Gyrodyne (GYRO) Update 2
Several things have happened since I first wrote my report on Gyrodyne. Most importantly, an excellent interview with The Wall Street Transcript was recently conducted which helps shine some light on Gyrodyne’s assets and creates better transparency. I summarize this report below and give some commentary. I believe that my thesis remains in tact, and arguably shares are cheaper than they were when the first report was written.
First, Cortlandt Manor medical center was acquired on June 2nd for $7M. According to COO Peter Pitsiokos in an interview with the Wall Street transcript, the Gyrodyne is position itself in healthcare properties for the following reason:
“The stability and recession-resistant nature of
medical office product make it a particularly
appealing asset class. Hospitals currently are
working to monetize their assets, and they are
selling their affiliated office properties and
reinvesting in areas more directly related to
their healthcare offerings. To that end, there are
opportunities for investors, like Gyrodyne, to
add quality properties to our portfolios.”
In my view, this may be an intelligent decision as it helps lever company revenues to the long term secular demographic trend of an aging population, as well. Pitsiokos says that the cap rates across all asset classes tend to be in the 7-cap range, but that Gyrodyne was able to get Cortlandt Manor at a 9.8 cap rate.
Second occupancy rates for Flowerfield, Port Jefferson, and Cortlandt remain at rates above 90%. Cortlandt and Port Jefferson are at 97%, while Flowerfield is at 92%. Flowerfield was originally at at 70% occupancy rate, partly due to increased demand and partly due to decent execution by management.
Third, the average rental rates look decent. Flowerfield enjoys a rental rate of $13.5 per square foot compared to the average rental rate of $7-$8 per square foot on Long Island. Port Jefferson has rental rates in the mid-to-low 20s, but market rates are higher, so new rental rates are typically around $24-$25. Cortlandt Manor has rental rates just below $30, around where rates are capped in Westchester County [a fairly affluent county in the tri-state area].
Finally, Mr. Pitsiokos says that Gyrodyne is open to an acquisition by another company, but that its court claim needs to be resolved first before any acquisition will likely be made. The court continues to be slow in resolving the company’s eminent domain compensation case, but my base case valuation only considered assets that were already there. Winning the court case would be icing on the cake, but not necessary for a satisfactory return.