Medalist Diversified REIT, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparison is FY2021. This is an annual filing, not a standalone fourth-quarter report. The company is an externally managed REIT focused on retail and flex-industrial properties in the southeastern United States. At year-end it held eight properties: five retail and three flex-industrial, with partial ownership interests in two properties.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Total revenue | $11.09 million | $11.47 million |
| Operating income (loss) | $(1.41) million | $0.81 million |
| Net loss | $(4.73) million | $(4.36) million |
| Net loss attributable to common shareholders | $(4.77) million; $(0.28) per share | $(4.36) million; $(0.33) per share |
| Operating cash flow | $1.19 million | $0.83 million |
| Cash used in investing activities | $(9.32) million | $(19.14) million |
| Cash from financing activities | $6.40 million | $20.60 million |
| Cash and restricted cash | $5.66 million, including $3.92 million unrestricted | $7.38 million |
| Mortgages payable | $62.07 million gross; $61.34 million net of issuance costs | $55.34 million gross |
| Equity | $18.69 million total | $23.00 million total |
FY2022 property net operating income (NOI), a non-GAAP measure, was $7.11 million versus $6.47 million. NOI was approximately 64% of revenue; GAAP operating loss was approximately 13% of revenue, and net loss approximately 43% of revenue. FFO improved to $1.00 million from a loss of $0.97 million, while AFFO declined to $0.24 million from $0.33 million. Common dividends paid were $0.07 per share for FY2022 versus $0.04 in FY2021.
Changes and significant transactions
- Revenue declined $0.38 million year over year. Retail revenue rose $1.42 million and flex revenue rose $1.33 million, largely reflecting acquisitions and fuller-year ownership; hotel revenue fell $3.13 million following the Hampton Inn sale in 2021 and the Clemson hotel sale in 2022.
- The company acquired Salisbury Marketplace in June 2022 for a total investment of approximately $10.28 million; it was 91.2% leased at year-end.
- It sold its Clemson Best Western hotel interest on September 29, 2022 for $10.015 million, recording a $0.42 million loss on sale and a $0.18 million impairment charge. Hotel revenue included $1.51 million through the sale date.
- A $18.61 million Wells Fargo mortgage facility, fixed at 4.50% for five years, financed Salisbury Marketplace and refinanced Lancer Center and Greenbrier Business Center debt. Its monthly payment is $103,438, with a 25-year amortization schedule. Gross mortgage debt increased to $62.07 million.
- The Parkway mortgage is variable-rate; its year-end rate was 6.37%, with a rate cap limiting exposure to 5.25% under stated conditions. Hanover Square’s rate reset to 6.94% on January 1, 2023, increasing its monthly payment from $56,882 to $78,098.
Liquidity, outlook, and risks
- Management reported $3.92 million of unrestricted cash and $1.74 million in restricted cash at year-end. The company also had an undrawn $1.5 million Wells Fargo line of credit. Management said it expected to meet obligations due within one year of the financial-statement issuance date.
- Scheduled debt principal payments were approximately $1.13 million in 2023. A larger $26.06 million payment/maturity concentration is scheduled for 2027. The Wells Fargo facility includes debt-service coverage, debt-yield, and minimum-liquidity covenants; the company stated it was compliant at year-end.
- On March 10, 2023, the board announced an independent special committee to explore strategic alternatives, which may include a business combination, asset sale, joint venture, or restructuring. No outcome is assured; the process may incur costs or disrupt operations. Amendments to the manager agreement address termination and deferred fees in certain circumstances.
- Nasdaq had granted an additional period through July 10, 2023 to regain the $1.00 minimum bid-price requirement; a reverse stock split was identified as a possible remedy. Failure to comply could lead to delisting.
- Key risks include regional concentration (all portfolio annualized base revenue was from Virginia, North Carolina, and South Carolina), tenant and anchor concentration, interest-rate and refinancing exposure, COVID-related rent concessions and demand uncertainty, reliance on the external manager, and maintaining REIT status. The company reported no material litigation or known material environmental liabilities.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the consolidated financial statements; it did not audit internal-control effectiveness.
Important facts for investors to verify
- Progress and terms of the strategic-alternatives review, including transaction costs, manager termination fees, and potential change-in-control retention payments.
- Liquidity and covenant headroom, particularly the Wells Fargo $1.5 million minimum-liquidity covenant and the 2027 debt concentration.
- Occupancy, tenant renewals, and rent collections, especially at Greenbrier (79.9% leased), Franklin Square (93.2%), and Salisbury Marketplace (91.2%).
- Whether the company regained Nasdaq’s minimum bid-price compliance by the July 10, 2023 deadline and whether a reverse split or delisting followed.
- How the Hanover Square rate reset and floating-rate Parkway debt affect interest expense, cash available for distributions, and future refinancing needs.
- Whether reported FFO and AFFO trends translate into sustainable cash distributions; both are non-GAAP measures, and FY2022 AFFO was $0.24 million.