PART I

Introduction:

When we use the terms “Gyrodyne,” the “Company,” “we,” “us,” and “our,” we mean Gyrodyne, LLC and all entities owned or controlled by us, including non-consolidated entities. References herein to our Annual Report are to this Annual Report on Form 10-K for the year ended December 31, 2018.2020. References to “common shares” in this report refer to Gyrodyne, LLC’s common shares representing limited liability company interests. References to the “Board” in this report refer to the Board of Directors of Gyrodyne, LLC.

All references to 20182020 and 20172019 refer to our fiscal years ended or the dates, as the context requires, December 31, 20182020 and December 31, 2017,2019, respectively.

Item 1. Business.Business.

Description of the Company's Business

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

Substantially all of our developed properties are subject to leases in which the tenant reimburses the Company for a portion, all of or substantially all of the costs and/or cost increases for utilities, insurance, repairs, maintenance and real estate taxes. Certain leases provide that the Company is responsible for certain operating expenses.

Gyrodyne’s corporate strategy is to enhance the value of Flowerfield and Cortlandt Manor by pursuing entitlement opportunities and enhancing the value of its leases. The BoardCompany believes the aforementioned strategy will improve the chances of increasing the values for such properties. The value of the real estate reported in the consolidated statementsstatement of net assets as of December 31, 2018 and 20172020 (predicated on current asset values) doesincludes some, but not includeall of the potential value impact that may result from such value enhancement efforts. There can be no assurance that our value enhancement efforts will result in property value increases that exceed the costs we incur in such efforts, or even any increase at all.

Our efforts to generate the highest values for Flowerfield and Cortlandt Manor may involve in limited circumstances the pursuit of joint venture relationships, entitlements, other investments and/orvarious other strategies to enhance the net value of Flowerfield and Cortlandt Manor to maximize the returns for our shareholders. The Company does not expect the pursuit of joint ventures, if any, to adversely affect the timing of distributions to our shareholders.  Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares. The liquidation process of seeking entitlements to enhance property values and the amount and timing of distributions from proceeds of asset sales involve risks and uncertainties. As such, it is impossible at this time to determine the ultimate amount of proceeds that will actually be distributed to our shareholders or the timing of such payments. Accordingly, no assurance can be given that the distributions will equal or exceed the estimate of net assets in liquidation presented in our Consolidated Statements of Net Assets.  The actual nature, amount and timing of all distributions will be determined by Gyrodyne’s Board in its sole discretion and will depend in part upon the Company’s ability to convert our remaining assets into cash in compliance with our obligations under the Stipulation of Settlement entered into in connection with the class action lawsuit (See Item 3 – Legal Proceedings) and settle and pay our remaining liabilities and obligations.  Under Gyrodyne’s Amended and Restated Limited Liability Company Agreement (the “LLC Agreement”), dissolution of the Company may be effected upon the vote of holders of a majority of Gyrodyne common shares or, in the Board’sCompany’s discretion and without any separate approval by the holders of the Gyrodyne common shares, at any time the value of Gyrodyne’s assets, as determined by the BoardCompany in good faith, is less than $1,000,000.

We intend to stay focusedremain committed on (1) enhancing the net value of Flowerfield and Cortlandt Manor to maximize the returns for our shareholders.shareholders, (2) completing the disposition of our assets, (3) making timely distributions to our shareholders, (4) managing capital and liquidity, (5) mitigating risks relating to interest rates and real estate cycles and (6) completing the liquidation of the Company.

After giving effect to the Company’s dispositions of real property through December 31, 2018,2020, the Company owns the following properties:

Each of the Cortlandt Manor medical office park in Cortlandt Manor and the Flowerfield Industrial Park (including its undeveloped portion) is individually owned in a single asset limited liability company wholly-ownedwholly owned by the Company.

Properties Sold

Port Jefferson Professional Park. During the years ended December 31, 2018 and 2017, the Company sold one building and three buildings, respectively, (approximately 4,000 square feet each) in the Port Jefferson Professional Park as follows:

Following the sales indicated above, the Company no longer owns any buildings in the Port Jefferson Professional Park.

Strategic Plan to Enhance Property Values, Liquidate and Dissolve

Our corporate strategy is to pursue entitlement opportunities intended to increase the values of our two remaining properties so that they can be sold to one or more developers at higher prices (than those achievable under their current entitlements) that will maximize distributions to our shareholders during the liquidation process.value and distributions. Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares. We are unable to predict the precise nature, amount or timing of such distributions. To accomplish this, the Company’s plan consists of:

Gyrodyne’s dual strategy is to enhance the value of Flowerfield and Cortlandt Manor by pursuing entitlement opportunities while simultaneously enhancing the value of its leases. The BoardCompany believes the aforementioned dual strategy will improve the chances of increasing the values for such properties. The value of the real estate reported in the statementsconsolidated statement of net assets as of December 31, 2018 and 20172020 (predicated on current asset values) doesincludes some but not includeall of the potential value impact that may result from such value enhancement efforts. There can be no assurance that our value enhancement efforts will result in property value increases that exceed the costs we incur in such efforts, or even any increase at all. Our efforts to generate the highest values for Flowerfield and Cortlandt Manor may involve, in limited circumstances, the pursuit of joint venture relationships, entitlements and other investments and/or other strategies to maximize the returns for our shareholders. The Company does not expect the pursuit of joint ventures, if any, to adversely affect the timing of the distributions to our shareholders.

The Company is making tenant improvements at Flowerfield to convert certain existing industrial space into office space pursuant to amended and new leases with Stony Brook University and institutions affiliated with it, respectively, which collectively comprise approximately 34,000 square feet of leases. In addition, the Company renewed and approximately doubled the footprint of a lease with an athletic facility to approximately 16,000 square feet. The planned tenant improvements for such respective leases signed in the year ended December 31, 2018 of approximately $1.80 million is associated with $6.4 million in rent commitments and will be financed with a non-revolving credit line (rather than cash on hand) secured by the Flowerfield industrial buildings and the specific tax lot they reside on. The Company has completed $1.4 million of the $1.8 million in tenant improvements. The balance, attributable to the new leases signed with an institution affiliated with Stony Brook University and an athletic facility in the third quarter of 2018, is expected to be completed by the second quarter of 2019. The additional value from leases signed with Stony Brook University and institutions affiliated with it and the athletic facility during the year ended December 31, 2018 and the estimated cost of the related tenant improvements were included in the respective financial statements in the period such values or costs were probable and estimable.

Sales of properties by Gyrodyne could take the form of individual sales of assets, as has been our recent experience in Port Jefferson, sales of groups of assets, a single sale of all or substantially all of the assets or some other form of sale. The assets may be sold to one or more purchasers in one or more transactions over a period of time.

A sale of substantially all of the assets of the Company would require shareholder approval under New York law. However, in the event of the sale of individual properties, that do not constitute substantially all of the Company’s assets, it is not required or anticipated that any shareholder votes will be solicited. The prices at which the various assets may be sold depend largely on factors beyond our control, including, without limitation, the condition of financial and real estate markets, the availability of financing to prospective purchasers of the assets, regulatory approvals, public market perceptions, and limitations on transferability of certain assets.

We cannot give any assurance on the timing of the ultimate sale of all of the Company’s properties. Assuming the liquidation process continues through June 30, 2020of seeking entitlements and selling assets is completed by December 31, 2022 and giving effect to the estimated cash flows from the operation of our existing properties, we expect that Gyrodyne will have a cash balance on December 31, 2022 of approximately $26.8$22.49 million, prior to any future special distributions based on the estimate of net assets in liquidation presented in our Consolidated Statements of Net Assets. Such cash would equate to future liquidating distributions of $18.11$15.17 per share based on Gyrodyne having 1,482,680 common shares outstanding. These estimated distributions are based on values aton December 31, 20182020 and doinclude some but not includeall of the potential value that may be derived from the entitlement efforts to maximize the value of Flowerfield and Cortlandt Manor. While the real estate market is dynamic and the economy is volatile, the Company believes that the increase in estimated distributions resulting from these enhancement efforts will exceed the remaining estimated $1.5 million investment in those efforts, although there can be no assurance of such excess or whether any appreciation at all will be realized.

The StatementConsolidated Statements of Net Assets is based on certain estimates. Uncertainties as to the precise value of our non-cash assets, which excludeinclude some but not all of the estimated potential additional value achievable from the costs incurred to pursue the maximum value on Flowerfield and Cortlandt Manor through the entitlement efforts (including the pursuit of special permits) and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value ultimately distributable to shareholders in a liquidation. Land entitlement costs, claims, liabilities and expenses from operations, including operating costs, salaries, incomereal estate taxes, payroll and local taxes, legal, accounting and consulting fees and miscellaneous office expenses, will continue to be incurred during our liquidation process of seeking entitlements and selling assets, which includes certain enhancement efforts. Excluding the value that may be achieved from the entitlement efforts, expenses incurred in pursuing the Company’s business plan will reduce the amount of assets available for ultimate distribution to shareholders, and, while a precise estimate of those expenses cannot currently be made, management and our Board believe that available cash (including amounts available under our credit facilities) and amounts received on the sale of assets will be adequate to provide for our obligations, liabilities, expenses and claims (including contingent liabilities) and to make cash distributions to shareholders. However, no assurances can be given that available cash (including amounts available under our credit facilities) and amounts received on the sale of the remaining assets will be adequate to provide for our obligations, liabilities, expenses and claims and to make cash distributions to shareholders. If such available cash and amounts received on the sale of assets are not adequate to provide for our obligations, liabilities, expenses and claims, there will be no further distributions of cash and other assets to our shareholders.  The Company intends to maintain reasonably adequate reserves to satisfy known and foreseeable liabilities.  Nevertheless, inshareholders would be eliminated. In the event our shareholders receive distributions from Gyrodyne and such reservesthere are insufficient funds to pay any creditors who seek payment of claims against Gyrodyne, shareholders could be held liable for payments made to them and could be required to return all or a part of the distributions made to them.

Property Transactions

Properties Under Contract

Flowerfield. On May 11, 2020, the Company’s wholly owned subsidiary GSD Flowerfield, LLC entered into a Purchase and Sale Agreement (the “Non-Contiguous Property Agreement”) for the sale of a 5.0-acre parcel of vacant land (the “Non-Contiguous Property”) that is non-contiguous to and not part of the Flowerfield complex in Smithtown, New York for a purchase price of $500,000. Under the Non-Continuous Property Agreement, $25,000 of the purchase price was deposited in escrow at signing with the $475,000 balance payable at closing, subject to Buyer’s right to terminate as described below.

Under the Non-Contiguous Property Agreement: (i) Buyer will have the right during an investigation period to conduct a phase 1 environmental survey and or other related analysis. Buyer will have the right to terminate the Non-Contiguous Property Agreement, during the investigation period, by written notice to GSD Flowerfield if Buyer is not fully satisfied, in its sole discretion, as to the status of title, suitability of the property and all factors concerning same, in which case Buyer will have the right to receive a refund of its down payment; (ii) unless Buyer terminates the Non-Contiguous Property Agreement on or prior to the end of the investigation period, the closing will occur on the 20th day following the earlier of (y) the Town of Smithtown’s granting of the Approvals (as defined in the Non-Contiguous Property Agreement and as described below); or (z) Buyer’s waiver of such Approvals.

The Non-Contiguous Property Agreement is also contingent on the receipt of a Certificate of Correction/Subdivision Plan (“Correction Plan”) signed and approved by the Town of Smithtown and the Suffolk County Department of Health Services (“SCDHS”) for the Non-Contiguous Property and the recharge basin and building Permits Approval (as defined in the Non-Contiguous Property Agreement and as described below). The Approval condition requires that the Buyer obtain the Correction Plan to create the two parcels and the recharge basin (as generally depicted in the Non-Contiguous Property Agreement) within a specified time (the “Approval Period”) following the last day of the investigation period.

The Correction Plan is specifically delineated in the Non-Contiguous Property Agreement. In March 2021, the Buyer received the Correction Plan signed and approved by the Town of Smithtown and the SCDHS for the Non-Contiguous Property and the recharge basin. As a result, the Company anticipates the closing to occur during the second quarter of 2021.

Termination of Purchase Agreements

The Company received notices on February 1, 2021 and on March 16, 2021 terminating purchase and sale agreements with respect to portions of the Company’s Cortlandt Manor and Flowerfield properties, respectively. See, “Part I, Item 1, Business – Subsequent Business Events – Contract Terminations”, and “Part II, Item 9B, Other Information – Subsequent Events – Terminated Contracts”.

Property Value Enhancement

The Company is pursuing entitlements to maximize the value of Flowerfield and Cortlandt Manor.Manor properties. During the year ended December 31, 2018,2020, the Company incurred approximately $1,261,000$1,014,000 of land entitlement costs, mainlyconsisting primarily of engineering costs to support the Company’s respective entitlement efforts. We estimate that the Company may incur approximately $1.5 million in additional land entitlement costs (an aggregate of approximately $321,000 of which Company vendors have agreed to defer until the first post subdivision property lot is sold) through June 30, 2020December 31, 2022 in pursuit of entitlements (approximately $465,000$500,000 in Cortlandt Manor and $1$1.0 million in Flowerfield).

The Company is focusing its resources on positioning the properties to be sold with all entitlements necessary to achieve maximum pre-construction values in the shortest period of time with the least amount of risk to the Company. During the process of pursuing such entitlements, the Company may entertain offers from potential buyers who may be willing to pay prices for the properties that the Company finds more attractive from a timing or value perspective than values we believe may be reasonably achievable through completing the entitlement process ourselves. While the real estate market is dynamic, the economy is uncertain and there can be no assurances, we anticipate that these expenditures will result in higher sale prices of the properties and larger liquidating distributions to our shareholders than could otherwise be achievable.

Cortlandt Manor. On March 15, 2016, the Town of Cortlandt Manor (the “Town”) adopted a 2016 Sustainable Comprehensive Plan (the “Plan”) of which one key strategy was the simultaneous creation of a Medical Oriented District. The purpose of the proposed Medical Oriented District (“MOD”) is to expand the Town’s existing medical infrastructure and encourage economic development, including capital investment, job creation and housing options. The MOD would allow for a continuum of care, i.e., independent living, assisted living and nursing/hospital care, within or in neighboring facilities by centralizing medical services and related activities. As a designated zoning district, the MOD could include hospital, ambulatory surgery, primary and urgent care, hospice, laboratories, social services, boutique hotels, retail and a wide range of housing.

The Company’s existing 33,871 square foot Cortlandt Medical Center, and its approximatesituated on 13.8 acres, areis located directly opposite New York Presbyterian’s Hudson Valley Hospital Center and within the boundaries of the MOD. The Company has committed resources toward both market research and feasibility studies in support of achieving entitlements to maximize the value of the property. For approximately threefour years the Company along with its planner and engineers have been working closely with the Town to identify issues and solutions involved in creating the Plan and more specifically, the MOD.

On April 20, 2017, the Company closed on the purchase of an approximate 0.3-acre property at a cost of $353,000, inclusive of closing costs.  The property is located adjacent to the Cortlandt Medical Center and is within the boundary of the MOD.  Although there can be no assurances, the property may provide additional vehicular access to the site from Buttonwood Drive and State Route 202 and additional parking which the Company believes will further increase the yield in a manner that is cost effective and provide a significant return on investment to the shareholders.

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

TheIn response to the extensive public comments and Town Board input received during the State Environmental Quality Review “(SEQR”) Draft Generic Environmental Impact Statement (“DGEIS”) public hearing process, the Company has been working with Town officials on entitlement complexity, environmental impact studies, traffic mitigation, effluent mitigation, financial impactamended the site plan and other variables to conform oursubdivision application with the Town’s vision onTown to develop the MOD. Cortlandt property as follows:

The entitlement costs for the yearsyear ended December 31, 2018 and 20172020 associated with the ownership and development of this property consisted of architectural and engineering costs, legal expenses, economic analysis, soil management, surveys and land acquisitions were $414,982 and $736,867, respectively. Total entitlement costs from the 2013 appraisal date were $1,717,265.approximately $200,000.

As a property owner with eligible parcels in this district, Gyrodyne submitted an Environmental Assessment Form to the Town of Cortlandt Planning Department in December 2017 to support its application to receive a MOD campus designation. Once designated, the parcels would be governed by the use, dimensional and other provisions of the MOD zoning regulations and MOD zoning would replace the existing zoning. While the MOD zoning has not been formally adopted, Gyrodyne is currently proposing a two-phase medical office and residential usecampus with limited retail and has designed the site to function as part of a future "hamlet center” with mixed use, streetscape improvements, a hamlet green and public plaza, and significant open space around Orchard Lake.improvements. The existing medical office will remain operational until phase 2 is implemented.

The Town of Cortlandt Planning Department hosted two public hearing community outreach meetings in June and August 2018 where the Company presented its development plan for the Cortlandt Manor property. As anticipated, on August 7, 2018, the Town Planning Board formally issued a “positive declaration” under the State Environmental Quality Review Act (“SEQRA”), i.e., a declaration that the project may result in one or more significant environmental impacts and will require the preparation of an Environmental Impact Statement (“EIS”), the scope of which was also adopted. On August 28, 2018, the Town filed the Scope for a Draft Generic Environmental Impact Statement (“GEIS”)DGEIS with input from Gyrodyne for both the MOD zoning and the proposed uses so that upon adoption, minimal further SEQRA review should be required to develop the property. On September 17, 2019, the Town of Cortlandt Town Board as Lead Agency under SEQR adopted a resolution accepting the DGEIS as complete for public review. The Town of Cortlandt Town Board hosted two public hearings on the DGEIS on November 19, 2019 and January 14, 2020. The Town of Cortlandt Planning Board extended the public comment period 90 days with the next public hearing scheduled for April 14, 2020. As a result of the New York State’s stay-at-home-order, the April 14, 2020 public hearing was postponed to June 2020. The public hearing was then held on June 16, 2020 on a virtual platform. The Town closed the public comment period on June 30, 2020 and is in the process of reviewing the public comments and preparing the Final GEIS. The Company anticipates the Final GEIS will reflect the Company’s Cortlandt Manor property proposed uses comprising 184,600 square feet of medical office space and 1,500 square feet of retail space. It is anticipated that the Final GEIS will be accepted by the Town Board with SEQR completed in the second quarter of 2021. Following such approval, we anticipate subdivision and site plan public hearings will complete its SEQRA process inoccur with the Town Planning Board during the fourth quarter of 2019. It2021 and the first quarter of 2022. The Town Board is noted thatanticipated to adopt a MOD designation for the property in early 2022 with subdivision approval granted by the Town planning consultant has been performingPlanning Board occurring in the traffic/transportation study over the past nine months, including extensive coordination with NYSDOT, which will comprise a substantial portionfirst quarter of the GEIS.2022. The Company does not plan on developing the property but rather positioning the propertiesproperty to be sold with all entitlements necessary to achieve maximum pre-construction value for the Company in the shortest period of time with the least amount of risk to the Company.

Flowerfield. Following market research and related feasibility studies, we identified the entitlements that we believe will maximize the value of Flowerfield in the shortest amount of time with the lowest amount of risk. The Company has been in discussions with the Town of Smithtown on the potential real estate development projects identified by the market research and feasibility studies, all of which currently fall within our “as of right to build” zoning. We are also exploring with the Town of Smithtown whether it would be amenable to certain entitlements, special permits, or other concessions that would allow for the identified development projects.

In March 2017, the Company filed a pre-subdivision application with the Town of Smithtown (the “Pre-application”) for the Flowerfield property along with the previously sold (2002) catering hall facility for an eight-lot subdivision which the Town of Smithtown has determined must be processed as a nine-lot subdivision in response to certain comments received from the planning department.department (The final approved (in 2021) FEIS included an eight-lot subdivision). In June 2017, the Company filed a subdivision application with the Town of Smithtown based on feedback provided by the Town of Smithtown staff in the pre-application process. Because of the property’s location within 500 feet of a municipal boundary and a state road, the Town of Smithtown referred the Company’s subdivision application to the Suffolk County Planning Commission as required by the Suffolk County Administrative Code and the New York State General Municipal Law.

On August 2, 2017, the Suffolk County Planning Commission voted 11-0 to approve Gyrodyne’s subdivision application without conditions. Although the approval by the Suffolk County Planning Commission is not binding on the Town of Smithtown, the approval without conditions means that the requisite vote threshold for the application at the Town of Smithtown’s Planning Board is a simple majority.

On November 15, 2017, the Town of Smithtown Planning Board conducted a public hearing where the Company presented its subdivision plan of the Flowerfield property. On April 11, 2018, the Planning Board determined that the subdivision plan may result in one or more significant environmental impacts which will require the preparation of an Environmental Impact Statement.Statement (“EIS”). As a result, at the April 11, 2018 Planning Board meeting, the Planning Board issued a SEQRA Positive Declaration, which was rescinded and re-issued by Planning Board Resolution dated May 9, 2018 to include a public scoping process. The then current Town Planning Board Chairman communicated that a Positive Declaration willwould require up to one year to complete the SEQRA process. The Town issued the Final Scope on July 7, 2018. On August 15, 2018, the Company submitted the EIS to the Town of Smithtown Planning Department prior to the public hearing. The Company received comments on its EIS at the end of the third quarter of 2018 and submitted its response to the Town of Smithtown Planning Department on February 15, 2019. In May 2019, the Company received additional comments on its EIS and submitted its responses to the Town on June 4, 2019. On July 3, 2019, the Company received additional comments on its EIS and submitted its response to the Town of Smithtown Planning Department on August 28, 2019. On September 24, 2019, the company received additional comments on its EIS and submitted its response to the Town of Smithtown Planning Department on September 25, 2019. The Town of Smithtown Planning Board as Lead Agency under SEQRA adopted a resolution accepting the DEIS as complete for public review on December 11, 2019 and announced a public comment period that closed on January 24, 2020. Furthermore, the Town Planning Board held and closed the public hearing for the DEIS on January 8, 2020. Following the closing of the public comment period, the Company received a copy of the public comments in February 2020, accordingly. The company reviewed the public comments and responded by submitting a Final EIS (“FEIS”) on April 20, 2020. Following the receipt of additional comments in June 2020, the Company filed its FEIS in September 2020 and received final comments on October 16^th, 2020. The Company filed its Final FEIS in November 2020 reflecting an eight-lot subdivision. The FEIS was accepted by the Town Planning Board on March 10, 2021.  Following a public comment period that closed on March 31, 2021, the Town of Smithtown will forward the public comments and the FEIS to the Suffolk County Planning Commission to who will vote accordingly within 45 days of receipt of a complete referral package from the Town of Smithtown.  The Town of Smithtown will review the County determination and the Town Planning Board will issue a Findings Statement.  Preliminary Approval of the subdivision may occur simultaneously or shortly after the Findings Statement.  Following Preliminary Approval, the Company will pursue technical approvals after which Final Subdivision approval will be applied for.

The entitlement costs for the yearsyear ended December 31, 2018 and 20172020 associated with the ownership and development of this property consisted of architectural and engineering costs, legal expenses, economic analysis, soil management and surveys were $846,066 and $981,253, respectively. Total entitlement costs from the 2013 appraisal date were $2,769,807. The Company owns an additional 5.2 acres bordering the industrial park that are currently zoned residential and are not part of the subdivision application.approximately $814,000.

While we cannot predict the outcome of the subdivision application, we have undertaken to subdivide the Flowerfield property in a manner that we believe will result in maximum pre-construction values in the shortest amount of time and limited risk.

Flowerfield Industrial Park Value Enhancement Strategy The pandemic has negatively impacted demand for office (including medical office) and hotel development “on spec”.The Company’s strategy is to: a) pursue entitlements to maximize the pre-construction value ofsubdivision plan at Flowerfield and b) enhance the valuewill allow for any combination of the Flowerfield Industrial Park’s current buildings even further by expanding our relationship with our largest tenant, Stony Brook Universityaforementioned uses and institutions affiliated with it.

The Company’s strategyis marketing the undeveloped lots to maximize the value of the Flowerfield Industrial Park includes repositioning the park’s industrial buildings to service Stony Brook University and institutions affiliated with it, inclusive of Stony Brook University Hospital, while also making it a cultural destination (arts, health and wellness center) for the community. The Company believes this strategy will enhance the value of the entitlements while also increasing the cashflow and market value of the industrial buildings.

Our business relationship with Stony Brook University and institutions affiliated with it is expanding. Effective October 24, 2017, the Company and the State of New York acting through Stony Brook University Hospital (“SBU Hospital”) entered into an amendment to the existing lease with SBU Hospital (approved by the New York State Controller’s Office on January 19, 2018) for the expansion of the existing space currently occupied by SBU Hospital from approximately 13,747 square feet at a rate of $24.76 per square foot to 26,573 square feet at rate of $19.00 (plus annual escalations) per square foot. The total lease commitment from the amendment net of the existing lease is approximately $3.5 million and extends through 2025. The lease amendment obligated the Company, at its sole cost and expense, to build out the additional 12,826 square feet (the “Additional Space”) and provide a "turnkey" facility in accordance with an agreed-upon work letter. The tenant took possession in the third quarter of 2018.

In addition, in September 2018, we entered into a new seven-year lease with an institution affiliated with SBU Hospital for approximately 4,800 square feet. The total lease commitment is approximately $600,000. The lease obligated the Company, at its sole cost and expense, to build out the 4,800 square feet and provide a "turnkey" facility in accordance with an agreed-upon work letter.

To finance the capital improvements, most of which relate to leasing activity, 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.  There is an interest only phase for the first eight months of the loan (“Interest-Only Phase”) after which it automatically converts to a permanent loan maturing on November 30, 2025 (84 months after conversion to a permanent loan) (the “Permanent Phase”).  The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent).  During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent but in no event less than 4.25%, plus principal based on a 20-year amortization period.  Permanent Phase interest rate currently would be 5.125%. reflect such flexibility.

On January 24, 2019, the Company amended and extended the Original Line which included extending the maturity date of the interest only phase to the earlier of January 20, 2020 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing the earlier of January 20, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”). The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than the initial interest rate in effect on the closing date (6.5%). During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period. Permanent Phase interest rate currently would be 5.125%.

The tenant improvements pursuant to above leasing activity with SBU Hospital and institutions affiliated with it are expected to cost approximately $1.48 million and are associated with rent commitments of approximately $4.1 million.  The first advance of $1.1 million was used to finance the work required for the lease amendment. The balance of the loan can be drawn upon for improvements to be completed by the Company, as landlord, pursuant to the new lease above and future leases with Stony Brook University or institutions affiliated with it (or other tenants subject to the bank’s approval) anytime during the Interest-Only Phase. 

The Company intends to draw an additional $1.1 million in 2019 to fund additional tenant improvements related to leases signed through December 31, 2018.

The loan is secured by approximately 31.8 acres of the Flowerfield Industrial Park including he related buildings and leases. The Company is in compliance with the loan covenants.    

Health Care Industry

Our tenants in our Cortlandt Manor property are healthcare service providers. Furthermore, the Company is repositioning the industrial buildings, in the Flowerfield Industrial Park, to expand and supporthas expanded its leasing relationship with Stony Brook University, and Stony Brook University Hospital.Hospital and affiliates of Stony Brook University Hospital at our Flowerfield property which may increase its exposure to the healthcare industry. The healthcare industry is subject to substantial regulation and faces increased regulation particularly relating to fraud, waste and abuse, cost control and healthcare management. 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.

The Patient Protection and Affordable Care Act of 2010 (the “ACA”) impacted the healthcare marketplace by decreasing the number of uninsured individuals in the United States through the establishment of health insurance exchanges to facilitate the purchase of health insurance, expanded Medicaid eligibility, subsidized insurance premiums and included requirements and incentives for businesses to provide healthcare benefits. The ACA remains subjectThere have been executive, judicial and Congressional challenges to continuing and increasing legislative and administrative scrutiny, including current efforts by Congress and the current presidential administration to repeal, alter and replace the ACA in total or in part. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets, but was able to enact legislation eliminating the tax penalty for individuals who do not purchase insurance. Additionally, the Centers for Medicare and Medicaid Services (“CMS”) discontinued providing cost-sharing reduction subsidies to insurance providers, which is expected to have the result of increasing the cost of insurance premiums. Further, CMS has begun approving waivers permitting states to alter state Medicaid programs by, among other things, requiring individuals to meet certain requirements, such as work requirements, in order to maintain eligibility for Medicaid. These and other actions may impact the insurance markets and reduce the number of individuals purchasing insurance or qualifying for Medicaid and may negatively impact the operations and financial condition of our medical office tenants, which in turn may adversely impact us. Congress may revisit ACA or Medicaid reform legislation in 2019. If the ACA is repealed or further substantially modified, or if implementation of certain aspects of the ACA. Although the U.S. Supreme Court has not yet ruled on the constitutionally of the ACA, are suspended,on January 28, 2021, President Biden issued an executive order that instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among other policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the Supreme Court ruling, other such actions could negativelylitigation, and the healthcare reform measures of the Biden administration will impact the ACA and the operations and financial condition of our medical office tenants, which in turn may adversely impact us.

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 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. In addition, efforts by third-party payors, such as the Medicare and Medicaid programs and private insurance carriers, including health maintenance organizations and other health plans, impose greater discounts and more stringent cost controls upon healthcare provider operations (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk or otherwise). 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.

The Company is pursuing entitlements on the Cortlandt Manor and Flowerfield properties, the value of which may be adversely affected by the aforementioned factors.

Real Estate

The Company owns properties in St. James and Cortlandt Manor, New York.

St. James, New York. In St. James, New York, the Company owns a 68-acre site called Flowerfield, primarily zoned for light industry, which is located approximately 50 miles east of New York City on the North Shore of Long Island in the Town of Smithtown. Approximately 5 acres of the 68 acres at Flowerfield, are non-contiguous to the Flowerfield industrial park and zoned residential. In May 2020, the Company’s wholly owned subsidiary, GSD Flowerfield, LLC, entered into a purchase and sale agreement for the sale of the 5-acre lot (See “Properties Under Contract” above). Flowerfield's location places it in Hydrogeologic Zone VIII, one of the most liberal with respect to effluent discharge rates. Gyrodyne currently has 127,573 square feet of rentable space located on approximately 10 acres of developed property at Flowerfield. As of December 31, 2018,2020, there were 3028 tenants, inclusive of 4including two tenants under month-to-month commitments, comprising 3630 leases. The annual base rent at Flowerfield based on the rates in effect as of December 20182020 is approximately $1,251,000$1,390,000 which included month-to-month annualized base rent of approximately $17,000$36,500 on 2,0285,650 square feet. The occupancy rate was 72%75% as of December 31, 2018. Upon completion of the respective tenant improvements associated with leases signed late in 2018, the occupancy rate will rise to 82% and reflect annualized revenue of approximately $1,374,000. 2020.

As discussed under Property Value Enhancements, new additions to the Flowerfield campus would be focused on uses supportive and beneficial to SBU. Furthermore, the connection with SBU via the existing LIRR crossing, which we are actively negotiating the re-opening of, will help to foster synergies between Flowerfield and SBU.  Consistent with this strategy, the Company is repositioning the industrial buildings to expand and support Stony Brook University. The Company expanded its leasing relationship with SBU and its affiliates from 16,420 square feet to 34,440 square feet or approximately 27% of the Flowerfield Industrial buildings rentable square feet. Furthermore, the company is actively discussing with SBU how Flowerfield could further support their needs.

Cortlandt Manor, New York. In Cortlandt Manor, New York, the Company owns 13.8 acres inclusive of the 33,871 square foot Cortlandt Medical Center. The property is located directly opposite New York Presbyterian’s Hudson Valley Hospital Center and within the boundaries of the MOD. The property consists of six office buildings. As of December 31, 2018,2020, there were 10four tenants, comprising 11four leases. The annual base rent based on the rates in effect as of December 2018,2020, is approximately $887,000.$740,000. The property was 96%73% occupied as of December 31, 2018. 2020.

Impact of COVID-19

The Companyfollowing discussion is actively repositioningintended to provide shareholders with certain information regarding the Cortlandt Manor property toward short-term leasesimpacts of the COVID-19 pandemic on the Company’s business and management’s efforts to allow forrespond to those impacts. Unless otherwise specified, the statistical and other information regarding the Company’s properties and tenants are estimates based on information available to the Company. As a more timelyresult of the rapid development, fluidity and efficient transition into a development property. During early 2019,uncertainty surrounding this situation, the Company terminated a long-term lease for 3,943 square feetexpects that such statistical and annual revenueother information will change, potentially significantly, going forward, and may not be indicative of $115,380. The Company is converting the leases for allactual impact of its Cortlandt Manor tenants upon lease expiration to short term leases to allow prospective buyers the maximum flexibility to begin development following receipt of site approvals.

On April 20, 2017, the Company closedCOVID-19 pandemic on the purchase of an approximate 0.3 acres in Cortlandt Manor, New York.  The purchase price, inclusive of closing costs, was approximately $353,000. The property adjoinsCompany’s business, operations, cash flows and financial condition for the Cortlandt Medical Centeryear ended December 31, 2021 and is within the boundary of the MOD. Although no assurances can be made, the property may provide additional vehicular access to the site from Buttonwood Drive and State Route 202 and additional parking which the Company believes will further increase the yield in a manner that is cost effective and should provide a significant return on investment to the shareholders.

As discussed under Property Value Enhancements, each of the parcels are located within the boundaries of the MOD.  Gyrodyne submitted an Environmental Assessment Form to the Town of Cortlandt Planning Department in December 2017 to support its application to receive a MOD campus designation. Once designated, the parcels would be governed by the use, dimensional and other provisions of the MOD zoning regulations and MOD zoning would replace the existing zoning. While the MOD zoning has not been formally adopted, Gyrodyne is proposing medical office and residential use with limited retail and has designed the site to function as part of a future "hamlet center” with mixed use, streetscape improvements, a hamlet green and public plaza, and significant open space around Orchard Lake.periods.

The spread of COVID-19 is having a significant impact on the global economy, the U.S. economy, the economies of the local markets in which the Company’s properties are located and the broader financial markets. Nearly every industry has been impacted directly or indirectly and has come under severe pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders. These containment measures, which generally do not apply to businesses designated as “essential,” have affected the operations of our tenants, as non-essential businesses generally have been forced to close. There is uncertainty as to the time, date and extent to which these restrictions will be relaxed or lifted, businesses of tenants that have closed, either voluntarily or by mandate, will reopen or when customers will re-engage with tenants as they have in the past. The Company’s properties and tenants have been impacted by these and other factors as follows:

The COVID-19 public health crisis has and will likely continue to adversely impact the timeline to secure entitlements and the sale of our real estate. Furthermore, the real estate market has and is expected to continue to be adversely affected which could further negatively impact the timing of sales and the resulting value of our real estate.

The Company has taken a number of proactive measures to maintain the strength of its business and manage the impact of COVID-19 on the Company’s operations and liquidity, including the following:

The extent of the impact of COVID-19 on the Company's operational and financial performance and ultimately its net asset value, will depend on current and future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions. The Company’s ability to operate seamlessly and limit any adverse impact on its forecasted net asset value will also depend, in part, on whether any of its key employees or key advisors are infected by the Coronavirus and become ill from COVID-19. The unanticipated loss or unavailability of key employees and advisors due to COVID-19 or any similar pandemic could harm our ability to operate our business or execute our business strategy.

Tax Status

Gyrodyne is structured as a limited liability company. As a limited liability company, Gyrodyne is not subject to an entity level income tax but rather is treated as a partnership for tax purposes, with its items of income, gain, deduction, loss and credit being reported on the Company’s information return, on Form 1065, and allocated annually on Schedule K-1 to its members pro rata.

Prior to January 1, 2018, the Internal Revenue Service (the “IRS”) would determine adjustments of income and deductions at the partnership level when auditing partnership tax returns, but was required to collect any additional taxes, interest and penalties from each of the partners.

The Bipartisan Budget Act of 2015 (the “2015 Act”) changed this procedure for partnership tax audits and audit adjustments for partnership returns of large partnerships for fiscal years beginning after December 31, 2017. Pursuant to the 2015 Act, if any audit by the IRS of our income tax returns for any fiscal year beginning after December 31, 2017 results in any adjustments, the IRS may collect any resulting taxes, including any applicable penalties and interest, directly from Gyrodyne. IRS tax audit assessments on tax years beginning January 1, 2018 will require Gyrodyne to a) bear any tax liability resulting from such audit, or b) elect to push out the tax audit adjustments to the respective shareholders once it has been calculated at the company level.

Competition

Our properties are located in St. James and Cortlandt Manor, New York. The Company competes in the leasing of medical, professional and general office space and engineering, manufacturing and warehouse space with a considerable number of other real estate companies, some of which may have greater marketing and financial resources than the Company and may generally be able to accept more risk than we can prudently manage, including risk with respect to creditworthiness of tenants. These entities and others may be prospective buyers, as well as competitors, with respect to both properties when we expect to sell such properties, which would be following the receipt of entitlements. Principal factors of competition in the Company’s rental property business are the quality of properties, leasing terms (including rent and other charges and allowances for tenant improvements), attractiveness and convenience of location, financial strength of its competitors, the quality and breadth of tenant services provided and reputation as an owner and operator of quality office properties in its relevant market. Additionally, the Company’s ability to compete depends upon, among other factors, trends in the national and local economies, investment alternatives, financial condition and operating results of current and prospective tenants, availability and cost of capital, construction and renovation costs, taxes, governmental regulations, legislation and population trends.

In pursuit of its business plan, and the sale of properties, the Company competes with other real estate investors, including pension funds, insurance companies, foreign investors, real estate partnerships, public and private real estate investment trusts, private individuals and other domestic real estate companies, many of which have greater financial and other resources than the Company. With respect to properties presently owned by the Company, it competes with other owners of like properties for tenants.

Internal Growth and EffectiveAsset Management

Tenant Relations and Lease Compliance Lease Compliance. We strive to maintain strong contacts with our tenants in order to understand their current and future real estate rental and development needs. We directly monitor each of our rental properties to ensure they are properly maintained and meet the needs of our tenants.

Extending Lease MaturitiesMaturities. We seek to extend leases at the Flowerfield Industrial Park in advance of expirations to achieve high occupancy levels. Additionally, our strategy includes expanding our leasing relationship with Stony Brook University which we believe will enhance the value of the existing buildings as well as the entitlements being pursued.

We are seeking to covertconvert the Cortlandt Manor leases to predominantly short-termlong-term leases with a landlord option to allow prospective buyersterminate the maximum flexibility to begin development following receipt of site approvals. The entitlements being pursued, if secured, would allow for a 100,000lease early contingent on the new100,000 square foot medical building andoffice buildings’ completion date. The strategy will improve the value of the operating lot (Lot 2) as it will allow Gyrodyne to market lot one using a 200-unit multitenant residential building.lower market-based cap rate plus a premium for development rights.

Financing Strategy

The Company believes it is currently well capitalized with adequate cash levels and adequate access to its credit facilities to operate our business and complete our strategic plan of positioning our remaining properties for sale at enhanced values and making liquidating distributions to our shareholders. The Company focuses its available capital to operate the Company and pursue the entitlements strategy.

To finance the capital improvements, most of which relate to leasing activity, 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. There wasThe Original Line included an interest only phase for the first eight months of the loan (“(as amended, the “Interest-Only Phase”). The Company amended and extended the Original Line which included extending the conversion date of the Interest-Only Phase”)Phase to the earlier of April 30, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on Novemberthe earlier of April 30, 2025 (842028 or 84 months after conversion to a permanent loan)loan (the “Permanent Phase”). The interest rate, as amended, during the Interest-Only Phase shall beis a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100150 basis points (1%(1.5% rounded up to the nearest 1/8 percent), adjusted daily, but shall not be less than 4.75%. During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, but in no eventshall not be less than 4.25%3.85%, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%3.85%.

The first advance of $1.1 million was used to finance the tenant improvements pursuant to the amended and expanded signed lease with Stony Brook University Hospital (“SBU Hospital”). An additional advance of $1.1 million was drawn on March 29, 2019 to finance the buildouts on leases signed through December 31, 2018. The balance of the loan can be drawn upon for improvements to be completed by the Company, as landlord, pursuant to future leases with the State University of New York or institutions affiliated with it (or other tenants subject to the bank’s approval) anytime during the Interest-Only Phase.

OnTo 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, 2019,2019. This loan included an interest only phase for the first twenty-four months of the loan (“Interest-Only Phase”) after which it automatically converts to a permanent loan maturing on January 20, 2028 (84 months after conversion to a permanent loan) (the “Permanent Phase”). The Company amended and extended the Original Lineline which included extending the maturityconversion date of the interest only phaseInterest-Only Phase to the earlier of JanuaryMay 20, 20202021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of JanuaryMay 20, 20272028 or 84 months after conversion to a permanent loan (the “Permanent Phase”).loan. The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than the initial interest rate in effect on the closing date (6.5%)4.75%. During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, but shall not be less than 3.85%, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%3.85%. The first advance, drawnPursuant to the terms of the loan, the bank is in March 2018,the process of $1.1 million was usedconverting the loan to financea permanent loan following the work required fordrawdowns of $1,580,068, $1,000,000 and $419,932 in 2019, 2020 and January 2021, respectively.

Both lines are secured by approximately 31.8 acres of the lease amendmentFlowerfield Industrial Park including the related buildings and leases. As of December 31, 2020, the Company is in compliance with Stony Brook University Hospital.the loan covenants. The Company intends to draw an additional $1.1 million in 2019 to fund additional tenant improvements related to leases signed through December 31, 2018.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.

To secure access to additional working capital, if needed, through the final sale date of the Flowerfield industrial buildings, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) secured a second loan evidenced by a secured non-revolving business line of credit agreement and promissory note with athe Original Line bank for up to $3,000,000,$2,500,000 which closed on JanuaryJuly 16, 2020. The term is 24 2019. There ismonths, with an interest only phaseoption to extend 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”).an additional 12 months. The interest rate during the Interest-Only Phase shall beis a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent)), but in no event less than the initial interest rate in effect on the closing date (6.5%). During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%but in no event less than four and three quarters percent (4.75%). The terms of the loan originally limited access to certain amounts, contingent upon GSD Cortlandt securing purchase and sale agreements for one or both Cortlandt Property lots. On February 22, 2021, the loan was amended to remove such limitation on draws. Advances of $379,765 and $670,235, were drawn at closing and on January 28, 2021, respectively. Under the line, the balance of $2,919,932 net of closing costs of $80,068,$1,450,000 is available to be drawn down.at the lender’s sole discretion.

Both areThe line is secured by approximatelythe Cortlandt property (13.8 acres) and cross collateralized by 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases. The only significant financial covenant associated with the loan is a debt service ratio on GSD Flowerfield, LLC of 1.35 to 1. The Company is in compliance with the loan covenants. The Company anticipates modifying the terms of the loanloans following the completion of its subdivision.   

Special Distributions. On June 16, 2017, the Company declared a Special cash distribution onsubdivision so that the Company’s shares of limited liability company interests of $1.00 per share, or $1,482,680 inloans remain cross collateralized by the aggregate, paid on July 7, 2017 to shareholders of record at the close of business on June 27, 2017.subdivided industrial park lot only.

Environmental Matters

We may order, on any of our properties, a Phase 1 environmental report and, when necessary, a Phase 2 environmental report. Based on a review of such reports, and our ongoing review of each of our properties, as of the date of this report, we are not aware of any environmental condition with respect to any of the properties which we believe would be reasonably likely to have a material adverse effect on our financial condition and/or results of operations. There can be no assurance that (i) changes in law, (ii) the conduct of tenants, (iii) activities related to properties in the surrounding area, (iv) contamination through the water table due to the low elevation and immediate proximity of the industrial park to the Long Island Sound or (v) the discovery of environmental conditions the extent or severity of which were unknown, will not expose us to material liability in the future.

The Company believes that each of its properties is in compliance, in all material respects, with federal, state and local regulations regarding hazardous waste and other environmental matters and is not aware of any environmental contamination at any of its properties that would require any material capital expenditure for the remediation thereof. No assurance can be given, however, that environmental regulations will not in the future have a materially adverse effect on the properties.

Insurance

The Company carries comprehensive liability, property, terrorism and umbrella insurance coverage which includes fire, flood, earthquakes and business interruption insurance on all our properties. The Company annually reviews its policies with regard to both risk management and the underlying premiums and believes the policy specifications, insurance limits and deductibles are appropriate given the relative risk of loss, the cost of the coverage and industry practice and, in the opinion of the Company’s management, all its properties are adequately insured.

Major Tenants

For the year ended December 31, 2018, pro forma2020, rental income (excluding revenue related to assets sold on or prior to December 31, 2018) from the Company’s three largest tenants represented approximately 21%24%, 21% and 6%9%, respectively, of total rental income.

The three largest tenants by revenue as of December 31, 2018,2020, consist of Stony Brook University Hospital, located in the industrial park, and twoa medical tenantstenant in the Cortlandt Manor Medical Center.Center and a tenant in the industrial park that previously expanded its space.

For the year ended December 31, 2017, pro forma2019, rental income (excluding revenue related to assets sold on or prior to December 31, 2018) from the Company’s three largest tenants represented approximately 16%23%, 11%20% and 7%, respectively, of total rental income.

The three largest tenants by revenue as of December 31, 2017, consisted2019, consist of a state agencyStony Brook University Hospital, located in the industrial park, another tenant in the industrial park (which vacated in August 2017) and a medical tenant in the Cortlandt Manor Medical Center.Center and a tenant in the industrial park that recently expanded its space.

The current economic challenges facing state and local budgets impacted all 3 of the Company’s largest tenants. During 2018, one of these tenants signed an amendment to its existing lease with us, including a seven-year extension of lease term and a 93% expansion of the existing space with a 23.3% reduction in rental rate per square foot. There can be no assurance that the remaining leases will renew for the same square footage, at favorable rates net of tenant improvements, if at all.

Fiscal Year 2018Year 2020 Transaction Summary

The following summarizes our significant transactions and other activity during the year ended December 31, 2018.2020.

Disposition Activity.

Financing Activity.Flowerfield -   To finance capital improvements, mostOn May 11, 2020, the Company’s wholly owned subsidiary GSD Flowerfield, LLC entered into a Purchase and Sale Agreement (the “Non-Contiguous Property Agreement”) for the sale of which relatea 5.0-acre parcel of vacant land (the “Non-Contiguous Property”) that is non-contiguous to leasing activity,and not part of the Flowerfield complex in Smithtown, New York for a purchase price of $500,000. See, “Business-Property Transactions--Properties Under Contract--Flowerfield”, above, for more detailed disclosure.

Leasing Activity.

During 2020, the Company signed four new leases comprising 2,105 square feet, annual base rent of approximately $36,800 and total lease commitments of approximately $82,400, excluding tenant reimbursements, at an average rate per square foot of $17.48, which were offset by ten terminations comprising 12,217 square feet, approximately $174,500 in annual revenue, excluding tenant reimbursements at an average rate per square foot of $14.28. The net impact was a decrease in annual lease commitments and rented square footage of approximately $137,700 and 10,112 square feet, respectively. A total of 22 lease renewals were signed during 2020 comprising approximately 36,600 square feet, $583,500 in annual revenue and $778,000 in total commitments. There were no incentives, lease concessions in the form of rent abatements or commissions paid during the year ended 2020.

Financing Activity.

To secure access to additional working capital, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) secured a loan evidenced by a non-revolving business line of credit lineagreement and promissory note with the Original Line bank for up to $3,000,000 (the “Original Line”) with a bank,$2,500,000 which closed on March 21, 2018.  There wasJuly 16, 2020. The term is 24 months, with an interest only phaseoption to extend for an additional 12 months. See, “Business—Financing Strategy”, above, for more detailed disclosure.

Deferred Compensation Plan

On December 6, 2019, the first eight monthsCompany’s Board of Directors (the “Board”) approved the Gyrodyne, LLC Nonqualified Deferred Compensation Plan for Employees and Directors (the “DCP”) effective as of January 1, 2020. The DCP is a nonqualified deferred compensation plan maintained for officers and directors of the loan (“Interest-Only Phase”) after which it automatically convertsCompany.  Under the DCP, officers and directors may elect to defer a permanent loan maturing on November 30, 2025 (84 months after conversion to a permanent loan) (the “Permanent Phase”).  The interest rate during the Interest-Only Phase shall be a variable rate equalportion of their compensation to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent).  During the Permanent Phase, the Company will payDCP and receive interest on such deferred payments at a fixed rate basedof 5%.  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 Federal Home Loan Bank ratedistribution 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. The foregoing description of the DCP does not purport to be complete and is qualified in its entirety by reference to the full text of the DCP, which was filed as an exhibit to the Company’s Form 8-K, filed with the Securities and Exchange Commission on November 2, 2018 and incorporated herein by reference. Each of the Directors elected (under the DCP) to defer 100% of their director fees for 2020 and 2021.

Subsequent Business Events

Termination of Purchase Agreements.

Flowerfield.On August 27, 2019, the Company’s wholly owned subsidiary GSD Flowerfield, LLC entered into a 7-year maturity as made available byPurchase and Sale Agreement (the “BSL Agreement”) for the Federal Home Loan Banksale of a 9.0-acre parcel of vacant land (the “BSL Agreement Property”) in the Flowerfield complex in Smithtown, New York plusfor $16,800,000 to BSL St. James LLC, a margin of 200 basis points (2%Delaware limited liability company (“BSL”) rounded up. The Agreement provided that BSL would have the right to terminate the BSL Agreement by written notice to GSD Flowerfield prior to the nearest 1/8 percent butexpiration of a defined inspection period (which had been extended via amendments to the BSL Agreement) if BSL was not fully satisfied, in no event less than 4.25%, plus principal based onBSL’s sole discretion, as to the status of title, suitability of the Property and all factors concerning same, in which case BSL would have the right to receive a 20-year amortization period.  The Permanent Phase interest rate currently would be 5.125%. refund of its earnest money deposit.

On January 24,March 16, 2021, the Company received a notice (the “BSL Termination Notice”) from BSL that it is terminating the BSL Agreement. The BSL Termination Notice referenced the foregoing termination right and requested the return of the earnest money deposit to BSL in accordance with the provisions of the BSL Agreement.

The BSL Agreement Property is included in the Company’s subdivision application with the Town of Smithtown, New York, to subdivide the entire Flowerfield property into eight separate parcels (one parcel of which is a catering hall facility sold by the Company in 2002). The Company believes the termination of the BSL Agreement should have no impact on the subdivision application, and will continue to actively market its entire Flowerfield property on the basis of eight subdivided lots subject to and contingent upon approvals for the subdivision and related entitlements.

Cortlandt Manor. As of December 7, 2019, the Company’s wholly owned subsidiaries GSD Cortlandt, LLC, a New York limited liability company and Buttonwood Acquisitions, LLC (together the “Cortlandt Subsidiaries”), executed a Purchase and Sale Agreement (the “SC Agreement”) for the sale of approximately 4.5 acres of its real property located in Cortlandt Manor, New York, together with improvements thereon (the “SC Agreement Property”) to Sound Cortlandt, LLC, a Delaware limited liability company (“SC LLC”) for a purchase price of $5,720,000.

The SC Agreement provided that SC LLC would have the right to terminate the SC Agreement by written notice to the Cortlandt Subsidiaries prior to the expiration of a defined inspection period (which had been extended via amendments to the SC Agreement) if SC LLC was not fully satisfied, in SC LLC’s sole discretion, as to the status of title, suitability of the SC Agreement Property and all factors concerning same, in which case SC LLC would have the right to receive a refund of its earnest money deposit.

On February 1, 2021, the Company received a notice (the “SC Termination Notice”) from SC, LLC that it is terminating the SC Agreement. The SC Termination Notice referenced the foregoing termination right and called for the Escrow Agent (as defined in the SC Agreement) to return the earnest money deposit immediately to SC LLC in accordance with the provisions of the SC Agreement.

The Company has made applications to the Town of Cortlandt (the “Town”) for a zoning amendment to rezone the entire Cortlandt property (owned by the Cortlandt Subsidiaries) into a Town Medical Oriented District (an “MOD) and to seek approval for a unified site plan. The Company’s original site plan at the time of executing the SC Agreement sought to subdivide its entire Cortlandt Manor property into three parcels for the development of (i) a medical office building with retail, (ii) a multi-family residential housing project and (iii) an open space, passive recreation parcel. The SC Agreement Property, which was the subject of the SC Agreement, is on the subdivision parcel in the original site plan for medical office building with ancillary retail space, but not on the multi-family residential housing parcel or the open space, passive recreation parcel.

In response to extensive public comments received during the Cortlandt Manor public hearing process and input from the Cortlandt Manor Town Board, the Company amended the site plan and subdivision application with the Town to reflect a two-lot subdivision comprising a combined total of 184,600 square feet of medical office space and 1,500 square feet of retail space. The Company believes that the Town Board is expected to adopt a MOD designation for the Company’s Cortlandt property (inclusive of the two-lot subdivision and conceptual site plan approval) in early 2022.

Leasing Activity. Subsequent to December 31, 2020, the Company signed one new lease and four lease extensions comprising approximately 6,000 square feet, $82,000 in annual revenue and $149,000 in total lease commitments.

Credit Facility. The Company amended and extended the Original Lineworking capital line which included extending the maturityconversion date of the interest only phaseInterest-Only Phase to the earlier of JanuaryMay 20, 20202021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of JanuaryMay 20, 20272028 or 84 months after conversion to a permanent loan (the “Permanent Phase).  The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than the initial interest rate in effect on the closing date (6.5%Phase”).  During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period.  The Permanent Phase interest rate currently would be 5.125%.  The first advance, drawn in March 2018, of $1.1 million was used to finance the work required for the lease amendment with Stony Brook University Hospital. The Company intends to draw an additional $1.1 million in 2019 to fund additional tenant improvements related to leases signed through December 31, 2018.

The line is secured by approximately 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases. The only significant financial covenant associated with the loan is a debt service ratio on GSD Flowerfield, LLC of 1.35 to 1. The Company is in compliance with the loan covenants. The Company anticipates modifying the terms of the loan following the completion of its subdivision.  

Disposition Activity. On August 31, 2018, the Company sold the final building located in the Port Jefferson Professional Park, 11 Medical Drive, for $800,000. 

Leasing Activity. During 2018, the Company signed six new leases comprising 9,565 square feet, annual base rent of approximately $142,900 and total lease commitments of approximately $867,500, excluding tenant reimbursements, at an average rate per square foot of $14.94, which were offset by five terminations comprising 3,350 square feet, approximately $39,400 in annual revenue, excluding tenant reimbursements at an average rate per square foot of $11.77. The net impact was an increase in annual lease commitments and rented square footage of approximately $103,500 and 6,200 square feet, respectively. A total of nineteen lease renewals were signed during 2018 comprising approximately 31,400 square feet, $366,500 in annual revenue and $535,500 in total commitments. In addition, there were a total of five expansion/downsizing signed in 2018 with a net increase of approximately 17,500 square feet, $118,900 in annual revenue and $5,112,000 in total commitments. The aforementioned leasing activity was all related to the Industrial Park; none of the 2018 leasing activity relate to buildings sold during 2018. As a result, the aforementioned activity is the same on a proforma basis to exclude assets sold. The Company provided approximately $1,737,000 in incentives in the form of tenant improvements and lease concessions in the form of rent abatement of approximately $46,000. The Company also paid commissions of approximately $348,000.

Retention Bonus Plan

In May 2014, the Board of Directors approved a retention bonus plan (as amended, the “Plan”) designed to recognize the nature and scope of the responsibilities of our directors, executives and employees related to the Company’s strategic plan to enhance the property values, liquidate and dissolve, to reward and incent performance in connection therewith, to align the interests of directors, executives and employees with our shareholders and to retain such persons during the term of such plan.  The Plan provides for bonuses to directors, officers and employees determined by the gross sales proceeds from the sale of each property and the date of sale. 

The Plan provides for a bonus pool that would be funded with an amount equal to 5% of the specified Adjusted Appraised Value of such properties (set forth in the Plan), so long as the gross selling price of the property is equal to or greater than 100% of its 2013 Adjusted Appraised Value as designated in the bonus plan.  The aggregate amount of the 2013 appraisals for the Company’s properties was utilized by the Company to help set the aggregate valuation of the real estate that was included in the non-cash dividend distributed on December 30, 2013.  Additional funding of the bonus pool would occur on a property-by-property basis when the gross sales price of a property exceeds the Adjusted Appraised Value defined as the sum of (i) its 2013 appraised value and (ii) land development costs incurred on a property since the date of the 2013 appraisal, as follows: 10% on the first 10% of appreciation, 15% on the next 10% of appreciation and 20% on appreciation greater than 20%.

The bonus pool is distributable in the following proportions to the named participants in the bonus plan for so long as they are directors or employees of the Company:

Such shares of the bonus pool are earned only upon the completion of the sale of a property at a gross selling price equal to or greater than its Adjusted Appraised Value and is paid to the named beneficiaries of the Plan or their designees within 60 days of the completion of such sale or, if later, within 60 days of receipt of any subsequent post-completion installment payment related to such sale.

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

There have been three amendments to the Plan, the first two of which were approved on May 24, 2016 and January 26, 2018, respectively.On October 30, 2018, the Board of Directors ofFebruary 22, 2021, the Company, approved Amendment No. 3through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) amended its line to remove the Plan (“Amendment No. 3”).  Amendment No. 3 amends the Plan to providecontingency that no benefits arerequired signed purchase and sale agreements on Cortlandt Manor to be paidable to participants from the sale of any individual post-subdivided lot from either of the Company’s Flowerfield or Cortlandt Manor properties until aggregate sale proceeds from all sales of post-subdivided lots from such property exceed a designated aggregate floor for such property.  The aggregate floor for each of the Flowerfield and Cortlandt Manor properties is defined in Amendment No. 3 as the 2013 appraisal of such property plus land development costs incurred for such property since such appraisal.

Payments made during the twelve months ended December 31, 2018 under the Plan relating to the sale of one building in the Port Jefferson Professional Park were as follows:

Subsequent Business Events

Leasing Activity. Subsequent to December 31, 2018, the Company signed three lease extensions comprising approximately 3,200 square feet, $45,000 in annual revenue and $89,000 in total lease commitments. Additionally, the Company signed one expansion and one reduction comprising no change in leased square footage but an increase in annual revenue of approximately $2,700 and $4,700 in total lease commitments.   

Subsequent to December 31, 2018, the Company has experienced three lease terminations comprising approximately 6,200 square feet with approximately $153,000 in annual revenue.

Credit Facility. On January 24, 2019, the Company amended and extended the non-revolving credit line with a bank which included extending the maturity date of the interest only phase to the earlier of January 20, 2020 (originally November 30, 2018) or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing 84 months after conversion to a permanent loan (the “Permanent Phase”). The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than the initial interest rate in effectdraw on the line. Advances of $379,765 and $670,235, were drawn at closing date (6.5%).  During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period.  The Permanent Phase interest rate currently would be 5.125%.  The first advance, drawn in March 2018, of $1.1 million was used to finance the work required for the lease amendment with Stony Brook University Hospital. The Company intends to draw an additional $1.1 million in 2019 to fund additional tenant improvements related to leases signed through December 31, 2018.

To secure access to additional working capital, if needed, through the final sale date of the Flowerfield industrial buildings, the Company secured a second loan evidenced by a secured non-revolving Business Line of Credit Agreement and Promissory Note with a bank for up to $3,000,000, which closed on January 24, 2019. There is an interest only phase for28, 2021, respectively. Under the first twenty-four months ofline, 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 interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than the initial interest rate in effect on the closing date (6.5%). During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%. The balance of $2,919,932 net of closing costs of $80,068,$1,450,000 is available to be drawn down.

Both loans are secured by approximately 31.8 acres ofat the Flowerfield Industrial Park including the respective buildings and related leases. The only significant financial covenant associated with the loan is a debt service ratio on GSD Flowerfield, LLC of 1.35 to 1. The Company is in compliance with the loan covenants. The Company anticipates modifying the terms of the loan following the completion of its subdivision.lender’s sole discretion.

Employees

As of December 31, 20182020 and 20172019 we had 4 employees.

Industry Segments

We operate in one segment; the ownership and management of industrial and medical office buildings.

Available Information

We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and proxy statements, with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information, which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from our website located at www.gyrodyne.com. We make available, free of charge, on or through the Investor Relations section of our website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as prospectuses and Proxy Statements, as soon as reasonably practicable following the electronic filing of such material with the U.S. Securities and Exchange Commission (“SEC”). Also available on our website is our Audit Committee Charter and our Code of Business Conduct and Ethics governing our directors, officers and employees. In addition, our web site includes information with respect to purchases and sales of securities by our officers, directors as well as any non-GAAP financial disclosures (defined by SEC’s Regulation G) that we may make public orally, or in writing. We are not incorporating our website or any information from the website into this Form 10-K.

Our Investor Relations department can be contacted at One Flowerfield, Suite 24, St. James, New York 11780, ATTN: Investor Relations or by Telephone: 631-584-5400.

Principal Executive Offices – Our principal executive office is located at One Flowerfield, Suite 24, St James, New York 11780. Our telephone number is 631-584-5400.

Item 1A. Risk Factors.Factors.

Gyrodyne’s business, financial condition, results of operations and liquidating distribution potential are subject to risks customary for real property owners, as well as additional risks associated with Gyrodyne’s strategic plan of positioning our remaining properties for sale at enhanced values and making liquidating distributions to our shareholders. In addition to the factors discussed elsewhere in this Report, the following risks and uncertainties could materially harm the value of our properties and the magnitude of distributions to our shareholders, including causing Gyrodyne’s actual results to differ materially from those projected in any forward-looking statements. The following summary of significant risk factors is not all-inclusive or necessarily in order of importance. Additional risks and uncertainties not presently known to Gyrodyne or that Gyrodyne currently deems immaterial also may materially adversely affect us in future periods. For more information about forward-looking statements, see the section of this report entitled “Cautionary Statement Concerning Forward-Looking Information” below.

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

For these and other reasons, we cannot assure you that we will realize growth in the value of our Flowerfield and Cortlandt Manor properties that exceeds our land entitlement costs or any at all, and as a result our ability to make distributions to our shareholders could be adversely affected.

ICommunity 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.

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

Our estimate of net assets on December 31, 2020 is $22.49 million or $15.17 per common share. These estimated amounts are based on a number of assumptions and factors outside of our control. The process of disposing of our real property assets in an orderly manner designed to obtain the best value reasonably available for such assets may fail to create value or may result in lower than expected value and may result in lower than expected proceeds, or in no proceeds, for distribution to our shareholders. The actual nature, amount and timing of all distributions will be determined by Gyrodyne in our sole discretion, and will depend on, and could be delayed by, among other things, sales of our real estate assets, claim settlements with creditors, resolution of outstanding litigation matters, payment of incentive bonuses to those employees and directors who are vested under the Retention Bonus Plan and unanticipated or greater-than-expected expenses. Examples of uncertainties that could reduce the value of or eliminate distributions to our shareholders include unanticipated costs relating to:

As a result, we cannot determine with certainty the amount or timing of distributions to our shareholders.

If we are unable to find buyers for our properties at our expected sales prices, distributions may be delayed or reduced.

In calculating our estimated net assets, we assume that we will be able to find buyers for all our properties at our estimated amounts. However, we may have overestimated the sales prices that we will be able to obtain for these properties or underestimated the costs associated with such sales. 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. 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.

lliquidityDistributions to shareholders may be delayed or reduced as a result of sale agreement provisions that allow purchasers to terminate agreements and/or result in purchaser defaults.

Purchase and sale agreements that we have entered into with respect to properties we previously sold contained provisions that gave the purchaser the right to terminate the agreement, for any reason or no reason, prior to the expiration of an evaluation period, and receive a refund of earnest money deposits, and it can be anticipated that agreements for future property sales will have similar provisions. The consummation of property sales for which we will enter into sale agreements in the future will also be subject to satisfaction of standard closing conditions. If any property sale contemplated by future sale agreements does not close because a purchaser exercises its termination right or defaults, or because of a failure of a closing condition or for any other reason, we will need to locate a new buyer for the property, which we may be unable to do promptly or at a price or on terms that are as favorable as contained in the original sale agreement. Many of the costs incurred due to a sale that fails to close are sunk costs with no future value and we will also incur additional costs involved in negotiating a new sale agreement for such property. These additional costs are not included in our projections. In the event that we incur these additional costs, distributions to our shareholders would be delayed or reduced.

Illiquidity of real estateand lacklack of diversificationmay make it difficult for us to sell properties or achieve satisfactory returns in one or more propertieswithin projected timelinestimelines..

Our assets consist substantially of real properties which are relatively illiquid assets. We may encounter difficulty in disposing of properties when tenants vacate either at the expiration of the applicable lease or otherwise. When we decide to sell a particular property, our ability to do so and the prices we receive on their sale may be affected by many factors, including the number of potential buyers, the number of competing properties on the market and other market conditions, as well as whether the property is leased and if it is leased, the terms of the lease. As a result, we may be unable to sell our properties for an extended period of time at the values disclosed in our Consolidated Statement of Net Assets, which would adversely affect our results of operations, liquidity and financial condition. We expect to complete our process of pre-development enhancement and liquidationsubsequent sale of all our properties by June 30, 2020.December 31, 2022. However, the illiquid nature of real estate and the short timeframe that we have chosen to complete the pre-development value enhancement and liquidation processsubsequent sale of assets could adversely impact the prospects for achieving our value enhancement and sale objectives and may ultimately result in an extension of the timeline and or additional costs for achieving our pre-development property value enhancement and liquidationasset sale objectives.

If our land entitlementand liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions to our shareholders may be delayed or reduced.

In order to obtain certain entitlements, permits and approvals, we may be required to prepare and present additional data to governmental authorities pertaining to the potential adverse impact that any proposed activities may have on the environment, individually or in the aggregate. Certain approval procedures may require preparation of studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site.

The Company estimates that it may incur approximately $1.5 million in additional land entitlementliquidation basis of accounting requires us to accrue all costs through June 30, 2020 to continue pre-development property value enhancement efforts, including the pursuitassociated with implementing and completing our plan of entitlements and special permits. Land entitlement costs, claims, liabilities and expenses from operations, including operating costs, capital expenditures, salaries, income taxes, payroll and local taxes, legal, accounting and consulting fees and miscellaneous office expenses, will continue to be incurred during the process of value enhancement and 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 $10,194,310. After we complete the sale of all our real properties, we will apply the proceeds of such dispositions first to settle any claims against Gyrodyne and then to make liquidating distributions to holders of Gyrodyne common shares.  Before making liquidating distributions on our common shares, we will need to pay or arrange for the payment of all our transaction costs incurred on the sales of our properties, including enhancements of certain properties, and all valid claims of our creditors, including obligations under our Retention Bonus Plan.$11,552,940. 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 liquidating distributions to our shareholders. To the extent that we have underestimated these costs in calculating our projections or we incur unforeseen additional costs, our actual liquidating distributions may be lower than our estimated net assets in liquidation.assets. In addition, if the claims of our creditors are greater than we have anticipated, or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced. Further, if a reserve fund is established, payment of liquidating distributions to our holders of common shares may be delayed or reduced.

Stipulation of Settlement prohibits us from selling our remaining properties at prices below December 2014 appraised valuesvalues..

On July 3, 2014, a purported shareholder of the Company filed a putative class action lawsuit against the Company, Gyrodyne Company of America, Inc. (the “Corporation”), Gyrodyne Special Distribution, LLC (“GSD”) and members of our Board of Directors (the "Action").  The complaint alleged, among other things, that (i) our directors breached their fiduciary duties or aided and abetted the breach of those duties in connection with the merger of the Corporation, and GSD into the Company (the “Merger”) and (ii) the Corporation and the directors breached their fiduciary duties by failing to disclose material information in the proxy statement/prospectus relating to the Merger. On August 14, 2015, the parties to the ActionCompany entered a Stipulation of Settlement (the "Settlement") providing for the settlement of a putative class action lawsuit against the Action, subject to the court's approval.Company and certain related parties.  Under the Settlement, Gyrodyne amended its proxy statement relating to the Merger with certain supplemental disclosures and agreed that any sales of its properties would be effected only in arm's-length transactions at prices at or above their appraised values as of 2014.

The 2014 aggregate appraised value for our properties was approximately $100,000 higher than the 2013 aggregate appraised value for such properties. As of December 31, 2018,2020, the aggregate appraised value of our remaining unsold properties was $8,401,000 higher thanexceeded the respective 2014 aggregate appraised value for such properties.

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 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. If the Company receives an offer prior to the completion of the entitlement process that it believes is in the best interests of the shareholders, it may nevertheless be prevented from consummating such transaction because of the price floor set in the Settlement. In addition, a severe downturn in the general economy or in the real estate market, or other negative factors beyond our control, may drive down the values of commercial real estate properties, or otherwise result in the values of our remaining properties being reduced to levels below the 2014 appraised values, in which case we may be prohibited under the Settlement from selling such properties. Such limitation on the options available to the Company may make it more difficult to accomplish our stated objective of completing the liquidation process of seeking entitlements and selling assets by June 30, 2020.December 31, 2022.

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.

Risks incidental to real estate ownership and managementmanagement..

Because our business plan is to pursue the opportunistic disposition of our properties, we do not expect to make any further investments other than to enhance the values of the Flowerfield and Cortlandt Manor properties which may include acquisitions of land and/or executing land swaps. Accordingly, an investment in Gyrodyne depends upon the financial performance and the value of our current portfolio of properties, which properties are subject to the risks normally associated with the ownership and management of rental properties and real estate in general. The risks associated with ownership and management of rental properties include the non-performance of lease obligations by tenants, leasehold improvements that will be costly or difficult to remove should it become necessary to re-rent the leased space for other uses, covenants in certain retail leases that limit the types of tenants to which available space can be rented (which may limit demand or reduce the rents realized on re-renting), rights of termination of leases due to events of casualty or condemnation affecting the leased space or the property or due to interruption of the tenant's quiet enjoyment of the leased premises, and obligations of a landlord to restore the leased premises or the property following events of casualty or condemnation. The risks associated with ownership and management of real estate in general include:

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

Gyrodyne is currently exploring enhancements of the value of our Flowerfield and Cortlandt Manor properties by pursuing various entitlement opportunities. The Board believes that the cost of doing so will be exceeded by the resulting increase in value in such properties. Our efforts to seek enhancements of such properties are subject to various risks, including the following:

Our shareholders may be liable to our creditors for an amount up to the amount distributed by us if our reserves for payments to creditors are inadequate.inadequate

The Company intends to maintain reasonably adequate reserves to satisfy known and reasonably foreseeable liabilities.  Nevertheless, inIn the event our shareholders receive distributions from Gyrodyne at a time when the Company is insolvent or is rendered insolvent thereby and such reservesthere are insufficient funds to pay any creditors who seek payment of claims against Gyrodyne, shareholders could be held liable under New York State’s fraudulent conveyance laws for payments made to them and could be required to return all or a part of distributions made to them. Under the New York Uniform Voidable Transactions Act signed into law on December 6, 2019, the reach-back period for voidable transaction claims other than claims based on fraud is reduced from six years to four years with respect to distributions made on or after April 4, 2020.

Our properties may subject us to known and unknown liabilities.

Our existing properties may have known and unknown liabilities for which we would have no recourse, or only limited recourse, to the former owners of such properties. As a result, if a liability were successfully asserted against us based upon ownership of an acquired property, we might be required to pay significant sums to settle it, which could adversely affect our financial results, cash flow and proceeds available for distribution. Unknown liabilities relating to properties could include:

If we are unable to maintain the occupancy rates of currently leased space and/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 liquidating 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 liquidation 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. Disposition proceeds and related distributions will be reduced to the extent that we receive less rental income than we expect. We may also decide in the event of a tenant default to restructure the lease, which could require us to substantially reduce the rent payable to us under the lease or make other modifications that are unfavorable to us.

We are subject to risks associated with the financial condition of our tenants.

Our tenants may experience a downturn in their business resulting in their inability to make rental payments when due. In addition, a tenant may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of such tenant’s lease and cause a reduction in our cash flow.  We cannot evict a tenant solely because of its filing for bankruptcy. A bankruptcy court, however, may authorize a tenant to reject and terminate its lease. In such a case, our claim against the tenant for past due rent and unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In any event, it is unlikely that a bankrupt tenant will pay the entire amount it owes us under a lease. The loss of rental payments from tenants would likely reduce proceeds from real property dispositions and distributions from such proceeds.

The Coronavirus pandemic has affected and will likely for the foreseeable future affect the markets in which our tenants operate and otherwise impact our facilities, which will adversely impact the businesses of our tenants and, in turn, our business, financial condition, results of operations and our ability to pay distributions. Not-for-profit corporations and tenants that are neither medical offices nor part of or affiliated with SBU or SBU Hospital, which together account for approximately 37% ($776,000) of the Company’s projected annual rental revenues for 2021, are expected to be adversely affected disproportionately by the economic ramifications of COVID-19.

The loss of a major tenant could adversely affect our financial condition.

We are and expect that we will continue to be subject to a degree of tenant concentration at certain of our operating properties. As indicated above, we are subject to risks associated with the financial condition of our tenants. In the event that a tenant occupying a significant portion of one or more of our properties or whose rental income represents a significant portion of the rental revenue at such property or properties were to experience financial weakness, default on its lease, elect not to renew its lease or file bankruptcy it would negatively impact our financial condition and, as a result, our distributions. Our existing leases with Stony Brook University Hospital and affiliates comprise approximately 21% of our total rentable square feet and the annual rent is expected to represent approximately 29%28% of our annual rental revenue for 2019.2021.

The two majorlargest medical tenantstenant in the Cortlandt Manor Medical Center represent 9% and 3%, respectively,represents 10% of our total rentable square feet.feet as of December 31, 2020. The annual rent from such tenant is expected to represent approximately 20% and 6%, respectively,24% of our annual rental revenue for 2019.2021.

We may experience increased operating costs, which might reduce our estimated net assets in liquidation and the sales prices received for our properties.

Our properties are subject to increases in operating expenses such as for cleaning, electricity, heating, ventilation and air conditioning, administrative costs and other costs associated with security, landscaping and repairs and maintenance of our properties. In general, under our leases with tenants, we pass through all or a portion of these costs to them. There can be no assurance that tenants will actually bear the full burden of these higher costs, or that such increased costs will not lead them, or other prospective tenants, to seek space elsewhere. If operating expenses increase, the availability of other comparable space in the geographic markets of our properties might limit our ability to increase rents; if operating expenses increase without a corresponding increase in revenues, our profitability could diminish thereby reducing our estimated proceeds on disposition of real properties and limit the amount and likely delay the timing of our distributions.

Some of our potential losses may not be covered by insurance.

We use our discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on our properties at a reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of the property and also may result in certain losses being totally uninsured. Inflation, changes in building codes, zoning or other land use ordinances, environmental considerations or other factors might not make it feasible to use insurance proceeds to replace a building after such building has been damaged or destroyed. Under such circumstances, the insurance proceeds, if any, received by us might not be adequate to restore our economic position with respect to such property. 

We may incur costs to comply with environmental laws.

The obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation, may increase our operating costs. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on or under the property. Environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances and whether or not such substances originated from the property.  Insurance that we maintain related to potential environmental issues on our properties may not be adequate to cover all possible contingencies. 

Our business, operations and timelines for pursuing entitlements, property sales and distributions of proceeds could be adversely affected by the Coronavirus pandemic.

The Coronavirus pandemic has affected and will likely for the foreseeable future affect the markets in which our tenants operate and otherwise impact our facilities, which in turn will adversely impact the businesses of our tenants and, in turn, our business, financial condition, results of operations and our ability to pay distributions.

Not-for-profit corporations and tenants that are neither medical offices nor part of or affiliated with SBU or SBU Hospital, which together account for approximately 37% ($776,000) of the Company’s projected annual rental revenues for 2021, are expected to be adversely affected disproportionately by the economic ramifications of COVID-19. Although, the duration and full extent of this disruption, the impact of COVID-19 on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus, the success of actions taken to contain or treat the coronavirus and reactions by consumers, companies, governmental entities and capital markets. We are actively working with our tenants to manage and mitigate the impact to COVID-19 on the Company’s operations, liquidity and resulting Net Asset Value.

The COVID-19 public health crisis may also adversely impact our efforts to secure entitlements and the sale of our real estate. Furthermore, the real estate market is expected also to be adversely affected which could further negatively impact the timing of sales and the resulting value of our real estate.

The extent of the impact of COVID-19 on the Company's operational and financial performance and ultimately its Net Asset Value, will depend in part on the duration and spread of the outbreak and related governmental or other regulatory actions. The Company’s ability to operate seamlessly and limit any adverse impact on its forecasted Net Asset Value will depend in part on whether any of its key employees is infected by the Coronavirus and becomes ill from COVID-19.

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

Our common shares are thinly traded and have substantially less liquidity than the average trading market for many other publicly traded companies.  Thinly traded stocks can be more volatile than stock trading in an active public market.  Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future. These factors include but are not limited to our announcement of developments related to our plan to sell our properties opportunistically (some of which are or may be the subject of enhancement efforts), stock performance of other companies deemed to be peers, news reports of issues related to REITs or other real property owners and the real estate market and market forces generally.  Over the past several years, the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies, including those in the real estate sector, have experienced wide price fluctuations that have not necessarily been related to operating performance.  Our stock price may fluctuate significantly in the future, and these fluctuations may be unrelated to our performance.  General market declines or market volatility in the future, especially in the real estate sector of the economy, could adversely affect the price of our common shares, and the current market price may not be indicative of future market prices.  There is no guarantee that an active trading market for our common shares will be maintained on Nasdaq, or that the volume of trading will be sufficient to allow for timely trades.  Investors may not be able to sell their shares quickly or at the latest market price if trading in our stock is not active or if trading volume is limited.  In addition, if trading volume in our common shares is limited, trades of relatively small numbers of shares may have a disproportionate effect on the market price of our common shares.  Therefore, our shareholders may not be able to sell their shares at the volume, prices or times that they desire.

If our common sharesshares are delisted from Nasdaq,Nasdaq, shareholders may find it difficult to dispose of their shares.shares.

We believe we are currently in compliance with all of our Nasdaq listing requirements. Nevertheless, there are no assurances that we will be able to sustain long-term compliance with Nasdaq’s stockholders’ equity requirement or minimum bid price requirement for continued listing, particularly as we reduce our overall assets through the distribution of sales proceeds to our shareholders. If we fail to maintain compliance with applicable Nasdaq listing requirements, our common shares may be delisted by Nasdaq involuntarily. In addition, even if we are successful in maintaining compliance with applicable Nasdaq listing requirements, our board of directors may decide that the costs of compliance and the demands of management time and Company resources required to maintain our Nasdaq listing are greater than the benefits received by the Company and its shareholders from being a listed company and that, accordingly, consistent with other cash management and cost reduction measures that we have implemented, we should voluntarily delist from the Nasdaq Capital Market. If our common shares were delisted from Nasdaq voluntarily or involuntarily, trading of our common shares most likely will be conducted in the over-the-counter market on an electronic bulletin Board established for unlisted securities such as OTCQX, OTCBX or OTC Pink which will reduce the market liquidity of our common shares. Delisting may result in lower levels of ownership and trading by institutional shareholders, who are generally guided by quantitative and qualitative investment standards such as market capitalization, minimum share price and liquidity, which in turn often produces lower trading volumes and reduced liquidity. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common shares. Also, many brokers will not allow customers to hold non-listed securities in managed accounts or place restrictions which inhibit holding or trading, and it is generally understood that brokers will not recommend non-listed securities to retail clients, perhaps not as official policy but rather as a practical reality. We cannot assure you that our common shares, if delisted from Nasdaq voluntarily, or if they would be delisted involuntarily by Nasdaq, will be listed on another national securities exchange or quoted on an over-the counter quotation system.

We do not anticipate making distributions other than distributions from property dispositions or of liquidation proceeds.

We have not paid any dividends other than the following special dividends/distributions:

We have a history of operating losses and we anticipate operating losses in the future. There can be no guarantee that we will have income to distribute other than proceeds from the sale of properties or of the Company, and we may not make any dividends or distributions in the future other than distributions of proceeds on the sale of the Company or any of our assets.

The value of our medical office park may be affected by factors in the healthcare industry.

On a pro forma basis to exclude assets sold, approximatelyApproximately 34,000 square feet of our rentable space and approximately 42%33% of our gross revenues for 20182020 was attributable to our medical office property. The medical office property is subject to various operating risks common to the healthcare industry, many of which are beyond our control, including the following:

Investment in medical parks is capital intensive.

Our medical properties require periodic capital expenditures and renovation to remain competitive. Maintaining our occupancy upon renewals or locating new tenants may require rent concessions, tenant improvements or a combination of both. Additionally, the recent federal healthcare legislation has caused some medical professionals to increase their space requirements. Our ability to relocate our tenants into more suitable space within our medical parks may be limited due to the size of the suites currently vacant and the willingness of tenants to relocate within the building.  Our ability to fund capital expenditures may be limited.

Federal health care legislation has affected medical office real estate.

Our tenants in our Cortlandt Manor property are healthcare service providers. The healthcare industry is subject to substantial regulationcurrently experiencing rapid regulatory changes and faces increased regulation particularly relating to fraud, wasteuncertainty; changes in the demand for and abuse, cost control andmethods of delivering healthcare management. The healthcare industry may experience a significantservices; changes in third-party reimbursement policies; expansion of applicable federal, stateinsurance providers into patient care; continuing pressure by private and governmental payors to reduce payments to providers of services; and increased scrutiny of billing, referral and other practices by governmental authorities. These factors may adversely affect the economic performance of some 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 medical office properties. The recent U.S. presidential election, coupled with a Republican-controlled Congress, makes the repeal and replacement of the Patient Protection and Affordable Care Act (the “Affordable Care Act”) a possibility. In 2017, Congress unsuccessfully sought to replace substantial parts of the Affordable Care Act with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets, but was able to enact legislation eliminating the tax penalty for individuals who do not purchase insurance. A shift toward less comprehensive health insurance coverage and increased consumer cost-sharing on health expenditures could have a material adverse effect on our tenants’ financial conditions and results of operationstenants and, in turn, their ability to satisfy their contractual obligations.our performance.

Our tenants are also 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. In addition, efforts by third-party payors, such as the Medicare and Medicaid programs and private insurance carriers, including health maintenance organizations and other health plans, impose greater discounts and more stringent cost controls upon healthcare provider operations (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk or otherwise). 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.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in the portfolio in response to changing economic, financial and investment conditions is limited.

The real estate market is affected by many factors that are beyond our control, including:

We are subject to risks stemming from the New York State budgets.

Our industrial park borders Stony Brook University and our leases with the University’s leases,University, including leases with the University’s affiliates, with us represent over 21% of our overall rentable space.  The New York State budget puts additional pressure on Stony Brook University, part of the State University of New York system, to cut costs.  Many of our tenants service the local area and may be adversely affected by a reduction in business from Stony Brook University. Stony Brook University and its affiliates currently have three leases with Gyrodyne.Gyrodyne comprising approximately 34,000 square feet and $648,000 in annual revenue.

Geographic concentration of our properties will make our business vulnerable to economic downturns in the New York metropolitan area.

All our remaining properties are located in the New York metropolitan area, specifically Northern Westchester and eastern Long Island. Economic conditions in these locations will significantly affect our revenues and the value of our properties. Business layoffs or downsizing, industry slowdowns, changing demographics, the COVID-19 pandemic and other similar factors may adversely affect the economic climate in these areas.  Any resulting oversupply or reduced demand for space in the New York metropolitan area would therefore have a disproportionate negative impact on our revenues.

We are subject to risks associated with renovations and capital improvements.

Our properties have an ongoing need for renovations and other capital improvements, including replacement of HVAC systems, parking lots, and other structural items.  Tenants often require us to make periodic capital improvements as a condition of renewing leases.  For the year ended December 31, 2018On average, we spentspend approximately $1,388,000$225,000 on capital improvements to our real estate portfolio.portfolio (excluding tenant improvements for long term tenants who expand their suites). Capital improvements and renovation projects may give rise to the following risks:

The costs associated with capital improvements on our properties could adversely affect our financial condition.

Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our tenant and other business relationships, all of which could negatively impact our financial condition.condition.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our tenant and investor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions, which could have a negative impact on our financial condition, operations, tenant and other business relationships or confidential information.

Our mortgage indebtedness could adversely impact the value of our sshareholders’hareholders’ investment if the value of the property securing the debt falls or if we are forced to refinance the debt during adverse economic conditions.

On March 21, 2018, our wholly owned subsidiary, GSD Flowerfield, LLC, closed onThe Company secured a non-revolving credit line with a bank for up to $3,000,000 (the “Original Line”), secured by approximately 31.8 acres with a bank, which closed on March 21, 2018. The Original Line included an interest only phase for the first eight months of the Flowerfield Industrial Park including the respective buildings and related leases and guaranteed by the Company.

On January 24, 2019, theloan (“Interest-Only Phase”). The Company amended and extended the Original Line which included extending the maturityconversion date of the interest only phaseInterest-Only Phase to the earlier of January 20, 2020April 30, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of January 20, 2027April 30, 2028 or 84 months after conversion to a permanent loan (the “Permanent Phase”). The interest rate, per the latest modification, during the Interest-Only Phase is a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 150 basis points (1.5% rounded up to the nearest 1/8 percent), adjusted daily, but shall not be less than 4.75%. During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, but shall not be less than 3.85%, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%3.85%.

On January 24, 2019, the wholly owned subsidiary, GSD Flowerfield LLC closed on aTo 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 ofagreement and promissory note with the Original Line bank for up to $3,000,000, secured by approximately 31.8 acres of the Flowerfield Industrial Park including the related buildings and leases and guaranteed by the Company.  There iswhich closed on January 24, 2019. This loan included an interest only phase for the first twenty-four months of the loan (“Interest-Only Phase”) after which it automatically converts to a permanent loan maturing on January 20, 2028 (84 months after conversion to a permanent loan) (the “Permanent Phase”). The Company amended and extended the line which included extending the conversion date of the Interest-Only Phase to the earlier of May 20, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing on the earlier of May 20, 2028 or 84 months after conversion to a permanent loan. The interest rate during the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent), but in no event less than 4.75%. During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, but shall not be less than 3.85%, plus principal based on a 20-year amortization period. Permanent Phase interest rate currently would be 5.125%3.85%.

If thereTo secure access to additional working capital, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) secured a loan evidenced by a non-revolving business line of credit agreement and promissory note with the Original Line bank for up to $2,500,000 which closed on July 16, 2020. The term is 24 months, with an option to extend for an additional 12 months. The interest rate is a shortfall betweenvariable rate equal to the cash flow fromdaily highest prime rate published by the mortgaged propertyWall Street Journal plus 100 basis points (1%), rounded up to the nearest 1/8 percent, but in no event less than four and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to shareholders may be reduced. In addition, incurring mortgage debt generally increases the riskthree quarters percent (4.75%). The terms of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan thatoriginally limited access to certain amounts, contingent upon GSD Cortlandt securing purchase agreements for one or both Cortlandt Property lots. On February 22, 2021, the Company amended this line to remove the contingency of contracts in order to draw. Advances of $379,765 and $670,235, were drawn at closing and on January 28, 2021, respectively. The balance of $1,450,000 is in default and our abilityavailable to pay cash distributions to our shareholders will be adversely affected.drawn upon the Lender’s discretion.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to pay distributionsdistributions to our shareholders.shareholders.

As of March 21, 2018, we had a non-revolving credit line for up to $3,000,000 (the “Original Line”) with a bank. The credit line provides for an interest only phase for the first eight months of the loan (“Interest-Only Phase”) after which it will automatically convert to a permanent loan maturing on November 30, 2025 (84 months after conversion to a permanent loan) (the “Permanent Phase”). The interest rate during the Interest-Only Phase will be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded up to the nearest 1/8 percent). During the Permanent Phase, the Company will pay interest at a fixed rate. Increases in interest rates during the Interest-Only Phase would increase our interest costs, which could reduce our cash flows and our ability to pay distributions to shareholders.

On January 24, 2019, the Company amended and extended the Original Line which included extending the maturityconversion date of the interest only phase to the earlier of January 20, 2020 (which has since been extended to April 30, 2021) or upon drawing down a total of $3,000,000 after which it automatically converts to a permanent loan maturing the earlier of January 20, 2027 or 84 months after conversion to a permanent loan (the “Permanent Phase”). The interest rate duringCompany amended and extended the Original Line which included extending the maturity date of the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded upearlier of April 30, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to the nearest 1/8 percent), but in no event less than the initial interest rate in effecta permanent loan maturing on the closing date (6.5%).  Duringearlier of April 30, 2028 or 84 months after conversion to a permanent loan.

On January 24, 2019, the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal basedwholly owned subsidiary, GSD Flowerfield LLC closed on a 20-year amortization period.  The Permanent Phase interest rate currently would be 5.125%.  The first advance, drawn in March 2018, of $1.1 million was used to finance the work required for the lease amendment with Stony Brook University Hospital. The Company intends to draw an additional $1.1 million in 2019 to fund additional tenant improvements related to leases signed through December 31, 2018.

To secure access to additional working capital if needed, through the final sale datenon-revolving line of credit of $3,000,000 secured by approximately 31.8 acres of the Flowerfield industrialIndustrial Park including the related buildings and leases and guaranteed by the Company secured a second loan evidenced by a secured non-revolving business line of credit agreement and promissory note with bank for up to $3,000,000, which closed on January 24, 2019.Company. There is 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 interest rate duringCompany amended and extended the line which included extending the conversion date of the Interest-Only Phase shall be a variable rate equal to the daily highest prime rate published by the Wall Street Journal plus 100 basis points (1% rounded upearlier of May 20, 2021 or upon drawing down a total of $3,000,000 after which it automatically converts to the nearest 1/8 percent), but in no event less than the initial interest rate in effecta permanent loan maturing on the closing date (6.5%earlier of May 20, 2028 or 84 months after conversion to a permanent loan (the “Permanent Phase”).  During the Permanent Phase, the Company will pay interest at a fixed rate based on the Federal Home Loan Bank rate for a 7-year maturity as made available by the Federal Home Loan Bank of New York plus a margin of 200 basis points (2%) rounded up to the nearest 1/8 percent, plus principal based on a 20-year amortization period. The Permanent Phase interest rate currently would be 5.125%.  The balance of $2,919,932 net of closing costs of $80,068, is available to be drawn down.

Both areTo secure access to additional working capital, the Company, through its subsidiary GSD Cortlandt, LLC (“GSD Cortlandt”) secured a loan evidenced by approximately 31.8 acresa non-revolving business line of the Flowerfield Industrial Park including the respective buildingscredit agreement and related leases. The only significant financial covenant associatedpromissory note with the loanOriginal Line bank for up to $2,500,000 which closed on July 16, 2020. The term is a debt service ratio on GSD of 1.3524 months, with an option to 1. The Company is in compliance with the loan covenants.extend for an additional 12 months.

See “Business—Financing Strategy”, above, for more detailed disclosure.

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

Legislative, regulatory or administrative changes could be enacted or promulgated at any time, either prospectively or with retroactive effect, and may adversely affect the Company and our shareholders. Gyrodyne is not subject to an entity level income tax but rather is treated as a partnership for tax purposes, with its items of income, gain, deduction, loss and credit being reported on the Company’s information return, on Form 1065, and allocated annually on Schedule K-1 to our shareholders pro rata. Tax legislation informally known as the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Cuts and Jobs Act”) was signed into law on December 22, 2017, generally effective for taxable years beginning on or after January 1, 2018. In addition to modifying income tax rates for individuals and corporations, the 2017 Tax Cuts and Jobs Act made certain changes to the tax treatment for pass-through entities, such as Gyrodyne. Shareholders are urged to consult a tax advisor regarding the implications of the 2017 Tax Cuts and Jobs Act on their shares in Gyrodyne.

Loss of key management personnel.

Our success depends to a significant extent upon the continuing efforts of Gary Fitlin, our Chief Executive Officer and Chief Financial Officer, and Peter Pitsiokos, our Chief Operating Officer. We have programs in place that have been designed to motivate, reward and retain such executive officers, including employment agreements and our Retention Bonus Plan.  Nevertheless, the loss or unavailability of either of our executive officers due to retirement, resignation, COVID-19 or otherwise could have a material adverse effect on our business, financial condition and results of operations in general, and our efforts to position our properties to maximize values and distributions to shareholders in particular, if we are unable to retain our executive officers.

Item 1B. Unresolved Staff Comments.

None

Item 2.Properties.2. Properties.

The executive office of the Company is located at 1 Flowerfield, Suite 24, St. James, New York and consists of approximately 3,256 square feet.

Real Estate Investments

The Company owns a 68-acre property located in St. James, in the Town of Smithtown on the North Shore of Suffolk County, Long Island, New York. The property currently has 127,573127,485 square feet of rental space and is approximately 82%75% occupied by 3028 tenants. In addition, the Company owns a medical office park which consists of seven buildings located in Cortlandt Manor, New York, just outside the city of Peekskill, New York. The property has 33,871 square feet of rental space and is currently 96%73% occupied by 104 tenants.

During 20182020 and 2017,2019, land entitlement costs incurred were approximately $1,261,000$1,014,000 and $1,718,000 (inclusive of a single-residence purchase for approximately $353,000),$1,422,000, respectively. The Company continues to believe the pursuit of entitlements will maximize the value of our properties and the estimated liquidating distributions.

Following the Merger, effective September 1, 2015, the Company adopted the liquidation basis of accounting and therefore reports the land and buildings on the Consolidated Statement of Net Assets at net realizable value. The net realizable value aton December 31, 20182020 is estimated to be $36,201,270.$39,050,000. This value excludesincludes some but not all of the increase in value the Company believes is achievable from enhancement efforts in Flowerfield and Cortlandt Manor.

The average age of the buildings on our properties is approximately 5960 years at Flowerfield and 2930 years at Cortlandt Manor. All facilities continually undergo maintenance repair cycles for roofs, paved areas, and building exteriors. The general condition of internal infrastructure, HVAC, electrical and plumbing is considered average for facilities of this age. The grounds feature landscaping, are neatly groomed and well maintained.

Approximately 5 acres of the 68 acres at Flowerfield, are non-contiguous to the Flowerfield industrial park and zoned residential. In May 2020, the Company’s wholly owned subsidiary, GSD Flowerfield, LLC, entered into a purchase and sale agreement for the sale of the 5-acre lot (See “Properties Under Contract” above).

There are four buildings in the Flowerfield Industrial Park with rental unit sizes ranging from 130 to 26,573 square feet. Given the location and size of rental units, the Flowerfield Industrial Park attracts tenants ranging in size from Stony Brook University and the Stony Brook University Hospital to many smaller companies that are not dependent on extensive material or product handling. In the five buildings located in the Cortlandt Medical Center, the rental size units range from 1,200 to 3,943 square feet and consist primarily of medical professionals.

The Company maintains a $100 million liability umbrella policypolicies and has insured certain buildings and rent receipts predicated on an analysis of risk, exposure and loss history. It is management's opinion that the premises are adequately insured.

The following table sets forth scheduled lease expirations on the properties as of December 31, 2018:2020:

The properties are located in St. James and Cortlandt Manor, both of which are in New York State. In June 2017, the Company filed a subdivision application for the Flowerfield property along with the previously sold catering facility totaling approximately 74 acres with the Town of Smithtown. The Company has an additional 5.2 acres bordering the industrial park that is currently zoned residential and is not part of the application. Additionally, the Company filed an application with the Town of Cortlandt Manor on the development of that property on March 31, 2017 (see, “—Property Value Enhancement”, above).

Item 3.3. Legal Proceedings.Proceedings.

Putative Class Action Lawsuit

On July 3, 2014, a purported stockholder of the Company filed a putative class action lawsuit against Gyrodyne Company of America, Inc. (the “Corporation”) and members of its Board of Directors (the "Individual Defendants"), and against Gyrodyne Special Distribution, LLC (“GSD”) and the Company (collectively, the "Defendants"), in the Supreme Court of the State of New York, County of Suffolk (the "Court"), captioned Cashstream Fund v. Paul L. Lamb, et al., Index No. 065134/2014 (the "Action").  The complaint alleged, among other things, that (i) the Individual Defendants breached their fiduciary duties or aided and abetted the breach of those duties in connection with the merger of the Corporation and GSD into the Company (the “Merger”) and (ii) the Corporation and the Individual Defendants breached their fiduciary duties by failing to disclose material information in the proxy statement/prospectus relating to the Merger.

On August 14, 2015, the parties to the ActionCompany entered into a Stipulation of Settlement (the "Settlement") providing for the settlement of a putative class action lawsuit against the Action, subject to the Court's approval.Company and certain related parties.  Under the Settlement, Gyrodyne amended its Proxy Statement on August 17, 2015 with certain supplemental disclosures and agreed that any sales of its properties would be effected only in arm's-length transactions at prices at or above their appraised values as of December 2014. The plaintiff, on behalf of itself and the members of the putative class it represents, agreed to release and dismiss with prejudice all claims that had or could have been asserted in the Action or in any other forum against the Defendants and their affiliates and agents arising out of or relating to the Merger and the other transactions alleged by plaintiff in its complaint, as supplemented.  On April 8, 2016, the Court entered a Final Order and Judgment approving the Settlement. By order of the same date, the Court also granted plaintiff’s application for an award of attorney’s fees and reimbursement of expenses in the amount of $650,000 which was paid in full in April 2016.

The 2014 aggregate appraised value of Gyrodyne’sfor our properties was approximately $100,000 higher than the 2013 aggregate appraised valuesvalue for such properties. As of December 31, 2018,2020, the aggregate appraised value of our remaining unsold properties was $8,401,270 higher thanexceeded the respective 2014 aggregate appraised valuesvalue for such properties. See, “Risk Factors – Stipulation of Settlement prohibits us from selling our remaining properties at prices below the December 2014 appraised values”.

General

In addition to the foregoing, in the normal course of business, Gyrodyne is a party to various legal proceedings. After reviewing all actions and proceedings pending against or involving Gyrodyne, management considers that any loss resulting from such proceedings individually or in the aggregate will not be material to Gyrodyne’s financial condition or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5.5. Market for Registrant’Registrant’s s Common Equity,, Related Stockholder Matters and Issuer Purchases of Equity Securities.Securities.

Market information

The Company’s common shares began trading on the Nasdaq Capital Market under the symbol “GYRO” beginning September 1, 2015. Prior to the Merger, the Corporation’s common shares (symbol: "GYRO") were traded in the Nasdaq Capital Market, the principal market from June 10, 1948. The Company believes it is currently in compliance with all of its Nasdaq listing requirements. See, “Risk Factors -- If our common shares are delisted from Nasdaq,Nasdaq, shareholders may find it difficult to dispose of their sharesshares”.

Approximate number of equity security holders of record (not including beneficial owners holding shares in street name).

The Company’s strategy has been to pursue entitlement opportunities intended to increase the values of our two remaining properties so that they can be sold to one or more developers at higher prices than otherwise possible, thereby maximizing distributions to our shareholders during the liquidation process of seeking entitlements and selling assets and then dissolving the Company. The value of the real estate reported in the Statement of Net Assets as of December 31, 20182020 (predicated on current asset values), doesincludes some but not includeall of the potential value impact that may result, if any, from such value enhancement efforts. There can be no assurance that our value enhancement efforts will result in property value increases that exceed the costs we incur in such efforts, or even any increase at all. Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares.

Future special distribution declarations are at the discretion of the Board.Company. The magnitude and timing of any special distributions will depend on our actual cash flow, proceeds generated from strategic sales of properties, our financial condition, capital requirements and such other factors as the BoardCompany deems relevant. The actual cash flow available to pay special distributions will depend on a number of factors including, among others, the factors discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report.

The Company does not have an equity compensation plan for its employees, officers or directors.

Sale of Unregistered Securities

None.

Equity Compensation Plan Information

As of December 31, 2018,2020, there were no equity compensation plans under which securities of the Company were authorized for issuance.

Issuer PurchasesIssuer Purchases of Equity Securities Equity Securities

None.

Item 6.6. Selected Financial Data.Data.

Not applicable.

Item 7.7. Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations.

Cautionary Statements Concerning Forward–Forward–Looking Statements.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. 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 and liquidation of such properties as soon as reasonably practicable, the effect of economic and business conditions, risks inherent in the real estate markets of Suffolk and Westchester Counties in New York, the ability to obtain additional capital in order to enhance the value of the Flowerfield and Cortlandt Manor properties, the potential effects of the recent COVID-19 pandemic on our business, operations and timelines for seeking entitlements and pursuing the sale of our properties and distributions to our shareholders, risks and uncertainties associated with any litigation that may develop in connection with our efforts to sell our properties strategically, including related enhancement efforts, and other risks detailed from time to time in the Company’s SEC reports. These and other matters the Company discusses in this Report, or in the documents it incorporates by reference into this Report, may cause actual results to differ from those the Company describes. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Overview

When we use the terms “Gyrodyne,” the “Company,” “we,” “us,” and “our,” we mean Gyrodyne, LLC and all entities owned or controlled by us, including non-consolidated entities. References to “common shares” in this report refer to Gyrodyne, LLC’s common shares representing limited liability company interests. We operate as a fully integrated, self-administered and self-managed real estate company focused on pursuing entitlements, owning, leasing and managing medical, commercial and industrial real estate. Our tenants include unrelated diversified entities with a recent emphasis on medical office parks and properties. Our properties are located in Suffolk and Westchester counties in New York, which are characterized by strong real estate markets.

As of December 31, 2018,2020, the consolidated portfolio consisted of two developed properties, consisting of 10 buildings with an aggregate of 161,444161,356 rentable square feet. The Company also owns undeveloped land parcels adjacent to developed properties for which alternative entitlement plans are currently being considered in order to enhance the value of the relevant primary property.

Factors Which May Influence Future Operations

Our operating focus is on maximizing cashflows and market value of our operating properties while we are securing entitlements with the objective of enhancing the value of our remaining properties and maximizing liquidating distributions to our shareholders as soon as reasonably practicable. As of December 31, 2018,2020, our properties were 85%75% leased to 4032 tenants. As of December 31, 2017, on a pro forma basis to exclude assets sold through December 31, 2018,2019, our properties were 68%82% leased to 3936 tenants.  The year over year increase in the gross portfolio occupancy percentage is primarily the result of the expanded leasing relationship with Stony Brook University and its affiliates, as well as the athletic facility. The expanded relationship is synergistic with the potential value associated with the entitlements being pursued on the undeveloped land.  The Company believes the two-pronged strategy of pursuing entitlements while expanding the relationship with Stony Brook University will support our strategic goal of maximizing the estimated liquidating distributions via maximizing the real estate value of our remaining portfolio.  During the last two years, the Company has almost doubled the space we are leasing to Stony Brook University and its affiliates which is a contributing factor to the increase in value of the real estate reported in the Statement of Changes in Net Assets. 

Our leasing strategy for 20192021 includes focusing on leasing vacant space, negotiating early renewals for leases scheduled to expire through 20192021 and identifying new tenants or existing tenants seeking additional space. A core part of our leasing strategy is to expand our leasing relationship with Stony Brook University which borders the Flowerfield Industrial Park. We believe expanding the leasing relationship with SBU will maximize the current value of the developed portion of the Flowerfield Industrial Park and ultimately the value of Flowerfield as a whole.

The Company is actively repositioning the Cortlandt Manor property toward short-termlong-term leases with a landlord option to terminate the leases early contingent on the new 100,000 square foot medical buildings’ completion date. The strategy will improve the value of the operating lot (Lot 1) as it will allow Gyrodyne to market lot one using a lower market-based cap rate plus a premium for a more timely and efficient transition into a development property. The Company is converting all of its Cortlandt Manor tenants upon lease expiration to short term-leases to allow prospective buyers the maximum flexibility to begin development following receipt of site approvals.rights.

Lease Expirations

The following is a summary of lease expirations and related revenues of leases in place aton December 31, 2018.2020. This table assumes that none of the tenantstenants’ exercise renewal options or early termination rights, if any, at or prior to the scheduled expirations:

The success of our leasing strategy will be dependent upon the general economic conditions and more specifically real estate market conditions and trends in the United States and in our target markets of Suffolk and Westchester Counties in New York. We cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current contractual rental rates.

We actively manage the renewal process. Historically, this has resulted in a very low turnover rate with our tenants. As a result, the Company continues to actively manage lease termination dates and often approaches tenants up to one year in advance to gauge renewal interest and negotiate related leases. Where a termination is likely, the Company begins marketing the property prior to termination to timely identify the market rent for the specific space, expected vacancy period and market demanded tenant concessions and incentives. During 2018, the Company provided approximately $1,737,000 in incentives in the form of tenant improvements and lease concessions in the form of rent abatement of approximately $46,000. The aforementioned incentives resulted in total lease commitments of approximately $6,400,000.

The Company may offer tenant concessions in the form of rent abatements rather than tenant improvements to maximize its working capital position. 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.

During 2018,2020, the Company incurred approximately $348,000 indid not incur any leasing fees or commissions but signed new leases and commissions in exchangerenewals for revenue commitments of approximately $6,286,000$860,000 with leases ranging from 1 yearsix months to 12three years. The leasing fees reflect a renewal cost rate of 5.5% of the related revenue commitments. The Company often renews leases without external brokers or other third-party costs which during 2018 resulted in an additional $229,000 in lease commitments. As a result, the total lease commitments signed during 2018 was approximately $6.5 million. The Company has approximately 29%20% of its annual leasing revenue up for renewal in 2019,2021, which compares unfavorablyfavorably to 27%36% of leases up for renewal in 2018.2020. 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 2018.

2020.

Critical Accounting Policies

Gyrodyne intends to dissolve after it completes the disposition of all of its real property assets, applies the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then makes liquidating distributions to holders of Gyrodyne common shares. Therefore, effective September 1, 2015 Gyrodyne adopted the liquidation basis of accounting. This basis of accounting is considered appropriate when, among other things, liquidation of the entity is “imminent”, as defined in ASC 205-30, Presentation of Financial Statements Liquidation Basis of Accounting. Under the LLC Agreement, the BoardCompany may elect, in its sole discretion and without any separate approval by shareholders, to dissolve the Company at any time the value of the Company’s assets, as determined by the BoardCompany in good faith, is less than $1 million. The LLC Agreement also provides that the Company will dissolve, and its affairs wound up upon the sale, exchange or other disposition of all the real properties of the Company. As a result, liquidation is “imminent” in accordance with the guidance provided in ASC 205-30.

Principles of consolidation - The consolidated financial statements include the accounts of Gyrodyne and all subsidiaries. All consolidated subsidiaries are wholly-owned.wholly owned. All inter-company balances and transactions have been eliminated.

Basis of Presentation - Liquidation Basis of Accounting –– Under the liquidation basis of accounting the consolidated balance sheet and consolidated statements of operations, equity, comprehensive income and cash flows are no longer presented. The consolidated statements of net assets and changes in net assets are the principal financial statements presented under the liquidation basis of accounting.

Under the liquidation basis of accounting, all the Company’s assets have been stated at their estimated net realizable value, or liquidation value, (which represents the estimated amount of cash that Gyrodyne will collect on the disposal of assets as it carries out the plan of liquidation), which is based on current contracts, estimates and other indications of sales value (predicated on current values).  All liabilities of the Company, including those estimated costs associated with implementing the plan of liquidation, have been stated at their estimated settlement amounts.  These amounts are presented in the accompanying statements of net assets.  These estimates are periodically reviewed and adjusted as appropriate.  There can be no assurance that these estimated values will be realized.  Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution.  The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the plan of liquidation.  The actual values and costs associated with carrying out the plan of liquidation may differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty.  These differences may be material.  In particular, the estimates of our costs will vary with the length of time necessary to complete the plan of liquidation, which is currently anticipated to be completed by June 30, 2020.December 31, 2022.  The Company is in the process of pursuing entitlements and density, 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 community groups.purchasers. The process will involve extensive analysis internally at the government entity level, as well as between government entities such as town planning departments and Gyrodyne and or purchasers, and will continue up until such time as entitlement and density decisions are made by the relevant government entities. We hopeThe Company hopes to secure favorable decisions on entitlements, and density so that we can then seek the sale of our remaining properties at higher prices (than those achievable under their current entitlements) and then proceed with the liquidation and dissolution of the Company. Any deviation in use or density between what we are pursuing in our entitlement efforts and what is ultimately permitted could have a material impact on value. The Company expects the process of pursuing entitlements, density, sales, liquidation and densitydissolution could takeextend through June 30, 2020December 31, 2022 with the ultimate timing to a certain extent managed by Gyrodyne but ultimately dependent and under the control of the applicable municipality’s planning board or other governmental authority.authority and or purchasers. Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to common shareholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying consolidated statements of net assets.

The Company’s assumptions and estimates (including the sales proceeds of all its real estate holdings, selling costs, retention bonus payments, rental revenues, rental expenses, capital expenditures, land entitlement costs, general and administrative fees, director and officer liability and reimbursement, post liquidation insurance tail coverage policy and final liquidation costs) are based on completing the liquidation by June 30, 2020.December 31, 2022. As previously stated, on an ongoing basis, Gyrodyne evaluates the estimates and assumptions that can have a significant impact on the reported net assets in liquidation and will update respective information accordingly for any costs and value associated with a change in the duration of the liquidation, as we cannot give any assurance on the timing of the ultimate sale of all the Company’s properties.

Management Estimates – In preparing the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and the liquidation basis of accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets, in liquidation, and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of receipts and expenditures for the reporting period.  Actual results could differ from those estimates.

The most significant estimates are the estimates on the net realizable value from the sale of our real estate, the estimated costs/time to pursue entitlements and the related timeline to complete the liquidation.

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.

Discussion of the Statement of Net Assets

Net assets in liquidation aton December 31, 20182020 and 2019 would result in estimated liquidating distributions of $22,487,944 and $31,369,637, or approximately $18.11$15.17 and $21.16 per common share.  This increaseshare, respectively, based on 1,482,680 shares outstanding. The decrease of $0.14$8,881,693 or $5.99 per share is mainly attributable to the decrease in the estimated liquidation value of the real estate, due to the current status of entitlement uses and market conditions, the extension of the liquidation period and additional land development costs, offset by a decrease in estimated selling costs and estimated retention bonus.

More specifically, in response to the extensive public comments received during the Cortlandt Manor SEQR DGEIS public hearing process and input from the December 31, 2017Cortlandt Manor Town Board, the Company amended the Cortlandt Manor site plan and subdivision application with the Town to develop the Cortlandt Manor property as follows:

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 mostly medical combined with the reduction in retail and the cancellation of the purchase and sale agreement on a portion of the Cortlandt Manor property resulted in a reduction of the estimated real estate value by approximately $3,820,000. The remaining decrease in value of approximately $5,400,000 is driven by the market decline in real estate value in Flowerfield that is directly related to and stems from the impact of the pandemic, including the termination of the BSL Agreement. The Town of Cortlandt has expressed preliminary demands for certain offsite improvements that are directly related to the higher traffic related to medical. Furthermore, the pandemic continues to adversely impact medical office but has created a significant demand for residential real estate. As a result, contingent on discussions with the Town of Cortlandt on the pandemic impact to the local market, we may further amend our site plan to include some residential component if doing so will provide a higher return with an equivalent timeline, although there can be no assurance that such amended plan will be approved.

Additionally, the pandemic has also adversely impacted demand for office (inclusive of medical office) and hotel development “on spec”. The Company’s subdivision plan at Flowerfield will allow for any combination of aforementioned uses and is marketing the undeveloped lots accordingly to reflect such flexibility.

The value degradation, of $9,220,000 net of the lower bonuses and selling costs of $1,767,038 and $439,203, respectively, directly reduced the estimated net assets in liquidation by $7,013,759 or $4.73 per share.

The comparability of $17.97 per common share is the result of increased property valuations and additional income from operations offsetCompany’s net assets on December 31, 2020 to future measurement dates may be significantly impacted by the increased retention bonus, capital improvements and the additional general and administrative and rental expenses required due to the change in timeline necessary to complete the related entitlement efforts from the endeffects of the 2019 to June outbreak of the COVID-19 pandemic.

The cash balance at the end of the liquidation period (currently estimated to be June 30, 2020,December 31, 2022, although the estimated completion of the liquidation period may change), excluding any interim distributions, is estimated based on the December 31, 20182020 cash balance of $3.05$1.63 million plus adjustments for the following items which are estimated through June 30, 2020:December 31, 2022:

The Company estimates the net realizable value of its real estate assets by using income and market valuation techniques. The Company may estimate net realizable values using market information such as broker opinions of value, appraisals, and recent sales data for similar assets or discounted cash flow models, which primarily rely on Level 3 inputs as defined under FASB ASC Topic No. 820, Fair Value Measurement. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted tenantcapital improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals, experience the Company has with its other owned properties in such markets and expectations for growth. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location and local supply and demand observations. To the extent the Company under estimatesunderestimates forecasted cash outflows (tenant(capital improvements, lease commissions and operating costs) or over estimatesoverestimates forecasted cash inflows (rental revenue rates), the estimated net realizable value of its real estate assets could be overstated.

The Company is pursuing various avenues to maximize total distributions to our shareholders during the liquidation process. The Company estimates that it will incur approximately $1.5 million (included in the statements of net assets as part of the estimated liquidation and operating costs net of receipts) in land entitlement costs overfrom January 2021 through the next eighteen months,end of the liquidation period, currently estimated to conclude on or about December 31, 2022, in an effort to obtain entitlements, inclusive ofincluding special permits. The Company believes the commitment of these resources will enable the Company to position the properties for sale with all entitlements necessary to maximize the Flowerfield and Cortlandt Manor property values.values and resulting distributions. During the year ended December 31, 2018,2020, the Company incurred approximately $1.3$1.0 million of land entitlement costs.costs, consisting primarily of engineering fees. The Company believes the remaining balance of $1.5 million (approximately $321,000 of which the Company’s service vendors have agreed to defer until the first post subdivision property lot is sold) will be incurred from January 20192021 through the end of the liquidation period. The Company does not intend to develop the properties but rather to commit resources to position the properties for sale in a timely manner with all entitlements necessary to achieve maximum pre-construction values. The costs and time frame to achieve the entitlements could change due to a range of factors including a shift in the value of certain entitlements making it more profitable to pursue a different mix of entitlements and the dynamics of the real estate market. As a result, the Company has focused and will continue to focus its land entitlement efforts on achieving the highest and best use.use while considering the time necessary to achieve such entitlements. During the process of pursuing such entitlements, the Company may entertain offers from potential buyers who may be willing to pay premiums for the properties that the Company finds more acceptable from a timing or value perspective than completing the entitlement processes itself. The value of the real estate reported in the statementsstatement of net assets as of December 31, 20182020 (predicated on current asset values) doesincludes some but not includeall of the potential value impact that may result from the estimated $1.5 million in land entitlement costs.efforts. There can be no assurance that our value enhancement efforts will result in property value increases that exceed the costs we incur in such efforts, or even any increase at all.

The Company is making tenant improvements at Flowerfield to convert certain existing industrial space into office space pursuant to amended and new leases with Stony Brook University and institutions affiliated with it, respectively, resulting in approximately 34,000 square feet of leases. In addition, the Company renewed and approximately doubled the footprint of a lease with an athletic facility to approximately 16,000 square feet. The planned tenant improvements for such respective leases signed in the year endednet assets on December 31, 2018 of approximately $1.80 million is associated with $6.4 million in rent commitments2020 ($22,487,944) and will be financed with a non-revolving credit line (rather than cash on hand) secured by the Flowerfield industrial buildings and the specific tax lot they reside on. The Company has completed $1.4 million of the $1.8 million in tenant improvements. The balance, attributable to the new leases signed with an institution affiliated with Stony Brook University and an athletic facility in the third quarter of 2018, is expected to be completed by early 2019. The additional value from leases signed with Stony Brook University and institutions affiliated with it and the athletic facility during the year ended December 31, 2018 and the estimated cost of the related tenant improvements were included in the respective financial statements in the period such values or costs were probable and estimable. There can be no assurance that the Flowerfield property will increase in value as a result of the tenant improvements or that any resulting increase in value of the Flowerfield property will exceed the cost of our planned tenant improvements including the cost of the related financing.

The net assets in liquidation at December 31, 20182019 ($26,846,670)31,369,637) results in estimated liquidating distributions of approximately $18.11$15.17 and $21.16, respectively, per common share (based on 1,482,680 shares outstanding), based on estimates and other indications of sales value (predicated on current assets values) which includes some but excludingnot all of the actual additionalpotential sales proceeds that may result directly or indirectly from our land entitlement efforts. TheSome of the additional value that may be derived from the land entitlement costsefforts is not included in the estimated liquidating distributions as of December 31, 2018.2020 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 costsefforts will enhance estimated distributions per share through the improved values (a large amount of which has already been included in the reported value for real estate held for sale) from the sales of the Flowerfield and Cortlandt Manor properties.properties net of the costs to achieve the improved values and other expenses. This estimate of liquidating distributions includes projections of costs and expenses to be incurred during the period required to complete the plan of liquidation. There is inherent uncertainty with these projections, and they could change materially based on the timing of the sales, improvedchange in values of the Cortlandt Manor and/or Flowerfield properties (whether market driven or resulting from the land entitlement effortsefforts) net of any bonuses if(if such values exceed the minimum values required to pay bonuses under the retention bonus plan,plan), favorable or unfavorable changes in the land entitlement costs, the performance of the underlying assets, the market for commercial real estate properties generally and any changes in the underlying assumptions of the projected cash flows.

The following table summarizes the estimates to arrive at the Net Assets in Liquidation as of December 31, 20182020 (dollars are in millions).