Medalist Diversified, Inc 8-K/A, filed Oct 19, 2021
Medalist Diversified, Inc. (MDRR)
About this 8-K/A
Medalist Diversified, Inc filed this 8-K/A on October 19, 2021, reporting on events of August 27, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
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Explanatory Note
| ITEM 9.01 | FINANCIAL STATEMENTS AND EXHIBITS. |
(a) Financial Statements of Property Acquired
The following Statements of Revenues and Certain Expenses for the Greenbrier Business Center are set forth in Exhibit 99.1, which is incorporated herein by reference.
Report of Independent Auditors.
Statements of Revenues and Certain Operating Expenses for the six months ended June 30, 2021 and years ended December 31, 2020 and 2019.
Notes to Statements of Revenues and Certain Operating Expenses for the six months ended June 30, 2021 and years ended December 31, 2020 and 2019.
(b) Unaudited Pro Forma Financial Information
The following unaudited pro forma financial statements for the Greenbrier Business Center are set forth in Exhibit 99.2, which is incorporated herein by reference.
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2021.
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2021.
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2021.
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2021.
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2020.
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2020.
(c) Not applicable.
(d) Exhibits
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: October 19, 2021 | 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 (Nos. 333-228674 and 333-238483) and Form S-3 (No. 333-257238) of our report dated October 19, 2021, with respect to the statements of revenues and certain operating expenses of Greenbrier Business Center for the years ended December 31, 2020 and 2019, which appears in Form 8-K/A of Medalist Diversified REIT, Inc., dated October 19, 2021.
/s/ Cherry Bekaert LLP
Richmond, Virginia
October 19, 2021
Exhibit 99.1
GREENBRIER BUSINESS CENTER
FINANCIAL STATEMENTS
Six Months Ended June 30, 2021 (unaudited) and
Years Ended December 31, 2020 and 2019
Table of Contents
| Report of Independent Auditor | 1 |
| Statements of Revenues and Certain Operating Expenses | 2 |
| Notes to Statements of Revenues and Certain Operating Expenses | 3 |
Report of Independent Auditor
Board of Directors
Medalist Diversified REIT, Inc.
We have audited the accompanying statements of revenues and certain operating expenses (the “Statements”) of Greenbrier Business Center (the “Property”), as defined in Note 1 of the Statements, for the years ended December 31, 2020 and 2019.
Management’s Responsibility for the Statements
Management is responsible for the preparation and fair presentation of the Statements, in accordance with accounting principles generally accepted in the United States of America that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Statements 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 entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Statements.
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Statements referred to above present fairly, in all material respects, the revenues and certain operating expenses of the Property for the years ended December 31, 2020 and 2019 in conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying Statements were prepared as described in Note 1, for the purpose of complying with the rules and regulations of the Securities and Exchange Commission and are not intended to be a complete presentation of the Property’s revenues and expenses. Our opinion is not modified with respect to this matter.
/s/ Cherry Bekaert LLP
Richmond, Virginia
October 19, 2021
1
GREENBRIER BUSINESS CENTER
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
Six Months Ended June 30, 2021 (unaudited) and
Years Ended December 31, 2020 and 2019
| Six months ended June 30, | Year ended December 31, | |||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Unaudited | ||||||||||||
| REVENUE | ||||||||||||
| Flex center property revenues | $ | 322,889 | $ | 533,655 | $ | 560,497 | ||||||
| Flex center property tenant reimbursements | 54,153 | 106,337 | 103,925 | |||||||||
| Total revenues | 377,042 | 639,992 | 664,422 | |||||||||
| CERTAIN OPERATING EXPENSES | ||||||||||||
| Real estate taxes and insurance | 40,884 | 81,864 | 78,264 | |||||||||
| Operating and maintenance | 28,259 | 47,508 | 48,245 | |||||||||
| Management fee | 11,511 | 18,747 | 19,121 | |||||||||
| Bad debt expense | - | 40,794 | - | |||||||||
| Total certain operating expenses | 80,654 | 188,913 | 145,630 | |||||||||
| Revenues in excess of certain operating expenses | $ | 296,388 | $ | 451,079 | $ | 518,792 | ||||||
See accompanying notes to statements of revenues and certain operating expenses.
2
Notes to Statements of Revenues and Certain Operating Expenses
Note 1. Basis of Presentation
The accompanying statements of revenues and certain operating expenses (the “Statements”) includes the operations of Greenbrier Business Center (the “Property”).
The Statements have 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 Statements are not representative of the actual operations for the periods 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, maintenance and repair and interest expenses, non-cash expenses such as depreciation, amortization, and amortization of above-market and below-market leases, and interest income. Management has determined that it is appropriate to include bad debt expense in the Statements to reflect the inherent risk of real property ownership and the possibility that bad debt expense could be incurred in the future. Management is not aware of any material factors during the years ended December 31, 2020 or 2019, respectively, 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 Statements have 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.
Bad debt expense:
For the year ended December 31, 2020, Management recorded $40,794 in bad debt expense related to rent revenues that were recorded during the year ended December 31, 2019 and which were subsequently determined to be uncollectible.
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 statement.
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 Statements in conformity with GAAP. Actual results could differ from those estimates.
3
Note 3. Minimum Future Lease Rentals
There are various lease agreements in place with tenants to lease space in the Property. As of June 30, 2021, 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 six months ending December 31, 2021 | $ | 308,457 | ||
| 2022 | 497,239 | |||
| 2023 | 254,267 | |||
| 2024 | 207,500 | |||
| 2025 | 124,299 | |||
| Thereafter | 53,476 | |||
| Total future rents | $ | 1,445,238 | ||
Note 4. Tenant Concentrations
As of December 31, 2020 and 2019, respectively, the Property’s occupancy rate was 85.8 percent and 82.2 percent. For the year ended December 31, 2020, four tenants combine to represent approximately 48.7 percent of the Property’s rental revenues. For the year ended December 31, 2019, three tenants combine to represent approximately 43.6 percent of the Property’s rental revenues.
Note 5. Commitments and Contingencies
The Property is 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 the ultimate settlement of these actions will not have a material adverse effect on the Property’s results of operations.
Since March 2020, flex center properties such as the Property have been significantly impacted by measures taken by local, state and federal authorities to mitigate the impact of COVID-19, such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders. While some of these measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from the continued spread of COVID-19, difficulties in vaccinating the public, and its new variants and the possibility of the re-imposition of mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders by some governmental authorities, the negative impact on demand for the goods and services of the tenants in the Property could continue to be significant in the coming months.
Note 6. Subsequent Events
Management has evaluated subsequent events through October 19, 2021, the date the financial statements were available to be issued and there are no subsequent events for disclosure in the accompanying financial statement.
4
Exhibit 99.2
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2021
and
Unaudited Pro Forma Consolidated Statement
of Operations for the Six Months ended June 30, 2021
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 June 30, 2021, the related unaudited condensed consolidated statement of operations for the six months ended June 30, 2021, and the audited consolidated statement of operations for the year ended December 31, 2020.
The following unaudited pro forma consolidated balance sheet as of June 30, 2021 has been prepared to give effect to the acquisition of the Greenbrier Business Center as if the acquisition occurred on June 30, 2021.
The following unaudited pro forma consolidated statements of operation for the six months ended June 30, 2021 has been prepared to give effect to the acquisition of (i) the Greenbrier Business Center and (ii) the Lancer Center as if the acquisitions had occurred on January 1, 2021.
The following unaudited pro forma consolidated statements of operation for the year ended December 31, 2020 has been prepared to give effect to the acquisition of (i) the Greenbrier Business Center and (ii) the Lancer Center as if the acquisitions had occurred on January 1, 2020.
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 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 June 30, 2021
| Pro Forma | ||||||||||||
| Adjustments | ||||||||||||
| Historical | Greenbrier Business | Pro Forma | ||||||||||
| June 30, 2021 (a) | Center Acquisition (b) | June 30, 2021 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| ASSETS | ||||||||||||
| Investment properties, net | $ | 56,344,501 | $ | 6,896,803 | (c) | $ | 63,241,304 | |||||
| Cash | 10,868,459 | (3,097,162) | (d) | 7,771,297 | ||||||||
| Restricted cash | 2,921,630 | 150,000 | (e) | 3,071,630 | ||||||||
| Rent and other receivables, net of allowance | 387,911 | - | 387,911 | |||||||||
| Assets held for sale | 22,093,805 | - | 22,093,805 | |||||||||
| Unbilled rent | 817,011 | - | 817,011 | |||||||||
| Intangible assets, net | 3,903,880 | 632,126 | (f) | 4,536,006 | ||||||||
| Other assets | 231,993 | - | 231,993 | |||||||||
| Total Assets | $ | 97,569,190 | $ | 4,581,767 | $ | 102,150,957 | ||||||
| LIABILITIES | ||||||||||||
| Accounts payable and accrued liabilities | $ | 1,896,609 | $ | - | $ | 1,896,609 | ||||||
| Intangible liabilities, net | 1,791,200 | 100,167 | (f) | 1,891,367 | ||||||||
| Line of credit, short term, net | - | - | - | |||||||||
| Notes payable | - | - | - | |||||||||
| Convertible debentures, net | - | - | - | |||||||||
| Mortgages payable, net | 46,686,174 | 4,481,600 | (g) | 51,167,774 | ||||||||
| Mortgages payable, net, associated with assets held for sale | 17,976,368 | - | 17,976,368 | |||||||||
| Mandatorily redeemable preferred stock, net | 4,123,236 | - | 4,123,236 | |||||||||
| Total Liabilities | $ | 72,473,587 | $ | 4,581,767 | $ | 77,055,354 | ||||||
| EQUITY | ||||||||||||
| Common stock | $ | 160,524 | $ | - | $ | 160,524 | ||||||
| Additional paid-in capital | 49,645,428 | - | 49,645,428 | |||||||||
| Offering costs | (3,298,752 | ) | - | (3,298,752 | ) | |||||||
| Accumulated deficit | (22,259,474 | ) | - | (22,259,474 | ) | |||||||
| Total Shareholders' Equity | 24,247,726 | - | 24,247,726 | |||||||||
| Noncontrolling interests - Hampton Inn Property | (206,128 | ) | - | (206,128 | ) | |||||||
| Noncontrolling interests - Hanover Square Property | 167,977 | - | 167,977 | |||||||||
| Noncontrolling interests - Operating Partnership | 886,028 | - | 886,028 | |||||||||
| Total Equity | $ | 25,095,603 | $ | - | $ | 25,095,603 | ||||||
| Total Liabilities and Equity | $ | 97,569,190 | $ | 4,581,767 | $ | 102,150,957 | ||||||
See the accompanying notes to unaudited pro forma consolidated balance sheet
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2021
Notes to unaudited pro forma consolidated balance sheet as of June 30, 2021
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company as of June 30, 2021. |
| (b) | Represents the acquisition of the Greenbrier Business Center as if it had occurred on June 30, 2021. Greenbrier Business Center was acquired by MDR Greenbrier, LLC, a wholly owned subsidiary of Medalist Diversified Holdings, LP (the “Operating Partnership”), of which the Company is the General Partner, on August 27, 2021. The net purchase price of the property was $7,250,000 plus capitalized closing and acquisition costs of $178,763. |
| (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 $3,097,162 in cash from the Company. |
| (e) | Represents restricted cash deposited into an operating escrow at closing. |
| (f) | 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. |
| (g) | The Company assumed a mortgage payable from the seller of the property totaling $4,495,000 with deferred financing costs totaling $13,400, which are presented as a direct reduction of the associated debt. |
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the six months ended June 30, 2021
| Pro Forma | Pro Forma | |||||||||||||||||
| Historical | Adjustments | Adjustments | Pro Forma | |||||||||||||||
| Six Months Ended | Lancer Center | Greenbrier Business | Six Months Ended | |||||||||||||||
| June 30, 2021 (a) | Acquisition (b) | Center Acquisition (c) | June 30, 2021 | |||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||
| REVENUE | ||||||||||||||||||
| Retail center property revenues | $ | 2,165,172 | $ | 383,869 | (i) | $ | - | $ | 2,549,041 | |||||||||
| Retail center property tenant reimbursements | 389,818 | 32,487 | (ii) | - | 422,305 | |||||||||||||
| Flex center property revenues | 279,411 | - | 345,617 | (i) | 625,028 | |||||||||||||
| Flex center property tenant reimbursements | 87,010 | - | 54,153 | (ii) | 141,163 | |||||||||||||
| Hotel property room revenues | 2,708,142 | - | - | 2,708,142 | ||||||||||||||
| Hotel property other revenues | 20,561 | - | - | 20,561 | ||||||||||||||
| Total Revenue | $ | 5,650,114 | $ | 416,356 | $ | 399,770 | $ | 6,466,240 | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||||
| Retail center property operating expenses | $ | 681,764 | $ | 101,022 | (iii) | $ | - | (iii) | $ | 863,440 | ||||||||
| Flex center property operating expenses | 118,804 | - | 80,654 | 118,804 | ||||||||||||||
| Hotel property operating expenses | 1,772,584 | - | - | 1,772,584 | ||||||||||||||
| Bad debt expense | 3,196 | - | - | 3,196 | ||||||||||||||
| Share based compensation expenses | 149,981 | - | - | 149,981 | ||||||||||||||
| Legal, accounting and other professional fees | 801,405 | - | - | 801,405 | ||||||||||||||
| Corporate general and administrative expenses | 172,667 | - | - | 172,667 | ||||||||||||||
| Depreciation and amortization | 1,423,610 | 343,122 | (iv) | 332,330 | (iv) | 2,099,062 | ||||||||||||
| Total Operating Expenses | 5,124,011 | 444,144 | 412,984 | 5,981,139 | ||||||||||||||
| Operating Income (Loss) | 526,103 | (27,789 | ) | (13,214 | ) | 485,101 | ||||||||||||
| Interest expense | 3,658,428 | 105,389 | (v) | 91,284 | (v) | 3,855,101 | ||||||||||||
| Net Loss from Operations | (3,132,325 | ) | (133,177 | ) | (104,498 | ) | (3,370,000 | ) | ||||||||||
| Other income (loss) | 183,759 | - | - | 183,759 | ||||||||||||||
| Net Loss | (2,948,566 | ) | (133,177 | ) | (104,498 | ) | (3,186,241 | ) | ||||||||||
| Less: Net loss attributable to Hampton Inn Property noncontrolling interests | 18,255 | - | - | 18,255 | ||||||||||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (9,807 | ) | - | - | (9,807 | ) | ||||||||||||
| Less: Net income (loss) attributable to Operating Partnership noncontrolling interests | 3,473 | (3,369 | ) | (vi) | (2,644 | ) | (vi) | (2,540 | ) | |||||||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (2,960,487 | ) | $ | (129,808 | ) | $ | (101,854 | ) | $ | (3,192,149 | ) | ||||||
| Loss per share from operations - basic and diluted | $ | (0.29 | ) | $ | (0.32 | ) | ||||||||||||
| Weighted-average number of shares - basic and diluted | 10,133,257 | 10,133,257 | ||||||||||||||||
| Dividends declared per common share | $ | - | $ | - | ||||||||||||||
See notes to unaudited pro forma consolidated financial statements
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2021
Notes to unaudited pro forma consolidated statement of operations for the six months ended June 30, 2021
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company for the six months ended June 30, 2021. |
| (b) | Adjustments to give effect to the acquisition of the Lancer Center on May 18, 2021 as if the acquisition had occurred on January 1, 2021. For the six months ended June 30, 2021, this column includes pro forma operating results for the period from January 1, 2021 through the acquisition date of May 18, 2021. Actual operating results for the period from May 19, 2021 through June 30, 2021 are included in the historical financial information for the six months ended June 30, 2021. |
| (i) | Represents rental revenues 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 tenant reimbursement revenues for Lancer Center that would have been recognized for the period from January 1, 2021 through the acquisition date of May 18, 2021. |
| (iii) | 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. |
| (iv) | Represents depreciation and amortization expense for Lancer Center for the period from January 1, 2021 through the acquisition date of May 18, 2021, as if the Company had acquired Lancer Center on January 1, 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. |
| (v) | Represents interest expense on the mortgage payable for the period from January 1, 2021 through the acquisition date of May 18, 2021 as if the mortgage was outstanding during this period. Interest expense on the mortgage payable is based on the principal amount of $6,565,000 and is calculated based on an amortization period of 25 years at the stated annual rate of 4.0%. 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 (five years). |
| (vi) | Represents the Operating Partnership’s 2.53 percent weighted average noncontrolling ownership interest’s share of the Lancer Center net loss for the six months ended June 30, 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 for the Greenbrier Business Center that would have been recognized for the six months ended June 30, 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 $22,728 in estimated net amortization of above and below market leases. |
| (ii) | Represents tenant reimbursement revenues for the Greenbrier Business Center that would have been recognized for the six months ended June 30, 2021. |
| (iii) | Represents operating expenses for the Greenbrier Business Center for the six months ended June 30, 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 Greenbrier Business Center after its acquisition. |
| (iv) | Represents depreciation and amortization expense for the Greenbrier Business Center for the six months ended June 30, 2021, as if the Company had acquired the Greenbrier Business Center on January 1, 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. |
| (v) | Represents interest expense on the mortgage payable for the six months ended June 30, 2021, as if the mortgage was outstanding for the full six months ended June 30,2021. Interest expense on the mortgage payable is based on the principal amount of $4,495,000 and is calculated based on an interest only period for the first 12 months of the mortgage term at the stated annual rate of 4.0%. 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 (five years). |
| (vi) | Represents the Operating Partnership’s 2.53 percent weighted average noncontrolling ownership interest’s share of the Greenbrier Business Center net loss for the six months ended June 30, 2021. |
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the year ended December 31, 2020
| Pro Forma | Pro Forma | |||||||||||||||||
| Historical | Adjustments | Adjustments | Pro Forma | |||||||||||||||
| Year Ended | Lancer Center | Greenbrier Business | Year Ended | |||||||||||||||
| December 31, 2020 (a) | Acquisition (b) | Center Acquisition (c) | December 31, 2020 | |||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| REVENUE | ||||||||||||||||||
| Retail center property revenues | $ | 4,284,779 | $ | 1,040,376 | (i) | $ | - | $ | 5,325,155 | |||||||||
| Retail center property tenant reimbursements | 867,371 | 129,905 | (ii) | - | 997,276 | |||||||||||||
| Flex center property revenues | 559,641 | - | 579,111 | (i) | 1,138,752 | |||||||||||||
| Flex center property tenant reimbursements | 227,193 | - | 106,337 | (ii) | 333,530 | |||||||||||||
| Hotel property room revenues | 3,207,405 | - | - | 3,207,405 | ||||||||||||||
| Hotel property other revenues | 129,771 | - | - | 129,771 | ||||||||||||||
| Total Revenue | $ | 9,276,160 | $ | 1,170,281 | $ | 685,448 | $ | 11,131,889 | ||||||||||
| OPERATING EXPENSES | ||||||||||||||||||
| Retail center property operating expenses | $ | 1,362,532 | $ | 299,322 | (iii) | $ | - | (iii) | $ | 1,850,767 | ||||||||
| Flex center property operating expenses | 231,209 | - | 188,913 | 231,209 | ||||||||||||||
| Hotel property operating expenses | 3,164,646 | - | - | 3,164,646 | ||||||||||||||
| Bad debt expense | 431,143 | - | - | 431,143 | ||||||||||||||
| Share based compensation expenses | 569,995 | - | - | 569,995 | ||||||||||||||
| Legal, accounting and other professional fees | 1,258,863 | - | - | 1,258,863 | ||||||||||||||
| Corporate general and administrative expenses | 300,641 | - | - | 300,641 | ||||||||||||||
| Loss on impairment | 223,097 | - | - | 223,097 | ||||||||||||||
| Impairment of assets held for sale | 3,494,058 | - | - | 3,494,058 | ||||||||||||||
| Depreciation and amortization | 3,981,874 | 919,024 | (iv) | 610,927 | (iv) | 5,511,825 | ||||||||||||
| Total Operating Expenses | 15,018,058 | 1,218,346 | 799,840 | 17,036,244 | ||||||||||||||
| Operating Loss | (5,741,898 | ) | (48,065 | ) | (114,392 | ) | (5,904,355 | ) | ||||||||||
| Interest expense | 3,960,626 | 288,390 | (v) | 182,568 | (v) | 4,431,584 | ||||||||||||
| Net Loss from Operations | (9,702,524 | ) | (336,455 | ) | (296,960 | ) | (10,335,939 | ) | ||||||||||
| Other income (loss) | 120,982 | - | - | 120,982 | ||||||||||||||
| Net Loss | (9,581,542 | ) | (336,455 | ) | (296,960 | ) | (10,214,957 | ) | ||||||||||
| Less: Net loss attributable to Hampton Inn Property noncontrolling interests | (1,131,765 | ) | - | - | (1,131,765 | ) | ||||||||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (23,167 | ) | - | - | (23,167 | ) | ||||||||||||
| Less: Net loss attributable to Operating Partnership noncontrolling interests | (246,001 | ) | (14,838 | ) | (vi) | (13,096 | ) | (vi) | (273,935 | ) | ||||||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (8,180,609 | ) | $ | (330,803 | ) | $ | (283,864 | ) | $ | (8,786,090 | ) | ||||||
| Loss per share from operations - basic and diluted | $ | (1.74 | ) | $ | (1.87 | ) | ||||||||||||
| Weighted-average number of shares - basic and diluted | 4,709,980 | 4,709,980 | ||||||||||||||||
| Dividends declared per common share | $ | 0.125 | $ | 0.125 | ||||||||||||||
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, 2020
Notes to unaudited pro forma consolidated statement of operations for the year ended December 31, 2020
| (a) | Historical financial information was derived from the audited condensed consolidated financial statements of the Company for the year ended December 31, 2020. |
| (b) | Adjustments to give effect to the acquisition of the Lancer Center as if the acquisition had occurred on January 1, 2020. |
| (i) | Represents rental revenues for Lancer Center that would have been recognized for the year ended December 31, 2020 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 $24,366 in estimated net amortization of above and below market leases. |
| (ii) | Represents tenant reimbursement revenues for Lancer Center that would have been recognized for the year ended December 31, 2020. |
| (iii) | Represents operating expenses for Lancer Center for the year ended December 31, 2020, 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. |
| (iv) | Represents depreciation and amortization expense for Lancer Center for the year ended December 31, 2020 as if the Company had acquired Lancer Center on January 1, 2020. 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. |
| (v) | Represents interest expense on the mortgage payable for the year ended December 31, 2020 as if the mortgage payable was outstanding for the full 12 months of 2020. Interest expense on the mortgage payable is based on the principal amount of $6,565,000 and is calculated based on an amortization period of 25 years at the stated annual rate of 4.0%. 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 (five years). |
| (vi) | Represents the Operating Partnership’s 4.41 percent weighted average noncontrolling ownership interest’s share of the Lancer Center net loss for 2020. |
| (c) | Adjustments to give effect to the acquisition of the Greenbrier Business Center as if the acquisition had occurred on January 1, 2020. |
| (i) | Represents rental revenues for the Greenbrier Business Center that would have been recognized for the year ended December 31, 2020 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 $45,456 in estimated net amortization of above and below market leases. |
| (ii) | Represents tenant reimbursement revenues for the Greenbrier Business Center that would have been recognized for the year ended December 31, 2020. |
| (iii) | Represents operating expenses for Greenbrier Business Center for the year ended December 31, 2020, 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. |
| (iv) | Represents depreciation and amortization expense for Greenbrier Business Center for the year ended December 31, 2020 as if the Company had acquired Greenbrier Business Center on January 1, 2020. 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. |
| (v) | Represents interest expense on the mortgage payable for the year ended December 31, 2020 as if the mortgage payable was outstanding for the full 12 months of 2020. Interest expense on the mortgage payable is based on the principal amount of $4,495,000 and is calculated based on an interest only period for the first 12 months of the mortgage term at the stated annual rate of 4.0%. 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 (five years). |
| (vi) | Represents the Operating Partnership’s 4.41 percent weighted average noncontrolling ownership interest’s share of the Greenbrier Business Center net loss for 2020. |