Medalist Diversified REIT, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet figures are as of March 31, 2022. The company is an externally managed REIT with retail, flex-industrial/office and hotel properties concentrated in Virginia, North Carolina and South Carolina.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $2.904 million | $2.672 million; up $232,000 (8.7%) |
| Operating income (loss) | $(234,000) | $125,000 |
| Net loss | $(980,000) | $(2.308) million |
| Net loss attributable to common shareholders | $(989,000); $(0.06) per share | $(2.278) million; $(0.39) per share |
| Operating cash flow | $693,000 | $207,000 |
| Cash used in investing activities | $(366,000) | $(45,000) |
| Cash from financing activities | $368,000 | $1.093 million |
At quarter end, cash was $4.630 million and restricted cash was $3.449 million. Total assets were $92.193 million, total liabilities $69.381 million, and total equity $22.812 million. Mortgage debt, net, was $54.354 million, plus $7.615 million associated with the hotel classified as held for sale. Total net mortgage debt was therefore $61.969 million. The company also reported $4.282 million of mandatorily redeemable preferred stock as a liability. The filing reports no off-balance-sheet arrangements.
Segment NOI, a company-defined non-GAAP measure, was $1.067 million for retail, $447,000 for flex, and $393,000 for hotels, totaling $1.907 million. Reported FFO was $387,000 and AFFO was $217,000; both are non-GAAP measures and should be considered alongside GAAP results.
Material changes versus Q1 2021
- Revenue increased mainly because the company owned Lancer Center, Greenbrier Business Center and Parkway for part of the 2022 comparison period. Retail revenue rose $331,000 and flex revenue rose $431,000; hotel revenue fell $530,000, primarily following the August 2021 sale of Hampton Inn.
- The company’s net loss narrowed by $1.327 million. Interest expense fell $1.593 million, largely because Q1 2021 included convertible-debenture costs and interest; this was partly offset by higher depreciation and amortization, impairments and share-based compensation.
- Operating cash flow increased $486,000. Cash and restricted cash totaled $8.079 million at March 31, 2022, versus $6.351 million at March 31, 2021.
- The company issued 1.120 million common shares under its standby equity purchase agreement for $1.189 million net proceeds and repurchased 268,070 shares for $286,000. Common shares outstanding at quarter end were 17.114 million.
Outlook, risks and notable items
- Management concluded it was probable the company could meet obligations due within one year of issuance and presented the statements on a going-concern basis. No numerical forecast or earnings guidance was provided.
- The Clemson Best Western was classified as held for sale. The company recorded a $176,000 impairment in Q1. On May 4, 2022, it contracted to sell the property for $10.15 million; closing is not assured. Its $7.75 million mortgage matures October 6, 2022, and management said it would seek refinancing if the sale did not close; refinancing success is not assured. The hotel’s university occupancy agreement, which supported 100% occupancy from September 2020 through March 2022, was expected to end in May 2022.
- On April 8, 2022, the company agreed to acquire Salisbury Marketplace, subject to due diligence and customary contingencies; closing is not assured. Subsequent to quarter end, it also reported $350,000 of additional SEPA proceeds from 325,732 shares.
- Two tenants defaulted and abandoned their premises, resulting in a $37,000 write-off of related lease intangibles. COVID-related tenant rent abatements continue to affect revenue; tenants had begun repaying deferred rent and were current on repayments as of the filing date. Management cautioned that pandemic effects, tenant defaults, local economic conditions and financing availability could adversely affect collections, liquidity and distributions.
- Debt and liquidity considerations include variable-rate LIBOR-linked loans, a 2022 Clemson mortgage maturity, and a Hanover Square loan rate reset in January 2023. The company reported covenant compliance at quarter end. Preferred stock carries an 8% cumulative dividend and is mandatorily redeemable in February 2025.
- Management reported disclosure controls were effective as of March 31, 2022 and no material change in internal control over financial reporting. No current litigation or material environmental contingency was reported.
Investor verification priorities
- Verify whether the Clemson Best Western sale closed, the final proceeds and costs, and how the October 2022 mortgage was repaid or refinanced.
- Track occupancy-agreement expiry and the resulting hotel revenue and cash-flow impact, alongside performance and collections at retail and flex properties.
- Review available unrestricted liquidity, capital needs, debt maturities, interest-rate exposure and compliance with loan covenants.
- Assess the effect of further SEPA issuances and share repurchases on dilution, cash resources and per-share results.
- Confirm the status and financing of the proposed Salisbury Marketplace acquisition and the sustainability of common and preferred dividends.