Medalist Diversified, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The REIT owned eight retail and flex-industrial/office properties across Virginia, North Carolina and South Carolina. The Clemson hotel sold in September 2022, so it contributed no 2023 revenue.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $2.516 million | $2.596 million | $4.977 million | $5.500 million |
| Operating loss | $74,256 | $163,107 | $414,972 | $397,505 |
| Net loss | $861,899 | $1,007,939 | $2.096 million | $1.988 million |
| Net loss attributable to common shareholders | $877,664 | $1.015 million | $2.099 million | $2.004 million |
| Loss per common share | $(0.40) | $(0.47) | $(0.95) | $(0.96) |
| Property NOI | $1.795 million | $1.653 million | $3.532 million | $3.560 million |
Q2 interest expense was $848,408; six-month interest expense was $1.712 million. Six-month operating cash flow was $862,923, down from $1.574 million. Investing used $740,959, mainly for capital expenditures; financing used $977,118. Six-month FFO was $264,752 and AFFO was negative $492,966, both non-GAAP measures.
At June 30, total assets were $85.324 million, total equity $16.217 million, and mortgages payable were $60.797 million net of issuance costs ($61.468 million principal). Cash was $2.771 million, with a further $2.037 million restricted. The $1.5 million Wells Fargo line of credit had no borrowings. Scheduled principal payments include $25.990 million in 2027. Management stated it believed the company could meet obligations due within a year and was in compliance with debt covenants.
Changes from the prior comparable period
- Q2 revenue fell $80,000, as the loss of hotel revenue was partly offset by retail leasing gains and the Salisbury Marketplace acquisition. Six-month revenue fell $522,988, principally because the hotel was sold; retail revenue rose while flex revenue declined.
- Q2 property NOI increased to $1.795 million from $1.653 million; six-month NOI was nearly flat at $3.532 million versus $3.560 million. Comparisons are affected by the hotel sale and the 2022 Salisbury acquisition.
- Professional fees rose $248,501 in Q2 and $555,710 for six months, reflecting costs associated with evaluating strategic alternatives. The company reported $1.384 million of six-month professional fees.
- Hanover Square’s fixed mortgage rate reset to 6.94% in January 2023, raising its monthly payment. Parkway’s variable-rate mortgage was 6.05% at June 30, versus 4.3117% at year-end; the LIBOR-based loan and rate cap transitioned to SOFR effective July 1.
Outlook, notable events and risks
- No financial guidance was provided. A board special committee was evaluating strategic alternatives, including a business combination, asset sale, joint venture or restructuring. The company said there was no assurance a transaction would occur. A proposed sale of interests in four properties was later discontinued on August 7, 2023.
- On July 12, the board temporarily suspended common and preferred dividends for at least six months. Preferred dividends continue to accrue; $70,004 was accrued but unpaid at June 30. The 8% cumulative preferred stock is classified as a liability and is mandatorily redeemable in February 2025 if still outstanding.
- On July 18, the company terminated its external management agreement and agreed to pay $1.603 million in settlement of amounts payable, including the deferred acquisition fee. It moved to board-directed internal management and appointed Francis P. Kavanaugh interim CEO and president. These post-quarter events affect liquidity and governance.
- Management cited tenant defaults and vacancies, concentrated regional exposure, interest rates and refinancing, capital availability, operating costs, and the uncertain outcome of strategic alternatives as risks. The filing reports tenant-related impairment and bad debt charges; no material litigation or environmental contingencies were identified.
- The company completed a 1-for-8 reverse stock split in May 2023 and regained Nasdaq’s minimum bid-price compliance. Management reported disclosure controls and internal control over financial reporting were effective at June 30.
Important facts for investors to verify
- How the dividend suspension, preferred-dividend accruals and July management-termination payment affect cash available for operations and debt service.
- Lease occupancy, collections and tenant-default exposure, particularly at Parkway and Greenbrier, and the sustainability of property NOI.
- Debt covenants, interest-rate protection after the SOFR transition, and refinancing plans for the $25.990 million scheduled 2027 principal balance.
- Updates on strategic alternatives and any future property sales, including transaction costs and proceeds.
- Reconciliation of per-share dividend disclosures: the statements report $0.08 per common share for Q2, while the notes describe 2023 payments of $0.01 per share for each of the first two quarters.