Medalist Diversified REIT, Inc. (NASDAQ:MDRR) is a Maryland-based real estate investment trust (REIT) that focuses on acquiring, repositioning, and managing commercial properties, primarily in the southeastern United States. The company's portfolio consists of retail center properties, flex center properties, and single-tenant net lease (STNL) properties, with a strategic emphasis on secondary and tertiary markets.

Medalist Diversified REIT was formed in 2015 with the goal of building a diversified portfolio of income-producing commercial properties. As of March 31, 2024, the company owns four retail center properties, three flex center properties, and three STNL properties, as well as three undeveloped parcels. The retail center properties include the Shops at Franklin Square, Ashley Plaza Shopping Center, Lancer Center, and Salisbury Marketplace Shopping Center. The flex center properties consist of Brookfield Center, Greenbrier Business Center, and Parkway Center. The STNL properties are the Citibank Property, East Coast Wings building, and T-Mobile building.

Financials

For the full year 2023, Medalist Diversified REIT reported annual revenue of $10,272,826, a decrease of 3.2% compared to the prior year. The company's annual net income was -$4,571,279, and its annual operating cash flow was $104,013, while annual free cash flow was -$1,379,104.

In the first quarter of 2024, the company generated total revenue of $2,571,639, an increase of 4.5% compared to the first quarter of 2023. This was driven by higher revenues from the company's retail center properties, which increased by $14,244, or 0.8%, and its flex center properties, which increased by $94,770, or 16.6%. Revenues from the company's STNL properties increased by $1,649, or 2.9%, during the quarter.

Net income for the first quarter of 2024 was $1,932,901, a significant improvement from the net loss of $1,233,806 reported in the first quarter of 2023. This was primarily due to a $2,819,502 gain on the disposal of the Hanover Square Shopping Center Property, which was partially offset by increased share-based compensation expenses of $277,500 and higher corporate general and administrative expenses of $179,745.

Operational Highlights

During the first quarter of 2024, Medalist Diversified REIT completed several notable transactions. On March 13, 2024, the company sold the Hanover Square Shopping Center Property for $13.0 million, less credits for repairs of $85,000, resulting in a gain on disposal of $2,819,502. Additionally, on March 25, 2024, the company acquired its tenant-in-common partner's 16% ownership interest in the Hanover Square Outparcel for $98,411.

The company also acquired the Citibank Property, a 4,350 square foot single-tenant building on 0.45 acres located in Chicago, Illinois, for $2,400,000 through the issuance of 417,391 operating partnership units.

Liquidity

As of March 31, 2024, Medalist Diversified REIT had $5,136,434 in cash and restricted cash, compared to $3,809,605 as of December 31, 2023. The company's current ratio was 6.19, and its quick ratio was also 6.19, indicating a strong liquidity position.

The company's primary sources of liquidity are rental receipts from its retail and flex center properties, as well as its $1,500,000 line of credit with Wells Fargo Bank, which had an available balance of $1,500,000 as of March 31, 2024. The company also has $1,499,034 held in lender reserves for tenant improvements, leasing commissions, real estate taxes, and insurance premiums.

Medalist Diversified REIT's total mortgages payable, net, were $50,595,020 as of March 31, 2024, compared to $50,772,773 as of December 31, 2023. The company's debt ratio was 0.73, and its debt-to-equity ratio was 4.03, indicating a moderately leveraged capital structure.

Risks and Challenges

Medalist Diversified REIT faces several risks and challenges, including:

1. Concentration risk: The company's portfolio is geographically concentrated in the Mid-Atlantic region, specifically in South Carolina, North Carolina, and Virginia, which represented approximately 99% of the total annualized base revenues as of March 31, 2024. This makes the company susceptible to adverse economic conditions in these markets.

2. Tenant concentration: The company's retail shopping center properties depend on anchor stores or major tenants to attract shoppers, and the loss of or a store closure by one of these tenants could adversely affect the company's operations.

3. Interest rate risk: The value of the company's real estate is subject to fluctuations based on changes in interest rates, which may affect its ability to refinance property-level mortgage debt when balloon payments are due.

4. Regulatory and environmental risks: As the owner of the buildings on its properties, the company could face liability for the presence of hazardous materials or other adverse conditions in its buildings, as well as the actions of its tenants.

Outlook

Medalist Diversified REIT has not provided any specific financial guidance for the full year 2024. However, the company's management has expressed cautious optimism about the continued recovery of the commercial real estate market, particularly in the retail and flex center sectors. The company's focus on secondary and tertiary markets, as well as its diversified portfolio of property types, may help mitigate some of the risks it faces.

Conclusion

Medalist Diversified REIT is a REIT that has navigated the challenges of the commercial real estate market, particularly in the retail and flex center sectors. The company's strategic focus on secondary and tertiary markets, as well as its diversified portfolio of property types, has helped it weather the economic uncertainties of recent years. While the company faces several risks and challenges, its strong liquidity position and ongoing operational improvements suggest that it may be well-positioned to capitalize on future growth opportunities in the commercial real estate market.