Medalist Diversified, Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. This is an annual filing, not a standalone fourth-quarter report. The company is a REIT focused on retail and flex/industrial properties in the southeastern United States. At year-end it held eight investments: five retail and three flex/industrial properties.
Financial performance and position
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Total revenue | $10.27 million | $11.09 million |
| Net loss | $4.57 million | $4.73 million |
| Net loss attributable to common shareholders | $4.57 million; $2.06 per share | $4.77 million; $2.23 per share |
| Property net operating income (NOI; non-GAAP) | $7.61 million | $7.11 million |
| FFO / AFFO (non-GAAP) | $0.09 million / $(1.27) million | $1.00 million / $0.24 million |
| Cash from operating activities | $0.10 million | $1.19 million |
| Cash and restricted cash | $3.81 million, including $2.23 million unrestricted | $5.66 million |
| Total assets / total equity | $82.75 million / $13.73 million | $87.92 million / $18.69 million |
| Mortgage principal / line of credit | $60.98 million / $1.00 million | $62.07 million / none |
FY2023 revenue fell 7.4%, primarily because the Clemson hotel sold in 2022 contributed no revenue in 2023. Retail revenue increased $0.71 million, including a full year of Salisbury Marketplace operations, while flex revenue was slightly lower. Property NOI rose about 7.0%; however, operating cash flow decreased sharply, and AFFO moved from positive to negative, including $1.48 million of capital expenditures.
Operating expenses included $2.07 million of management restructuring costs and $4.57 million of depreciation and amortization. Interest expense was $3.54 million, approximately unchanged year over year. The common dividend paid was $0.16 per share in 2023 versus $0.56 in 2022; a $0.01-per-share dividend was paid in February 2024.
Material changes, outlook and risks
- Management: The external management agreement ended July 18, 2023, and the company became internally managed. Restructuring costs included a $1.25 million termination fee, legal expenses and lender fees.
- Portfolio and strategy: The company is evaluating single-tenant net-lease opportunities. It agreed to sell the Hanover Square shopping center for $13.0 million, later reduced by $75,000 for repairs; the sale was expected to close in March 2024. The company estimated proceeds of approximately $2.6 million. The separate Hanover outparcel was excluded from that sale.
- Proposed related-party acquisition: In February 2024, the company agreed to acquire the Citibank Property from an entity controlled by its CEO, with consideration in Operating Partnership units valued at $5.75 per unit. Closing conditions remained outstanding; completion was not assured.
- Liquidity and redemption: The $1.5 million Wells Fargo line of credit had $1.0 million outstanding and matured June 9, 2024. The company was negotiating an extension, with no assurance of success. It must redeem $5.0 million of 8% Series A preferred stock on February 19, 2025; the filing identifies cash, operations, asset-sale proceeds and potential financing as possible sources, but states that sufficient funding is not assured.
- Debt and covenant exposure: The Hanover Square loan had a 6.94% rate and a $9.64 million balance classified with assets held for sale. The company was not meeting that loan’s debt-service-coverage covenant at year-end; the lender called it a technical default and said it did not intend to act while payments remained current and a sale was anticipated. Parkway debt was variable-rate, at 7.05% at year-end, with an interest-rate protection arrangement. The Wells Fargo mortgage facility had a $17.94 million balance and a June 2027 maturity.
- Operations and concentration: Year-end occupancy ranged from 85.3% at Salisbury Marketplace to 100% at several properties. Three tenants defaulted and vacated, and another terminated early, resulting in impairment write-offs. All portfolio base revenue was concentrated in Virginia, North Carolina and South Carolina; anchor-tenant loss, local economic weakness and refinancing or interest-rate risk could affect results.
- Other disclosures: Management concluded that it was probable the company could meet obligations within one year and presented the statements on a going-concern basis. The auditor issued an unqualified opinion on the financial statements; no auditor attestation of internal control over financial reporting was provided.
The filing does not provide specific earnings or operating guidance for FY2024. Management says it intends to continue evaluating strategic and acquisition options, but gives no assurance that those plans will be completed.
Key investor verification points
- Confirm closing proceeds, debt repayment and final disposition accounting for the Hanover Square sale, and whether its outparcel purchase closed.
- Track the June 2024 line-of-credit extension or repayment, available unrestricted cash, and the funding plan for the February 2025 preferred-stock redemption.
- Review the Hanover covenant status and confirm compliance with all other mortgage covenants after the sale and guaranty changes.
- Assess the Citibank related-party transaction’s final terms, conflicts review, unit issuance and closing conditions.
- Reconcile the continuing decline in operating cash flow and negative AFFO with capital spending, lease-up needs and common-dividend capacity.
- Monitor tenant defaults, occupancy and lease expirations, especially at Salisbury Marketplace and properties with material near-term lease maturities.