Medalist Diversified REIT(MDRR) - 2024 Q4 - Annual Report

Part I Item 1. Business The company manages a legacy portfolio of retail and flex properties while expanding its single tenant net lease portfolio under a new internal management structure - The company's current strategy focuses on managing its legacy retail and flex-industrial properties while actively expanding its portfolio of single tenant net lease (STNL) properties across the United States[19][21] - In July 2023, the company terminated its external management agreement and transitioned to an internal management structure directed by its Board of Directors[22] - The company operates as an UPREIT, owning its properties through its subsidiary, Medalist Diversified Holdings, L.P., and has elected to be taxed as a REIT for federal income tax purposes since its taxable year ended December 31, 2017[20] - The company does not have any direct employees; its executive officers and staff are employed by Gunston Consulting, LLC under a staffing agreement[31] Portfolio Composition as of December 31, 2024 | Property Type | Number of Properties | | :--- | :--- | | Retail | 4 | | Flex/Industrial | 3 | | Single Tenant Net Lease (STNL) | 3 | | Total | 10 | Item 1A. Risk Factors The company identifies significant risks in its business, real estate investments, REIT status, financing, and common stock ownership - Business risks include dependence on future investments, competition for acquisitions, potential lack of portfolio diversification, and reliance on information systems which are vulnerable to cybersecurity threats[38][48][55] - Real estate industry risks include the illiquidity of property investments, potential environmental liabilities, and the risk of tenant defaults or non-renewal of leases, particularly from middle-market businesses[83][85][92] - Failure to maintain REIT qualification would result in higher corporate taxes and reduced cash available for distributions, and compliance may cause the company to forgo attractive opportunities[120][124] - The company utilizes mortgage debt, which increases expenses and subjects it to foreclosure risk, while high interest rates may make it difficult to finance or refinance properties[147][153] - The market price of the company's common stock is subject to volatility, and there is a risk the company may not satisfy Nasdaq's continued listing requirements[181][190] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[194] Item 1C. Cybersecurity Cybersecurity risk is managed by third parties under Board oversight, with no material incidents reported to date - The Board of Directors has oversight responsibility for cybersecurity risks, with management, led by the CFO, responsible for the assessment and management processes[200] - The company relies on third-party service providers to manage its cybersecurity efforts, including incident detection, response, and remediation[196][201] - As of December 31, 2024, the company has not identified any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business[199] Item 2. Properties The company's portfolio consists of ten retail, flex, and single tenant net lease properties across three reportable segments Portfolio Summary as of December 31, 2024 | Segment | Property Name | Location | Type | | :--- | :--- | :--- | :--- | | Retail | Ashley Plaza | Goldsboro, NC | Retail | | Retail | Franklin Square | Gastonia, NC | Retail | | Retail | Lancer Center | Lancaster, SC | Retail | | Retail | Salisbury Marketplace | Salisbury, NC | Retail | | Flex | Brookfield Center | Greenville, SC | Flex/Industrial | | Flex | Greenbrier Business Center | Chesapeake, VA | Flex/Industrial | | Flex | Parkway Property | Virginia Beach, VA | Flex/Industrial | | STNL | Citibank Property | Chicago, IL | STNL | | STNL | East Coast Wings Property | Goldsboro, NC | STNL | | STNL | T-Mobile Property | Goldsboro, NC | STNL | Retail Center Properties The retail portfolio includes four properties in the Carolinas, anchored by tenants like Hobby Lobby and Food Lion Retail Property Occupancy Rates (as of Dec 31) | Property | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Ashley Plaza | 100.0% | 98.0% | 100.0% | | Franklin Square | 100.0% | 98.6% | 93.2% | | Lancer Center | 80.2% | 100.0% | 100.0% | | Salisbury Marketplace | 88.3% | 85.3% | 91.2% | Flex Center Properties The flex portfolio comprises three properties in Virginia and South Carolina, including one with a tenant-in-common ownership structure - The company owns an 82% tenant-in-common interest in the Parkway Property, which could restrict its ability to sell or refinance the property without consent from the other owner[255][259] Flex Property Occupancy Rates (as of Dec 31) | Property | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Brookfield Center | 100.0% | 100.0% | 100.0% | | Greenbrier Business Center | 94.8% | 95.1% | 79.9% | | Parkway Property | 100.0% | 100.0% | 100.0% | Single Tenant Net Lease Properties The STNL portfolio includes three properties, one acquired from a related party and two reclassified from an existing retail center - The Citibank Property was acquired on March 28, 2024, from a related party for $2.4 million, paid via the issuance of Operating Partnership units[266] - The East Coast Wings and T-Mobile properties were previously part of the Ashley Plaza Property but are now disclosed separately as STNL properties, reflecting the company's strategic shift[269][272] Item 3. Legal Proceedings The company is not currently subject to any material legal proceedings - The company reports no material litigation or threatened legal proceedings outside the ordinary course of business[281] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[282] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, and recent activities include a private placement and share repurchases under an authorized program - On December 13, 2024, the company sold 230,000 shares of common stock in a private placement at $12.50 per share to certain investors, including the CFO and two directors[287] Common Stock Repurchase Activity (Year Ended Dec 31, 2024) | Metric | Value | | :--- | :--- | | Shares Repurchased | 2,830 | | Total Cost | $32,467 | | Average Price per Share | $11.45 | | Shares Remaining for Repurchase | 111,665 | Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased due to a property sale, but net income improved significantly due to a gain on sale and lower operating expenses - Key activities in 2024 included the sale of the Hanover Square Shopping Center for $13.0 million, the acquisition of the Citibank STNL property, and a $2.875 million private placement[307][308][311] - The company's liquidity is supported by $4.8M in unrestricted cash, lender reserves, an expanded $4.0M line of credit, and cash from operations[351][353] Key Financial Results Comparison (Years Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $9,735,127 | $10,272,826 | | Operating Income (Loss) | $3,731,593 | ($997,164) | | Net Income (Loss) Attributable to Common Stockholders | $27,524 | ($4,571,279) | | Funds from Operations (FFO) | $1,908,177 | $91,030 | | Adjusted Funds from Operations (AFFO) | $1,372,493 | ($1,269,422) | Results of Operations Revenue declined from a property sale, but lower operating expenses, particularly non-recurring restructuring costs, drove a significant increase in operating and net income - The decrease in total operating expenses was primarily driven by the non-recurrence of $2.1 million in management restructuring expenses from 2023 and a $658,680 decrease in depreciation[360] Revenue by Segment (YoY Comparison) | Segment | 2024 Revenue | 2023 Revenue | Change | | :--- | :--- | :--- | :--- | | Retail center properties | $6,624,734 | $7,541,914 | ($917,180) | | Flex center properties | $2,750,499 | $2,504,652 | $245,847 | | Single tenant net lease properties | $359,894 | $226,260 | $133,634 | | Total Revenues | $9,735,127 | $10,272,826 | ($537,699) | FFO and AFFO Reconciliation Summary (Year Ended Dec 31, 2024) | Metric | Amount | | :--- | :--- | | Net income | $744,325 | | Depreciation & Amortization | $3,915,483 | | Gain on disposal of investment property | ($2,819,502) | | Other adjustments | $67,871 | | Funds from Operations (FFO) | $1,908,177 | | Adjustments (Straight-line rent, Capex, etc) | ($535,684) | | Adjusted Funds from Operations (AFFO) | $1,372,493 | Liquidity and Capital Resources Cash and liquidity improved due to operating activities and a property sale, supported by an expanded line of credit for future needs - Cash provided by operating activities increased by $1.7 million YoY, primarily due to the non-recurrence of $2.1 million in management restructuring expenses paid in 2023[340][341] - Net cash from investing activities was positive $2.1 million, driven by $3.1 million in proceeds from the sale of the Hanover Square property[345][346] - The company expanded its Wells Fargo line of credit from $1.5 million to $4.0 million and extended the maturity to September 2026, enhancing its financial flexibility[315] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this section is not required and has been omitted - The company has omitted this section as it is a smaller reporting company[390] Item 8. Financial Statements and Supplementary Data This section incorporates by reference the financial statements and data found in Item 15 - The consolidated financial statements and supplementary data are included in Item 15[391] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None reported[392] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective as of year-end - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2024[394][398] - The annual report does not include an attestation report from the registered public accounting firm regarding internal control over financial reporting, as permitted by SEC rules[399] Item 9B. Other Information The company modified its own Rule 10b5-1 plan during the year and has scheduled its 2025 Annual Meeting of Stockholders - The company plans to hold its 2025 Annual Meeting of Stockholders on June 17, 2025[402] - No directors or officers adopted or modified Rule 10b5-1 trading plans in Q4 2024; the company modified its own plan in November 2024 to adjust the authorized purchase price[401] Part III Item 10. Directors, Executive Officers and Corporate Governance The required information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[409] Item 11. Executive and Director Compensation The required information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[410] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The required information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[411] Item 13. Certain Relationships and Related Transactions, and Director Independence The required information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[412] Item 14. Principal Accountant Fees and Services The required information is incorporated by reference from the company's definitive 2025 Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[413] Part IV Item 15. Exhibits and Financial Statement Schedules This section contains the index to financial statements, schedules, and exhibits, including the auditor's report and consolidated financial data - This section provides an index to the audited consolidated financial statements for the years ended December 31, 2024 and 2023, and Schedule III for Real Estate Properties[416][417] Report of Independent Registered Public Accounting Firm The auditor issued an unqualified opinion on the financial statements and identified investment property impairment as a critical audit matter - The auditor issued an unqualified opinion, concluding the financial statements are presented fairly in accordance with GAAP[420] - A critical audit matter was identified concerning the evaluation of investment properties for impairment, highlighting the subjective judgments involved in management's assessment[424][426][427] Consolidated Financial Statements The financial statements show decreased assets and liabilities from a property sale and a significant turnaround from a net loss to net income in 2024 Consolidated Balance Sheet Summary (as of Dec 31) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $75,097,702 | $82,746,016 | | Total Liabilities | $54,095,456 | $69,015,595 | | Total Equity | $21,002,246 | $13,730,421 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $9,735,127 | $10,272,826 | | Total Operating Expenses | $8,723,519 | $11,269,990 | | Gain on disposal of investment property | $2,819,502 | $0 | | Net Income (Loss) | $744,325 | ($4,573,354) | Notes to Consolidated Financial Statements The notes detail key accounting policies and transactions, including a major property sale, debt structure, and significant equity activities - The Hanover Square Shopping Center was sold on March 13, 2024, for $13.0 million, resulting in a gain on disposal of $2.8 million[530] - The company's mortgages payable totaled $50.0 million at year-end 2024, down from $50.8 million in 2023, with the Wells Fargo Mortgage Facility being the largest single debt instrument[547][549] - In 2024, the company issued 230,000 common shares in a private placement and 388,043 OP units, and redeemed 140,000 shares of its mandatorily redeemable preferred stock[543][567][497]