Medalist Diversified REIT, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is primarily with fiscal 2020. The company is an externally managed REIT focused on retail, flex-industrial and hotel properties in southeastern U.S. markets. It owned eight properties at year-end, including partial tenant-in-common interests in two properties.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $11.47 million | $9.28 million |
| Operating income (loss) | $0.81 million | $(5.74) million |
| Net loss | $(4.36) million attributable to common shareholders | $(8.18) million attributable to common shareholders |
| Basic and diluted loss per share | $(0.33) | $(1.74) |
| Cash from operating activities | $0.83 million | $(1.68) million |
| Cash used in investing activities | $(19.14) million | $(0.41) million |
| Cash from financing activities | $20.60 million | $5.12 million |
- Revenue grew 23.7%, reflecting higher hotel revenue—especially the Clemson University occupancy arrangement—and partial-year contributions from three acquisitions. Property-level net operating income, a non-GAAP measure, was $6.47 million versus $4.09 million.
- Operating expenses totaled $10.78 million, down from $15.02 million, principally because 2020 included a $3.49 million impairment of the Hampton Inn held for sale and other impairment and bad-debt charges. Interest expense rose to $5.53 million from $3.96 million, including substantial noncash amortization associated with convertible debentures.
- Management-reported FFO was a loss of $0.97 million; adjusted FFO (AFFO) was positive $0.33 million. Both are non-GAAP measures and should be considered alongside GAAP results.
- At year-end, total assets were $92.55 million and total liabilities $69.55 million. Gross mortgage principal was approximately $63.09 million, including $7.75 million associated with the Clemson hotel held for sale; net mortgages were $62.13 million after issuance costs. Mandatorily redeemable preferred stock was classified as a $4.23 million liability.
- Cash was $4.37 million unrestricted and $3.01 million restricted, for $7.38 million combined cash and restricted cash. The filing identifies $3.01 million of restricted balances largely as lender reserves and tenant deposits, not general operating liquidity. Management concluded it was probable the company could meet obligations for the year following issuance.
Material changes and notable items
- The company acquired Lancer Center, Greenbrier Business Center and an 82% interest in Parkway during 2021, with reported purchase consideration totaling approximately $25.38 million. It sold its 78%-owned Hampton Inn property on August 31 for $12.9 million, recording a $0.12 million gain.
- The Clemson Best Western property was classified as held for sale. The filing states no sale was assured and management planned to extend its mortgage if the hotel was not sold by its October 2022 maturity.
- An April common-stock offering of 8.0 million shares at $1.50 per share generated $10.89 million net proceeds. Convertible debentures totaling $5.0 million principal plus $58,788 accrued interest were converted into 3,181,916 shares at an average conversion price of $1.59; the debt was fully extinguished by year-end.
- Common dividends paid were $0.04 per share in 2021 versus $0.125 in 2020. The board authorized a repurchase program for up to 500,000 shares; none were repurchased by year-end. By March 15, 2022, 268,070 shares had been repurchased at an average $1.04, and 366,790 shares had been issued under the standby equity purchase agreement.
- Revenue growth and the improvement in net loss should be viewed in context: results included the Hampton Inn sale, new acquisitions, relief from prior-year impairments, and the Clemson University hotel arrangement. That university occupancy agreement was extended through May 2022.
Outlook, risks and contingencies
- Management provided no quantified earnings or revenue guidance. It said results and liquidity remained exposed to COVID-19, changing consumer demand, travel patterns and possible renewed restrictions. Rent abatements reduced 2021 revenue by $439,271; additional abatements of $174,330 were agreed for 2022. Deferred rent and collection of future contractual rents also warrant monitoring.
- The Clemson hotel’s 100% occupancy in 2021 resulted from the university arrangement, not ordinary transient demand; management cautioned that this benefit could diminish after the agreement ends. The City of Virginia Beach gave notice it would vacate Parkway space at its June 2022 lease expiration, and a Greenbrier tenant had vacated after its lease expired in December 2021.
- Debt and refinancing are material risks. The filing lists $8.62 million of scheduled 2022 principal and maturities, including the $7.75 million Clemson hotel mortgage. The Parkway loan terms are inconsistent in the filing: property disclosures describe an October 2031 maturity, while the mortgage table lists October 2026. Confirm the governing loan documents and maturity.
- Liquidity depends on property cash flows, dispositions and access to capital markets. The company had a $150 million shelf registration and a standby equity facility of up to approximately $6.67 million, but future issuance is not assured. The Franklin Square refinancing includes a $1 million minimum liquid-assets covenant and a $13.25 million net-worth covenant; management reported compliance at year-end.
- The portfolio is geographically concentrated in Virginia, North Carolina and South Carolina, which represented all annualized base revenue at year-end. Risks also include tenant concentration and lease expirations, interest-rate exposure on variable-rate debt, competition, reliance on the external manager, REIT qualification and potential environmental liabilities. The company reported no material litigation or known material environmental contingencies.
Investor verification priorities
- Confirm the Clemson hotel sale status, its October 2022 debt maturity and whether the extension option was exercised; reconcile the Parkway loan maturity discrepancy.
- Track leasing and replacement tenants at Parkway and Greenbrier, together with occupancy, rent collections and tenant concessions across the portfolio.
- Review debt covenants, refinancing needs, variable-rate exposure and the availability of unrestricted cash after restricted reserves and near-term obligations.
- Assess recurring property cash generation against interest expense and compare GAAP net loss with the company’s FFO and AFFO calculations.
- Monitor dilution and capital allocation from the standby equity facility, shelf registration, repurchases, incentive-plan grants and future common and preferred dividends.