Medalist Diversified REIT(MDRR) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Medalist Diversified REIT, Inc.'s unaudited condensed consolidated financial statements show decreased assets and equity, driven by net losses and a July 2023 management internalization Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2023, reflects decreased total assets and equity, primarily due to a widening accumulated deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $84,422 | $87,915 | | Investment properties, net | $74,876 | $76,515 | | Cash & Restricted Cash | $4,750 | $5,663 | | Total Liabilities | $70,151 | $69,223 | | Mortgages payable, net | $60,617 | $61,340 | | Line of credit, short term, net | $1,000 | $0 | | Total Equity | $14,271 | $18,692 | | Accumulated deficit | ($35,341) | ($30,939) | Condensed Consolidated Statements of Operations The statements of operations show decreased revenue and widened net losses for the three and nine months ended September 30, 2023, impacted by restructuring expenses Key Operating Results (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,589 | $2,841 | $7,566 | $8,341 | | Total Operating Expenses | $3,655 | $3,113 | $9,047 | $8,841 | | Management restructuring expenses | $1,453 | $0 | $1,846 | $0 | | Operating Loss | ($1,067) | ($881) | ($1,482) | ($1,279) | | Net Loss Attributable to Common Shareholders | ($1,949) | ($1,754) | ($4,048) | ($3,759) | | Loss per share - basic and diluted | ($0.88) | ($0.80) | ($1.82) | ($1.77) | Condensed Consolidated Statements of Cash Flows Cash flow statements for the nine months ended September 30, 2023, show decreased operating cash, reduced investing cash usage, and a shift to cash usage from financing activities Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $416 | $1,673 | | Net cash from investing activities | ($1,144) | ($8,920) | | Net cash from financing activities | ($184) | $6,836 | | Decrease in Cash | ($913) | ($411) | Notes to Condensed Consolidated Financial Statements The notes detail the company's organization, accounting policies, and financial statement specifics, including the July 2023 management internalization, property portfolio, debt, and equity structure - As of September 30, 2023, the company owned and operated eight properties, primarily retail and flex-industrial centers in North Carolina and Virginia[21] - On July 18, 2023, the company terminated its external management agreement and is now managed by internal management directed by the Board, resulting in management restructuring expenses of $1.85 million for the nine months ended Sep 30, 2023[26][65] - The company completed a 1-for-8 reverse stock split on May 3, 2023, to regain compliance with Nasdaq's minimum bid price requirement[135] Net Operating Income (NOI) by Segment (Nine Months Ended Sep 30) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Retail center properties | $4,195 | $3,607 | | Flex center property | $1,273 | $1,317 | | Hotel properties | $0 | $206 | | Total NOI | $5,468 | $5,130 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, and liquidity, highlighting the impact of a 2022 property sale, management internalization costs, and negative FFO/AFFO - The company's strategy includes a focus on commercial properties (flex-industrial, retail), multi-family, and limited-service hotels in the southeastern U.S., while also evaluating single tenant net lease assets[198] - On July 18, 2023, the company internalized its management, terminating its agreement with the external manager and appointing an interim CEO, who was made permanent in October 2023[206] - Liquidity sources include $3.0 million in unrestricted cash, a $1.5 million line of credit (with $1.0 million drawn as of Sep 30, 2023), and potential proceeds from a Standby Equity Purchase Agreement (SEPA)[210][251] FFO and AFFO Reconciliation (Nine Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net loss | ($4,042) | ($3,732) | | Funds from operations (FFO) | ($532) | $768 | | Capital expenditures | ($1,144) | ($652) | | Other adjustments | ($11) | ($13) | | Adjusted funds from operations (AFFO) | ($1,687) | $103 | Quantitative and Qualitative Disclosures about Market Risk The company has omitted this section, as it is not required for a smaller reporting company - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[303] Controls and Procedures Management concluded that as of September 30, 2023, the company's disclosure controls and procedures and internal control over financial reporting were effective - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[305] - Based on an evaluation against the COSO framework (2013), management concluded that internal control over financial reporting was effective as of September 30, 2023[306] PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material litigation outside of routine matters arising in the ordinary course of business, which are not expected to have a material adverse effect - The company is not presently subject to any material litigation[310] Risk Factors The company, as a smaller reporting company, has omitted a discussion of risk factors as it is not required to provide this information - As a smaller reporting company, the registrant is not required to provide a discussion of risk factors[311] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, including the Board's October 2023 authorization for additional shares, with no repurchases made during Q3 2023 - On October 18, 2023, the Board authorized the repurchase of an additional 200,000 Common Shares, increasing the total authorized for repurchase to 228,991 shares[312] - No share repurchases were made during the three and nine months ended September 30, 2023[312] Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[313] Other Information On November 13, 2023, the company entered a Staffing Agreement with Gunston Consulting, LLC, controlled by its CFO, to provide certain employees for a monthly fee - On November 13, 2023, the company entered into a Staffing Agreement with Gunston Consulting, LLC, an entity controlled by the company's CFO, to provide certain employees, including the CFO and controller[318] - The company will pay the consultant a monthly fee of $26,197 for the CFO's services and $11,154 for the controller's services, covering salary and related expenses[318] Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, material agreements, and certifications