Medalist Diversified, Inc 8-K/A, filed Jun 29, 2022
Medalist Diversified, Inc. (MDRR)
About this 8-K/A
Medalist Diversified, Inc filed this 8-K/A on June 29, 2022, reporting on events of June 13, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
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CURRENT REPORT
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Explanatory Note
This Form 8-K/A amends and supplements the Form 8-K filed by Medalist Diversified REIT, Inc. (the “Company”) on June 17, 2022 (the “Original Filing”) to include the historical financial statements and unaudited pro forma information required by Item 9.01(a) and (b) of Form 8-K. This Form 8-K/A should be read in conjunction with the Original Filing.
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(a) Financial Statements of Property Acquired
The following Statements of Revenues and Certain Expenses for the Salisbury Marketplace are set forth in Exhibit 99.1, which is incorporated herein by reference.
Report of Independent Auditor.
Statement of Revenues and Certain Operating Expenses for the three months ended March 31, 2022 (unaudited) and year ended December 31, 2021.
Notes to Statement of Revenues and Certain Operating Expenses for the three months ended March 31, 2022 (unaudited) and year ended December 31, 2021.
(b) Unaudited Pro Forma Financial Information
The following unaudited pro forma financial statements for the Salisbury Marketplace are set forth in Exhibit 99.2, which is incorporated herein by reference.
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022.
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022.
Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2022.
Notes to Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2022.
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2021.
Notes to Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2021.
(c) Not applicable.
(d) Exhibits
| Exhibit No. | Description | |
| 23.1 | Consent of Cherry Bekaert LLP | |
| 99.1 | Statement of Revenues and Certain Expenses for the Salisbury Marketplace for three months ended March 31, 2022 and year ended December 31, 2021 | |
| 99.2 | Unaudited Pro Forma Financial Information for the Company | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MEDALIST DIVERSIFIED REIT, INC. | ||
| Dated: June 29, 2022 | By: | /s/ Thomas E. Messier |
| Thomas E. Messier | ||
| Chief Executive Officer, Chairman of the Board, Treasurer and Secretary | ||
Exhibit 23.1
Consent of Independent Auditor
Medalist Diversified REIT, Inc.
Richmond, Virginia
We hereby consent to the incorporation by reference in the Registration Statement of Medalist Diversified REIT, Inc. on Form S-8 (No. 333-228674 and 333-238483) and Form S-3 (No. 333-257238) of our report dated June 29, 2022, with respect to the statement of revenues and certain operating expenses of Salisbury Marketplace Property for the year ended December 31, 2021, which appears in Form 8-K/A of Medalist Diversified REIT, Inc., dated June 29, 2022.
Richmond, Virginia
June 29, 2022
Exhibit 99.1
SALISBURY MARKETPLACE
FINANCIAL STATEMENT
Three Months Ended March 31, 2022 (unaudited) and
Year Ended December 31, 2021
Table of Contents
| Report of Independent Auditor | 1 |
| Statement of Revenues and Certain Operating Expenses | 3 |
| Notes to Statement of Revenues and Certain Operating Expenses | 4 |
Report of Independent Auditor
To the Board of Directors
of Medalist Diversified REIT, Inc.
Opinion
We have audited the accompanying statement of revenues and certain operating expenses and the related notes to the statement of revenues and certain operating expenses (the “Statement”) of Salisbury Marketplace Property (the “Property”), as defined in Note 1 of the Statement, for the year ended December 31, 2021.
In our opinion, the Statement referred to above presents fairly, in all material respects, the revenues and certain operating expects of the Property for the year ended December 31, 2021 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying Statement was prepared as described in Note 1, for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and is not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statement section of our report. We are required to be independent of the Property and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Statement
Management is responsible for the preparation and fair presentation of the Statement in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of Statement that are free from material misstatement, whether due to fraud or error.
In preparing the Statement, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Property’s ability to continue as a going concern within one year after the date that the Statement is available to be issued.
Auditor’s Responsibilities for the Audit of the Statement
Our objectives are to obtain reasonable assurance about whether the Statement is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the Statement.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the Statement, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the Statement. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the Statement. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Property’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Richmond, Virginia
June 29, 2022
SALISBURY MARKETPLACE
STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
Three Months Ended March 31, 2022 (unaudited) and
Year Ended December 31, 2021
| Three months ended March 31, 2022 | Year ended December 31, 2021 | |||||||
| Unaudited | ||||||||
| REVENUE | ||||||||
| Retail center property revenues | $ | 212,871 | $ | 893,398 | ||||
| Total revenues | 212,871 | 893,398 | ||||||
| CERTAIN OPERATING EXPENSES | ||||||||
| Real estate taxes and insurance | 21,422 | 87,623 | ||||||
| Operating and maintenance | 17,764 | 47,545 | ||||||
| Management fee | 6,363 | 26,340 | ||||||
| Total certain operating expenses | 45,549 | 161,508 | ||||||
| Revenues in excess of certain operating expenses | $ | 167,322 | $ | 731,890 | ||||
See accompanying notes to statement of revenues and certain operating expenses.
Notes to Statement of Revenues and Certain Operating Expenses
Note 1. Basis of Presentation
The accompanying statement of revenues and certain operating expenses (the “Statement”) includes the operations of Salisbury Marketplace (the “Property”).
The Statement has been prepared for the purpose of complying with Rule 8-06 of Regulation S-X promulgated under the Securities Act of 1933, as amended. Accordingly, the Statement is not representative of the actual operations for the period presented, as revenues and certain operating expenses, which may not be directly attributable to the revenues and expenses expected to be incurred in the future operations of the Property, have been excluded. Such excluded items include certain legal, accounting, and interest expenses, non-cash expenses such as depreciation, amortization, and amortization of above-market and below-market leases, and interest income. Management is not aware of any material factors during the year ended December 31, 2021 or the three months ended March 31, 2022 (unaudited) that would cause the reported financial information not to be indicative of future operating results.
Note 2. Nature of Business and Summary of Significant Accounting Policies
Basis of accounting:
The Statement has been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”) as determined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
Revenue recognition:
The Property recognizes rental revenue from tenants on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased asset. Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance, and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. Tenant recoveries and reimbursable expenses are recognized and presented gross, as the Property is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and bears the associated credit risk.
Recognition of revenues from leases is covered under Accounting Standard Update 2016-02, Leases (Topic 842) (“ASC No. 842”). The Property adopted ASC No. 842 on January 1, 2021. Upon the adoption of ASC No. 842, the Company elected the practical expedient that permits lessors to elect to not separate non-lease components from associated lease components if certain criteria are met. Management assessed these criteria with respect to the operating leases related to the Property and determined they qualify for this non-separation practical expedient. As a result, management has accounted for and presented the revenues from these leases, including tenant reimbursements, as a single line item on the statement of revenues and certain operating expenses under the caption “Retail center property revenues” for the three months ended March 31, 2022 (unaudited) and the year ended December 31, 2021.
Income taxes:
As a limited liability company, the Property’s taxable income or loss is allocated to its members. Therefore, no provision or liability for income taxes has been included in the financial statements.
Use of estimates:
Management has made a number of estimates and assumptions relating to the reporting and disclosure of revenues and certain operating expenses during the reporting period to present the Statement in conformity with GAAP. Actual results could differ from those estimates.
Note 3. Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space in the Property. As of March 31, 2022, the minimum future cash rents receivable under noncancelable operating leases in each of the next five years and thereafter are as follows:
| (Unaudited) | |||||
| For the remaining nine months ending December 31, 2022 | $ | 568,090 | |||
| 2023 | 750,088 | ||||
| 2024 | 635,847 | ||||
| 2025 | 579,998 | ||||
| 2026 | 495,657 | ||||
| Thereafter | 2,084,246 | ||||
| Total future rents | $ | 5,113,926 | |||
Note 4. Tenant Concentrations
As of December 31, 2021, the Property’s occupancy rate was 89.9 percent. For the year ended December 31, 2021, three tenants represented approximately 65.5 percent of the Property’s rental revenues.
Note 5. Commitments and Contingencies
The Property may be subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that if any such actions arise, the ultimate settlement of these actions will not have a material adverse effect on the Property’s results of operations.
Since March 2020, retail center properties such as the Property have been significantly impacted by (i) measures taken by local, state and federal authorities to mitigate the impact of COVID-19, such as mandatory business closures, quarantines, and “shelter-in-place” or “stay-at-home” orders and (ii) significant changes in consumer behavior. While most, if not all, of the initial measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from the continued mutation of COVID-19 into new variants, and the possibility that changes in consumer behavior will continue, the negative impact on consumer behavior, including demand for the goods and services of the retail tenants in the Property, could continue to be significant in future periods.
Note 6. Subsequent Events
Management has evaluated subsequent events through June 29, 2022, the date the financial statement was available to be issued and there are no subsequent events for disclosure in the accompanying financial statement.
Exhibit 99.2
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2022
and
Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2022
and year ended December 31, 2021
Summary of Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with the unaudited condensed consolidated balance sheet of Medalist Diversified REIT, Inc. and Subsidiaries (collectively, the “Company”) as of March 31, 2022, the related unaudited condensed consolidated statement of operations for the three months ended March 31, 2022, and the audited consolidated statement of operations for the year ended December 31, 2021.
The following unaudited pro forma consolidated balance sheet as of March 31, 2022 has been prepared to give effect to the acquisition of the Salisbury Property as if the acquisition occurred on March 31, 2022.
The following unaudited pro forma consolidated statement of operations for the three months ended March 31, 2022 has been prepared to give effect to the acquisition of the Salisbury Property as if the acquisition had occurred on January 1, 2022.
The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2021 has been prepared to give effect to the acquisitions of (i) the Salisbury Property, (ii) the Parkway Property, (iii) the Greenbrier Business Center, (iv) the Lancer Center and (v) the disposition of the Hampton Inn Property, as if the acquisitions and disposition had occurred on January 1, 2021.
These unaudited pro forma consolidated financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the Salisbury Property, the Parkway Property, the Greenbrier Business Center and the Lancer Center been consummated as of the date indicated.
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of March 31, 2022
| Pro Forma | ||||||||||||
| Adjustments | ||||||||||||
| Historical | Salisbury | Pro Forma | ||||||||||
| March 31, 2022 (a) | Acquisition (b) | March 31, 2022 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| ASSETS | ||||||||||||
| Investment properties, net | $ | 68,762,027 | $ | 9,963,258 | (c) | $ | 78,725,285 | |||||
| Cash | 4,629,945 | (3,746,561 | )(d) | 883,384 | ||||||||
| Restricted cash | 3,449,089 | - | 3,449,089 | |||||||||
| Rent and other receivables, net of allowance | 344,358 | - | 344,358 | |||||||||
| Assets held for sale | 9,897,045 | - | 9,897,045 | |||||||||
| Unbilled rent | 887,168 | - | 887,168 | |||||||||
| Intangible assets, net | 3,724,381 | 1,085,581 | (e) | 4,809,962 | ||||||||
| Other assets | 498,732 | - | 498,732 | |||||||||
| Total Assets | $ | 92,192,745 | $ | 7,302,278 | $ | 99,495,023 | ||||||
| LIABILITIES | ||||||||||||
| Accounts payable and accrued liabilities | $ | 1,345,520 | $ | - | $ | 1,345,520 | ||||||
| Intangible liabilities, net | 1,784,995 | 769,125 | (e) | 2,554,120 | ||||||||
| Line of credit, short term, net | - | - | - | |||||||||
| Notes payable | - | - | - | |||||||||
| Convertible debentures, net | - | - | - | |||||||||
| Mortgages payable, net | 54,353,683 | 6,533,153 | (f) | 60,886,836 | ||||||||
| Mortgages payable, net, associated with assets held for sale | 7,615,368 | - | 7,615,368 | |||||||||
| Mandatorily redeemable preferred stock, net | 4,281,563 | - | 4,281,563 | |||||||||
| Total Liabilities | $ | 69,381,129 | $ | 7,302,278 | $ | 76,683,407 | ||||||
| EQUITY | ||||||||||||
| Common stock | $ | 171,142 | $ | - | $ | 171,142 | ||||||
| Additional paid-in capital | 50,769,941 | - | 50,769,941 | |||||||||
| Offering costs | (3,350,946 | ) | - | (3,350,946 | ) | |||||||
| Accumulated deficit | (26,287,080 | ) | - | (26,287,080 | ) | |||||||
| Total Shareholders' Equity | 21,303,057 | - | 21,303,057 | |||||||||
| Noncontrolling interests - Hampton Inn Property | - | - | - | |||||||||
| Noncontrolling interests - Hanover Square Property | 136,284 | - | 136,284 | |||||||||
| Noncontrolling interests - Parkway Property | 499,602 | - | 499,602 | |||||||||
| Noncontrolling interests - Operating Partnership | 872,673 | - | 872,673 | |||||||||
| Total Equity | $ | 22,811,616 | $ | - | $ | 22,811,616 | ||||||
| Total Liabilities and Equity | $ | 92,192,745 | $ | 7,302,278 | $ | 99,495,023 | ||||||
See the accompanying notes to unaudited pro forma consolidated balance sheet
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2022
Notes to unaudited pro forma consolidated balance sheet as of March 31, 2022
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company as of March 31, 2022. |
| (b) | Represents the acquisition of the Salisbury Marketplace Property (the “Salisbury Property”) as if it had occurred on March 31, 2022. The Salisbury Property was acquired by MDR Salisbury, LLC, a wholly owned subsidiary of Medalist Diversified Holdings, LP (the “Operating Partnership”), of which the Company is the General Partner, on June 13, 2022. The net purchase price of the property was $10,025,000 plus capitalized closing and acquisition costs of $254,714. |
| (c) | Amounts recorded to investment properties include tangible assets acquired at closing, including land, site improvements, building and tenant improvements and are recorded at fair value in accordance with Accounting Standards Codification (“ASC”) 805. |
| (d) | The acquisition cost, net of debt, was funded with $3,746,561 in cash from the Company. Cash from the Company on the unaudited pro forma consolidated balance sheet as of March 31, 2022 has been adjusted to reflect the impact of removing prepaid expenses, prorated revenues and expenses, and other assets and liabilities arising from the acquisition by $263,406. |
| (e) | Represents the fair value of lease intangibles, including leasing commissions, leases in place, above market leases, below market leases and legal and marketing costs associated with replacing existing leases, recorded at fair value in accordance with ASC 805. |
| (f) | The Company obtained a mortgage payable in the amount of $18,609,500 from Wells Fargo Bank that is cross-collateralized by the Salisbury Property, the Greenbrier Property and the Lancer Center Property. The loan amount was based on 65 percent of the appraised value of the three properties. For the purposes of these unaudited pro forma financial statements, the Company has allocated $6,552,000 of the total loan amount to the Salisbury Property. The Company has also allocated deferred financing costs totaling $18,847, which are presented as a direct reduction of the associated debt, to the Salisbury Property. The remaining proceeds of the Wells Fargo Mortgage Payable were used to refinance the original mortgages payable on the Lancer Center Property and the Greenbrier Business Center. For purposes of the unaudited pro forma consolidated financial statements the terms (interest rate, amortization period, loan issuance costs and term) of the original mortgage payables for the Greenbrier Property and the Lancer Center Property have been used. |
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the three months ended March 31, 2022
| Pro Forma | ||||||||||||
| Historical | Adjustments | Pro Forma | ||||||||||
| Three Months Ended | Salisbury | Three Months Ended | ||||||||||
| March 31, 2022 (a) | Acquisition (b) | March 31, 2022 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
| REVENUE | ||||||||||||
| Retail center property revenues | $ | 1,525,085 | $ | 189,259 | (i) | $ | 1,714,344 | |||||
| Flex center property revenues | 613,390 | - | 613,390 | |||||||||
| Hotel property room revenues | 762,200 | - | 762,200 | |||||||||
| Hotel property other revenues | 3,289 | - | 3,289 | |||||||||
| Total Revenue | $ | 2,903,964 | $ | 189,259 | $ | 3,093,223 | ||||||
| OPERATING EXPENSES | ||||||||||||
| Retail center property operating expenses | $ | 450,125 | $ | 45,549 | (ii) | $ | 495,674 | |||||
| Flex center property operating expenses | 161,381 | - | 161,381 | |||||||||
| Hotel property operating expenses | 372,860 | - | 372,860 | |||||||||
| Bad debt expense | 12,783 | - | 12,783 | |||||||||
| Share based compensation expenses | 233,100 | - | 233,100 | |||||||||
| Legal, accounting and other professional fees | 459,869 | - | 459,869 | |||||||||
| Corporate general and administrative expenses | 80,706 | - | 80,706 | |||||||||
| Loss on impairment | 36,670 | - | 36,670 | |||||||||
| Impairment of assets held for sale | 175,671 | - | 175,671 | |||||||||
| Depreciation and amortization | 1,155,197 | 194,009 | (iii) | 1,349,206 | ||||||||
| Total Operating Expenses | 3,138,362 | 239,558 | 3,377,920 | |||||||||
| Operating Loss | (234,398 | ) | (50,299 | ) | (284,697 | ) | ||||||
| Interest expense | 841,424 | 74,652 | (iv) | 916,076 | ||||||||
| Net Loss from Operations | (1,075,822 | ) | (124,951 | ) | (1,200,773 | ) | ||||||
| Other income | 95,439 | - | 95,439 | |||||||||
| Net Loss | (980,383 | ) | (124,951 | ) | (1,105,334 | ) | ||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (319 | ) | - | (319 | ) | |||||||
| Less: Net income attributable to Parkway Property noncontrolling interests | 10,193 | - | 10,193 | |||||||||
| Less: Net loss attributable to Operating Partnership noncontrolling interests | (973 | ) | (1,599 | ) | (v) | (2,572 | ) | |||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (989,284 | ) | $ | (123,352 | ) | $ | (1,112,636 | ) | |||
| Loss per share from operations - basic and diluted | $ | (0.06 | ) | $ | (0.07 | ) | ||||||
| Weighted-average number of shares - basic and diluted | 16,037,073 | 16,037,073 | ||||||||||
| Dividends paid per common share | $ | 0.02 | $ | 0.02 | ||||||||
See notes to unaudited pro forma consolidated financial statements
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2022
Notes to unaudited pro forma consolidated statement of operations for the three months ended March 31, 2022
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company for the three months ended March 31, 2022. |
| (b) | Adjustments to give effect to the acquisition of the Salisbury Property as if the acquisition had occurred on January 1, 2022. |
| (i) | Represents rental revenues and tenant reimbursements for the Salisbury Property that would have been recognized for the three months ended March 31, 2022, based on the terms of leases for tenants that are currently in place. Rental revenues are presented on a straight-line basis and include an adjustment of ($23,612) in estimated net amortization of above and below market leases. |
| (ii) | Represents operating expenses for the Salisbury Property that would have been recognized for the three months ended March 31, 2022, based on historical operations of the previous owner, but excluding asset management fees which are already included as an expense in the historical financial information referenced in (a), above. Property management fees have been adjusted to reflect the Company’s management agreement with the property manager who will manage the Salisbury Property after its acquisition. |
| (iii) | Represents depreciation and amortization expense for the Salisbury Property that would have been recognized for the three months ended March 31, 2022, as if the Company had acquired the Salisbury Property on January 1, 2022. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 25 years for the building and 5 years for site improvements. Tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Intangible assets such as in-place lease value and other lease-related intangibles are recorded at fair value and are amortized over the remaining terms of the underlying leases. |
| (iv) | Represents interest expense on the allocated portion of the Wells Fargo Bank mortgage payable for the three months ended March 31, 2022, as if the mortgage payable was outstanding for the full three months ended March 31, 2022. Interest expense on the mortgage payable is based on the allocated principal amount of $6,552,000 and is calculated based on an amortization period of 25 years at the stated annual rate of 4.5 percent. Interest expense includes amortization of the allocated deferred financing costs using the straight-line method, which approximates to the effective interest method, over the five-year term of the loan. |
| (v) | Represents the Operating Partnership’s 1.28 percent weighted average noncontrolling ownership interest’s share of the Salisbury Property net loss for the three months ended March 31, 2022. |
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the year ended December 31, 2021
| Pro Forma | Pro Forma | Pro Forma | Pro Forma | Pro Forma | ||||||||||||||||||||||||||||||||||||
| Historical | Adjustments | Adjustments | Adjustments | Adjustments | Adjustments | Pro Forma | ||||||||||||||||||||||||||||||||||
| Year Ended | Lancer Center | Greenbrier Business | Parkway | Salisbury | Hampton Inn | Year Ended | ||||||||||||||||||||||||||||||||||
| December 31, 2021 (a) | Acquisition (b) | Center Acquisition (c) | Acquisition (d) | Acquisition (e) | Disposition (f) | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||||||||
| REVENUE | ||||||||||||||||||||||||||||||||||||||||
| Retail center property revenues | $ | 5,634,396 | $ | 416,356 | (i) | $ | - | $ | - | $ | 798,951 | (i) | $ | - | $ | 6,849,703 | ||||||||||||||||||||||||
| Flex center property revenues | 1,202,822 | - | 515,855 | (i) | 614,933 | (i) | - | - | 2,333,610 | |||||||||||||||||||||||||||||||
| Hotel property room revenues | 4,590,372 | - | - | - | - | (1,912,809 | ) | 2,677,563 | ||||||||||||||||||||||||||||||||
| Hotel property other revenues | 44,959 | - | - | - | - | (28,274 | ) | 16,685 | ||||||||||||||||||||||||||||||||
| Total Revenue | $ | 11,472,549 | $ | 416,356 | $ | 515,855 | $ | 614,933 | $ | 798,951 | $ | (1,941,083 | ) | $ | 11,877,561 | |||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||
| Retail center property operating expenses | $ | 1,518,973 | $ | 101,022 | (ii) | $ | - | $ | - | $ | 161,508 | (ii) | $ | - | $ | 1,781,503 | ||||||||||||||||||||||||
| Flex center property operating expenses | 343,717 | - | 101,284 | (ii) | 155,585 | (ii) | - | - | 600,586 | |||||||||||||||||||||||||||||||
| Hotel property operating expenses | 3,102,951 | - | - | - | - | (1,701,451 | ) | 1,401,500 | ||||||||||||||||||||||||||||||||
| Bad debt expense | 39,024 | - | - | - | - | - | 39,024 | |||||||||||||||||||||||||||||||||
| Share based compensation expenses | 149,981 | - | - | - | - | - | 149,981 | |||||||||||||||||||||||||||||||||
| Legal, accounting and other professional fees | 1,465,199 | - | - | - | - | - | 1,465,199 | |||||||||||||||||||||||||||||||||
| Corporate general and administrative expenses | 654,137 | - | - | - | - | - | 654,137 | |||||||||||||||||||||||||||||||||
| Loss on impairment | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Impairment of assets held for sale | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | 3,508,704 | 343,122 | (iii) | 553,893 | (iii) | 467,757 | (iii) | 776,037 | (iii) | - | 5,649,513 | |||||||||||||||||||||||||||||
| Total Operating Expenses | 10,782,686 | 444,144 | 655,177 | 623,342 | 937,545 | (1,701,451 | ) | 11,741,443 | ||||||||||||||||||||||||||||||||
| Gain on disposal of investment properties | 124,641 | - | - | - | - | (124,641 | ) | - | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | 814,504 | (27,788 | ) | (139,322 | ) | (8,409 | ) | (138,594 | ) | (364,273 | ) | 136,118 | ||||||||||||||||||||||||||||
| Interest expense | 5,534,255 | 105,389 | (iv) | 119,185 | (iv) | 117,830 | (iv) | 298,608 | (iv) | (475,844 | ) | 5,699,423 | ||||||||||||||||||||||||||||
| Net Loss from Operations | (4,719,751 | ) | (133,177 | ) | (258,507 | ) | (126,239 | ) | (437,202 | ) | 111,571 | (5,563,305 | ) | |||||||||||||||||||||||||||
| Other income | 361,469 | - | - | - | - | (178,166 | ) | 183,303 | ||||||||||||||||||||||||||||||||
| Net Loss | (4,358,282 | ) | (133,177 | ) | (258,507 | ) | (126,239 | ) | (437,202 | ) | (66,595 | ) | (5,380,002 | ) | ||||||||||||||||||||||||||
| Less: Net income attributable to Hampton Inn Property noncontrolling interests | 14,651 | - | - | - | - | 466,258 | 480,909 | |||||||||||||||||||||||||||||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (8,781 | ) | - | - | - | - | - | (8,781 | ) | |||||||||||||||||||||||||||||||
| Less: Net loss attributable to Parkway Property noncontrolling interests | (3,791 | ) | - | - | (22,723 | ) | (v) | - | - | (26,514 | ) | |||||||||||||||||||||||||||||
| Less: Net income (loss) attributable to Operating Partnership noncontrolling interests | 3,903 | (3,889 | ) | (v) | (4,666 | ) | (v) | (2,521 | ) | (vi) | (7,957 | ) | (v) | - | (15,130 | ) | ||||||||||||||||||||||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (4,364,264 | ) | $ | (129,288 | ) | $ | (253,841 | ) | $ | (100,995 | ) | $ | (429,245 | ) | $ | (532,853 | ) | $ | (5,810,486 | ) | |||||||||||||||||||
| Loss per share from operations - basic and diluted | $ | (0.33 | ) | $ | (0.44 | ) | ||||||||||||||||||||||||||||||||||
| Weighted-average number of shares - basic and diluted | 13,092,937 | 13,092,937 | ||||||||||||||||||||||||||||||||||||||
| Dividends paid per common share | $ | 0.04 | $ | 0.04 | ||||||||||||||||||||||||||||||||||||
See notes to unaudited pro forma consolidated financial statements
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
Notes to unaudited pro forma consolidated statement of operations for the year ended December 31, 2021
| (a) | Historical financial information was derived from the audited consolidated financial statements of the Company for the year ended December 31, 2021. |
| (b) | Adjustments to give effect to the acquisition of the Lancer Center as if the acquisition had occurred on January 1, 2021. |
| (i) | Represents rental revenues and tenant reimbursements for Lancer Center that would have been recognized for the period from January 1, 2021 through the acquisition date of May 18, 2021, based on the terms of leases for tenants that are currently in place. Rental revenues are presented on a straight-line basis and include an adjustment of $2,900 in estimated net amortization of above and below market leases. |
| (ii) | Represents operating expenses for Lancer Center for the period from January 1, 2021 through the acquisition date of May 18, 2021, based on historical operations of the previous owner, but excluding asset management fees which are already included as an expense in the historical financial information referenced in (a), above. Property management fees have been adjusted to reflect the Company’s management agreement with the property manager who will manage Lancer Center after its acquisition. |
| (iii) | Represents depreciation and amortization expense for Lancer Center for the period from January 1, 2021 through the acquisition date of May 18, 2021. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 14.2 years for the building and 7.5 years for land improvements. Tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Intangible assets such as in-place lease value and other lease-related intangibles are recorded at fair value and are amortized over the remaining terms of the underlying leases. |
| (iv) | Represents interest expense on the mortgage payable obtained at the time of the acquisition for the period from January 1, 2021 through the acquisition date of May 18, 2021. Interest expense on the mortgage payable is based on the original mortgage payable’s terms, including a principal amount of $6,565,000, an amortization period of 25 years and an interest rate of 4.0 percent. Interest expense includes amortization of the original mortgage payable’s deferred financing costs using the straight-line method, which approximates to the effective interest method, over the five-year term of the original mortgage payable. |
| (v) | Represents the Operating Partnership’s 2.92 percent weighted average noncontrolling ownership interest’s share of the Lancer Center net loss for the period from January 1, 2021 through the acquisition date of May 18, 2021. |
| (c) | Adjustments to give effect to the acquisition of the Greenbrier Business Center as if the acquisition had occurred on January 1, 2021. |
| (i) | Represents rental revenues and tenant reimbursements for the Greenbrier Business Center that would have been recognized for the period from January 1, 2021 through the acquisition date of August 28, 2021, based on the terms of leases for tenants that are currently in place. Rental revenues are presented on a straight-line basis and include an adjustment of $7,576 in estimated net amortization of above and below market leases. |
| (ii) | Represents operating expenses for Greenbrier Business Center for the period from January 1, 2021 through the acquisition date of August 28, 2021, based on historical operations of the previous owner, but excluding asset management fees which are already included as an expense in the historical financial information referenced in (a), above. Property management fees have been adjusted to reflect the Company’s management agreement with the property manager who will manage Greenbrier Business Center after its acquisition. |
| (iii) | Represents depreciation and amortization expense for Greenbrier Business Center for the period from January 1, 2021 through the acquisition date of August 28, 2021. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 26 years for the building and 10 years for land improvements. Tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Intangible assets such as in-place lease value and other lease-related intangibles are recorded at fair value and are amortized over the remaining terms of the underlying leases. |
| (iv) | Represents interest expense on the mortgage payable obtained at the time of the acquisition for the period from January 1, 2021 through the acquisition date of August 28, 2021. Interest expense on the mortgage payable is based on the original mortgage payable’s terms, including a principal amount of $4,495,000, an interest only period for the first 12 months of the mortgage term and an interest rate of 4.0 percent. Interest expense includes amortization of the original mortgage payable’s deferred financing costs using the straight-line method, which approximates to the effective interest method, over the five-year term of the loan. |
| (v) | Represents the Operating Partnership’s 1.80 percent weighted average noncontrolling ownership interest’s share of the Greenbrier Business Center net loss for the period from January 1, 2021 through the acquisition date of August 28, 2021. |
| (d) | Adjustments to give effect to the acquisition of the Parkway Property as if the acquisition had occurred on January 1, 2021. |
| (i) | Represents rental revenues and tenant reimbursements for the Parkway Property that would have been recognized for the period from January 1, 2021 through the acquisition date of November 1, 2021, based on the terms of leases for tenants that are currently in place. Rental revenues are presented on a straight-line basis and include an adjustment of $41,261 in estimated net amortization of above and below market leases. |
| (ii) | Represents operating expenses for the Parkway Property for the period from January 1, 2021 through the acquisition date of November 1, 2021, based on historical operations of the previous owner, but excluding asset management fees which are already included as an expense in the historical financial information referenced in (a), above. Property management fees have been adjusted to reflect the Company’s management agreement with the property manager who will manage the Parkway Property after its acquisition. |
| (iii) | Represents depreciation and amortization expense for the Parkway Property for the period from January 1, 2021 through the acquisition date of November 1, 2021. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 42 years for the building and 11 years for land improvements. Tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Intangible assets such as in-place lease value and other lease-related intangibles are recorded at fair value and are amortized over the remaining terms of the underlying leases |
| (iv) | Represents interest expense on the mortgage payable for the period from January 1, 2021 through the acquisition date of November 1, 2021. The principal amount of the mortgage is $5,100,000 and the mortgage bears interest at a variable rate of 2.25 percent above the one-month ICE LIBOR rate. Interest expense on the mortgage payable is calculated based on an interest only period for the first 12 months of the mortgage term at an assumed interest rate of 2.34 percent, which is based on an ICE LIBOR rate of 0.09 percent as of November 18, 2021. Interest expense includes amortization of deferred financing costs using the straight-line method, which approximates to the effective interest method, over the term of the loan (ten years). |
| (v) | Represents the Parkway Property’s noncontrolling interest’s 18 percent share of the Parkway Property net loss that would have been recorded for the period from January 1, 2021 through the acquisition date of November 1, 2021. |
| (vi) | Represents the Operating Partnership’s 2.00 percent weighted average noncontrolling ownership interest’s share of the Operating Partnership’s 82 percent interest of the Parkway Property net loss that would have been recorded for the period from January 1, 2021 through the acquisition date of November 1, 2021. |
| (e) | Adjustments to give effect to the acquisition of the Salisbury Property as if the acquisition had occurred on January 1, 2021. |
| (i) | Represents rental revenues and tenant reimbursements for the Salisbury Property that would have been recognized for the year ended December 31, 2021 based on the terms of leases for tenants that are currently in place. Rental revenues are presented on a straight-line basis and include an adjustment of $(94,447) in estimated net amortization of above and below market leases. |
| (ii) | Represents operating expenses for the Salisbury Property for the year ended December 31, 2021, based on historical operations of the previous owner, but excluding asset management fees which are already included as an expense in the historical financial information referenced in (a), above. Property management fees have been adjusted to reflect the Company’s management agreement with the property manager who will manage the Salisbury Property after its acquisition. |
| (iii) | Represents depreciation and amortization expense for the Salisbury Property for the year ended December 31, 2021 as if the Company had acquired the Salisbury Property on January 1, 2021. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 25 years for the building and 5 years for land improvements. Tenant improvements are amortized utilizing the straight-line method over the term of the related lease or occupancy term of the tenant, if shorter. Intangible assets such as in-place lease value and other lease-related intangibles are recorded at fair value and are amortized over the remaining terms of the underlying leases |
| (iv) | Represents interest expense on the allocated portion of the Wells Fargo Bank mortgage payable for the year ended December 31, 2021 as if the mortgage payable was outstanding for the full 12 months ending December 31, 2021. Interest expense on the mortgage payable is based on the allocated principal amount of $6,552,000 and is calculated based on an amortization period of 25 years at the stated annual rate of 4.5 percent. Interest expense includes amortization of the allocated deferred financing costs using the straight-line method, which approximates to the effective interest method, over the five-year term of the loan. |
| (v) | Represents the Operating Partnership’s 1.82 percent weighted average noncontrolling ownership interest’s share of the Operating Partnership’s of the Salisbury Property net loss that would have been recorded for the year ended December 31, 2021. |
| (f) | Adjustments to give effect to the sale of the Hampton Inn Property on August 31, 2021 as if the disposition had occurred on December 31, 2020. Actual operating results for the Company’s period of ownership from January 1, 2021 through August 31, 2021 have been removed from the pro forma statement of operations to reflect the pro forma results of the Company’s current portfolio, as if the Company had owned the current portfolio for the full year ending December 31, 2021. |