Medalist Diversified REIT(MDRR) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial position weakened in H1 2023 with decreased assets and a wider net loss Condensed Consolidated Balance Sheets Total assets and equity declined by June 30, 2023, driven by a reduction in cash and net losses Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $85,323,778 | $87,915,404 | | Investment properties, net | $75,495,791 | $76,514,952 | | Cash | $2,771,149 | $3,922,136 | | Total Liabilities | $69,106,708 | $69,222,965 | | Mortgages payable, net | $60,796,783 | $61,340,259 | | Total Equity | $16,217,070 | $18,692,439 | Condensed Consolidated Statements of Operations Revenue decreased in H1 2023 due to a hotel property sale, though the Q2 net loss narrowed slightly Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,515,901 | $2,595,901 | $4,976,877 | $5,499,865 | | Operating loss | ($74,256) | ($163,107) | ($414,972) | ($397,505) | | Net Loss Attributable to Common Shareholders | ($877,664) | ($1,014,887) | ($2,098,959) | ($2,004,171) | | Loss per share - basic and diluted | ($0.40) | ($0.47) | ($0.95) | ($0.96) | - The absence of hotel property revenue in 2023 is due to the sale of the Clemson Best Western Property on September 29, 2022[10][60] Condensed Consolidated Statements of Changes in Equity Total equity declined from $18.7 million to $16.2 million in H1 2023, primarily due to net loss and dividends Changes in Total Equity (Six Months Ended June 30, 2023) | Description | Amount | | :--- | :--- | | Balance, January 1, 2023 | $18,692,439 | | Net loss | ($2,095,705) | | Dividends and distributions | ($374,665) | | Retirement of fractional shares | ($4,999) | | Balance, June 30, 2023 | $16,217,070 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased while cash used in financing and investing activities changed significantly Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash flows from operating activities | $862,923 | $1,573,772 | | Net cash flows from investing activities | ($740,959) | ($10,772,418) | | Net cash flows from financing activities | ($977,118) | $7,592,632 | | Decrease in Cash and Restricted Cash | ($855,154) | ($1,606,014) | Notes to Condensed Consolidated Financial Statements Key subsequent events include internalizing management, a reverse stock split, and suspending dividends - On July 18, 2023, the Company terminated its Management Agreement with Medalist Fund Manager, Inc. and is now internally managed[26][151][177] - A 1-for-8 reverse stock split was completed on May 3, 2023, to regain compliance with Nasdaq's minimum bid price requirement[122][126] - On July 12, 2023, the Board approved the temporary suspension of dividends on both common and mandatorily redeemable preferred stock[103][173] - The company's portfolio consists of eight properties: six retail centers and two flex centers, concentrated in North Carolina, South Carolina, and Virginia[21] - A Special Committee of the Board was formed in March 2023 to explore strategic alternatives; on August 7, 2023, the company ceased pursuing the sale of four properties[174][176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shifts, operational results showing a revenue mix change, and declining FFO/AFFO Results of Operations Revenue shifted from hotel to retail properties following a sale, impacting year-over-year comparisons Revenue by Property Type (Three Months Ended June 30) | Property Type | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Retail center properties | $1,903,769 | $1,623,207 | $280,562 | | Hotel property | $0 | $362,851 | ($362,851) | | Flex center properties | $612,132 | $609,843 | $2,289 | | Total Revenues | $2,515,901 | $2,595,901 | ($80,000) | Revenue by Property Type (Six Months Ended June 30) | Property Type | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Retail center properties | $3,795,448 | $3,148,292 | $647,156 | | Hotel property | $0 | $1,128,340 | ($1,128,340) | | Flex center properties | $1,181,429 | $1,223,233 | ($41,804) | | Total Revenues | $4,976,877 | $5,499,865 | ($522,988) | Liquidity and Capital Resources Liquidity is supported by rental receipts but faces pressure from debt service and manager termination fees - As of June 30, 2023, the company had $2,771,149 in unrestricted cash and a $1,500,000 line of credit with a zero balance[243][244] - Primary non-operating liquidity needs include a $1.25 million termination fee and a $352,717 deferred acquisition fee payable to the former manager[241] Funds from Operations (FFO) Both FFO and AFFO declined significantly in the first half of 2023 compared to the prior year period FFO and AFFO (Six Months Ended June 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net loss | ($2,095,705) | ($1,988,322) | | Funds from operations (FFO) | $264,752 | $671,346 | | Capital expenditures | ($740,959) | ($492,703) | | Other adjustments | ($10,959) | ($133,247) | | Adjusted funds from operations (AFFO) | ($492,966) | $344,696 | Quantitative and Qualitative Disclosures about Market Risk This section is omitted as permitted for a smaller reporting company - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[290] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[292] - Management concluded that internal control over financial reporting was effective as of June 30, 2023, based on the COSO 2013 framework[293] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material litigation - The Company is not presently subject to any material litigation other than routine actions arising in the ordinary course of business[296] Risk Factors This section is omitted as permitted for a smaller reporting company - As a smaller reporting company, the registrant is not required to provide a discussion of risk factors[297] Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased during the first half of 2023 - The Company did not make any share repurchases during the three and six months ended June 30, 2023[298] Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities during the period[299] Other Information The Board of Directors adjusted stock ownership limits, creating an exception for the interim CEO - On August 8, 2023, the Board decreased the Aggregate Share Ownership Limit and Common Share Ownership Limit from 9.8% to 3.6%[301] - An exception to the ownership limit was created for Francis P. Kavanaugh and his affiliates, establishing an "Excepted Holder Limit" of 20%[302] Exhibits This section lists all exhibits filed with the report, including certifications and corporate filings - The report includes various exhibits, such as certifications and filings related to changes in ownership limits and an excepted holder limit[306]