Star Equity Fund, LP (“Star Equity Fund” or “we”), a shareholder of Gyrodyne, LLC (Nasdaq: GYRO) (“Gyrodyne” or the “Company”), announced today its intent to nominate a slate of highly qualified director candidates for election to the Gyrodyne board of directors (the “Board”) at the Company’s 2022 annual meeting of shareholders. We believe significant change to the Board is needed to create value for all shareholders and we have identified a number of highly qualified candidates who would act in the best interests of all shareholders.
Gyrodyne shareholders have long suffered value destruction during the incumbent Board’s tenure. Following its class action settlement with shareholders in August 2015, Gyrodyne agreed to liquidate its then four-property real estate portfolio, return the proceeds to its shareholders, and dissolve the Company. Almost seven years have passed, and the Company has sold only two of those properties with the completion of the second sale occurring in August 2018, while management and the Board have been receiving compensation the entire time. With the Company’s Flowerfield and Cortlandt Manor properties yet to be sold, we have little confidence Gyrodyne will complete its liquidation any time soon. We believe the Company effectively has become a compensation vehicle for the incumbent Board at the expense of shareholders.
We are also concerned with the Board’s potential compensation tied to the dissolution process. The Company has a plan in place such that upon liquidation of its properties, 5% of the gross sale proceeds are allocated to its Board members and management as long as the proceeds exceed the properties’ appraised values. In addition, Board members and management earn a fee on any incremental gross proceeds in excess of the 2013 appraised value. We believe the liquidation bonus pool is egregious with 65% of the proceeds going to the Board, which unfairly benefits a poorly performing incumbent Board to the detriment of shareholders.
In addition, the incumbent Board has a track record of poor corporate governance. Proxy advisory firms ISS and Glass Lewis have noted numerous issues with Gyrodyne’s Board and corporate governance, notably in their reports related to the Company’s 2021 annual meeting of shareholders. These proxy advisory firms recommended a vote against the Company’s say-on-pay proposal in 2021 due to Gyrodyne having demonstrated poor responsiveness following shareholder dissent on the previous year’s say-on-pay proposal. Further, Glass Lewis recommended shareholders withhold votes from all Gyrodyne’s nominees in 2021 and cited the 34% withhold vote rate on the Company’s nominees at the 2020 annual meeting of shareholders as evidence for a “high level of shareholder disapproval.” This withhold rate jumped to a staggering 40% in 2021. Both firms also noted the incumbent Board lacks gender diversity.
We have requested Gyrodyne send us the director nominee questionnaire and the representation and agreement for shareholder nominees, which the Company is required to provide upon written request under its Limited Liability Company Agreement, as amended (“LLC Agreement”). Unfortunately, the Company has not responded to our request. Should Gyrodyne continue to refuse to provide these materials to us on a reasonable timeframe, we are fully prepared to take all actions necessary to enforce our rights to the fullest extent of the law and under the Company’s LLC Agreement. We have repeatedly attempted to reach the Company through various means including via US Postal Service, FedEx, e-mail, and telephone.
Additionally, Gyrodyne’s LLC Agreement requires a nominating shareholder to have held at least $2,000 worth, or 1%, of the Company’s common stock for at least one year or be entitled to cast votes with respect to at least 5% of the Company’s outstanding shares. We have held our shares for less than one year, so we do not meet this threshold. We strongly believe that this requirement inhibits shareholder participation and serves as an entrenchment mechanism for the incumbents. We request that Gyrodyne waive these prohibitive requirements in order to facilitate shareholder input at the Company.
Gyrodyne’s long-suffering shareholders deserve better and we aim to give them an opportunity for much-needed change on the Board.