRO published the transcript from the annual shareholder meeting. The excerpts below summarize the current situation and what has changed since the release of the initial liquidation estimates. Emphasis is mine:

    Our first quarter 10-Q reflects an estimated liquidating value of $15.22 per share, a $5.28 per share decrease from the liquidating value of $21.20 per share reported for the quarter ended March 31, 2020. The decline is the result of a combination of the write-down we made from the termination of two significant purchase agreements, the extension of the timeline to 2022 and additional land development costs. The pandemic impact on our real estate value led to a 19% decrease in our estimate of the gross cash proceeds from the sale of our assets to approximately $39 million as reported in our 2020 10-K. While the Coronavirus pandemic risk may certainly create headwinds for the economy and credit and real estate in particular, we are cautiously optimistic that economic recovery will continue despite the rise of the Delta strain of COVID-19 and the possibility of other alternative Strains. We are cautiously optimistic that we can achieve significant increases in value upon receipt of entitlements. The major factors behind the decrease in our estimated distributions are the decrease in the real estate value of approximately $9.22 million to date, offset by anticipated decreased costs of approximately $340,000. Approximately $2.2 million of such projected costs are directly attributable to the decrease in the real estate value and the anticipated incremental selling costs. The balance is comprised mainly of an increase in future net operating costs of $1.2 million resulting from extending the ending liquidation date and projected additional entitlement costs of approximately $658 thousand. As a reminder, while the value of the real estate decreased to date, such value is predicated on current real estate values and reflects some but not all of the potential increased value that may result from the receipt of entitlements. By pursuing the entitlements, we anticipate realizing a greater net return to shareholders from the sale of the remaining properties.

    <...>

    Our broker is actively soliciting and educating potential buyers on the entitlements being pursued in both Cortlandt Manor and Flowerfield. We believe the marketing campaign will reduce the time necessary to close on all property sales following the anticipated receipt of the entitlements in 2022.

    In summary, although there can’t be assurances and the process is largely in the hands of local officials over whom we have little control, we anticipate the receipt of entitlements for both properties in 2022 and are pursuing our marketing efforts to ensure that the respective sales and distributions occur soon thereafter. As you digest the financial information presented, please remember that the real estate values previously discussed largely reflect the values during a pandemic. The extent to which those values recover supplemented by the additional value from receiving entitlements is yet to be determined and largely dependent on the success of the post pandemic economic recovery, the details of which are uncertain. That said, management and the Board believes there is substantial upside on the value of the real estate and the resulting NAV that will stem from the resolution of these factors.

    <...>

    Finally, while we still believe that pursuit of entitlements and subsequent sales of individual properties or subdivisions will maximize distributions to shareholders, we remain open to offers for the properties in their current entitlement status. Above all, we are committed to maximizing future liquidating distributions in a timely manner under our business plan of liquidation.

    My read of the above is that management is unable to find ‘pre-entitlement’ buyers at the currently indicated liquidating values of the assets.

    Given the so-far disappointing developments, extended timeline and limited as well as risky upside in the base case scenario (only 14% over 1.5+ years) we are removing this idea from the active cases at 32% loss in two years.

  17. davea500

    On the off chance anyone is still following this, there was news in the 9/30/21 10Q. In particular, recall that Cortlandt had basically forced GYRO to abandon the proposed multi-family component. Now, apparently, the draft FINAL EIS has an “Alternative Mixed-Use Site Plan.” This Alternative Mixed Use Site Plan proposes a 20% reduction in the scope of the residential component (160 units vs. 200 units in the
    DEIS Plan) and a reduced medical office component (83,500 square feet vs. 100,000 square feet in the DEIS Plan). While not yet approved, GYRO says approval of the Alternative is anticipated.

    One year ago, when the residential component was eliminated, GYRO said:

    “The original site plan, in response to the Town’s request, was a mixed-use plan comprising of 100,000 square feet of medical use, 4,000 square feet of retail and 200 units of multitenant residential use. The change in use from partly residential to all medical was on the property lot that is not yet under contract and reduced the estimated real estate value by approximately $2,730,000.”

    Now the new residential is potentially 160 units, so it is not apples to apples, but nevertheless, I think the residential component, if ultimately approved, increases the value of Cortlandt from current NAV estimates.

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