Medalist Diversified REIT, Inc. (NASDAQ:MDRR) is a Virginia-based real estate investment trust (REIT) that has established itself as a key player in the commercial real estate market of the Mid-Atlantic and Southeastern United States. With a focus on acquiring, repositioning, renovating, leasing, and managing income-producing properties, the company has demonstrated a strategic approach to navigating the evolving landscape of the industry.

Company Background

Medalist Diversified REIT was formed as a Maryland corporation on September 28, 2015, and began operations in 2017 after electing to be taxed as a REIT for federal income tax purposes. The company serves as the general partner of Medalist Diversified Holdings, LP, which was formed as a Delaware limited partnership on September 29, 2015. Initially, Medalist Diversified REIT was externally managed by Medalist Fund Manager, Inc. under a management agreement. However, on July 18, 2023, the company and the Manager entered into an agreement terminating the management agreement, transitioning to an internally managed structure directed by the Board of Directors.

Portfolio and Recent Acquisitions

As of September 30, 2024, Medalist Diversified REIT’s portfolio consisted of 10 developed properties, including four retail center properties, three flex center properties, and three single-tenant net lease (STNL) properties, as well as three undeveloped parcels. The company’s geographical concentration in Virginia, North Carolina, and South Carolina has allowed it to leverage its regional expertise and capitalize on opportunities within these markets. In March 2024, the company and its tenant-in-common partner sold the Shops at Hanover Square North, a 73,440 square foot retail property located in Mechanicsville, Virginia, where Medalist previously owned an 84% tenant-in-common interest. Concurrently, the company purchased its tenant-in-common partner’s 16% interest in the Hanover Square Outparcel, an adjacent 0.86 acre parcel. Additionally, in March 2024, Medalist acquired the Citibank Property, a 4,350 square foot single-tenant building located in Chicago, Illinois, marking its expansion into a new market.

Financials

In its latest financial reporting for the nine months ended September 30, 2024, Medalist Diversified REIT reported total revenue of $7.21 million, a slight decrease from the $7.57 million reported in the same period of the prior year. The company’s net income for the nine-month period was $916,280, a significant improvement from the net loss of $4.04 million reported in the corresponding period of 2023. This turnaround can be attributed to the company’s strategic initiatives, including the sale of the Hanover Square Shopping Center Property in March 2024, which generated a gain on disposal of $2.82 million.

Medalist Diversified REIT’s focus on diversifying its asset mix has also been a key driver of its performance. The company’s retail center properties, which accounted for 68.7% of its total revenue during the nine-month period, saw a decline in revenue of 10.8% compared to the prior-year period, primarily due to the sale of the Hanover Square Shopping Center Property. However, the company’s flex center properties and STNL properties experienced increases in revenue of 9.2% and 45.9%, respectively, during the same period, highlighting the benefits of its diversification strategy.

For the most recent quarter, Medalist Diversified REIT reported revenue of $94,275, a net loss of $526,996, operating cash flow of $139,885, and free cash flow of -$164,653. The company’s performance in the retail center properties segment showed a decrease in revenues of $601,740 for the nine months ended September 30, 2024, compared to the same period in 2023. This decrease was primarily driven by the sale of the Hanover Square Shopping Center Property, which resulted in a $679,800 reduction in revenues. However, this was partially offset by increases in revenues from the Franklin Square Property of $80,840 and the Lancer Center Property of $66,390 due to new leasing activity.

The flex center properties segment generated $2.01 million in revenues for the nine months ended September 30, 2024, an increase of $168,380 compared to the same period in 2023. This increase was driven by higher revenues from the Parkway Property, the Greenbrier Business Center Property, and the Brookfield Center Property, all due to new leasing activity.

The STNL properties segment saw an increase in revenues of $77,460 for the nine months ended September 30, 2024, compared to the same period in 2023. This increase was primarily due to higher revenues from the Citibank Property acquisition and a lease escalation for the T-Mobile Property, partially offset by a slight decline in revenues from the East Coast Wings Property.

Liquidity

The company’s liquidity position remains stable, with $4.97 million in consolidated cash and restricted cash as of September 30, 2024, compared to $3.81 million as of December 31, 2023. As of the most recent quarter, Medalist Diversified REIT reported $3.12 million in cash. The company has also taken steps to enhance its financial flexibility, including the expansion of its line of credit from $1.5 million to $4 million in October 2024, which offers competitive financing terms to support future growth. The full $4 million line of credit with Wells Fargo Bank was available as of September 30, 2024.

The company’s current ratio and quick ratio both stand at 4.85, indicating a strong ability to meet short-term obligations. However, the debt-to-equity ratio could not be calculated due to the lack of provided total debt and total equity figures.

Resilience and Strategic Management

Despite the challenges posed by the ongoing pandemic and its impact on the commercial real estate sector, Medalist Diversified REIT has demonstrated resilience and a commitment to prudent management. In October 2024, the company issued a notice of its intent to redeem 140,000 shares of its 8.0% Series A Cumulative Redeemable Preferred Stock, funded by a $2 million private placement of operating partnership units and $1.5 million in cash on hand. This proactive approach to managing its capital structure showcases the company’s financial discipline and foresight.

Furthermore, Medalist Diversified REIT has not been immune to the scrutiny of the investment community. In 2023, the company faced a short report that raised concerns about its management and operations. However, the company has since addressed these issues, including the termination of its external management agreement and the transition to an internally managed structure, which has strengthened its corporate governance and alignment with shareholder interests.

Conclusion

As Medalist Diversified REIT navigates the evolving commercial real estate landscape, the company’s focus on diversification, financial discipline, and strategic execution has positioned it to capitalize on emerging opportunities. With a portfolio of well-positioned assets, a strengthened balance sheet, and a management team committed to creating long-term value for its shareholders, Medalist Diversified REIT appears poised to continue its trajectory of prudent growth and resilience. The company’s performance across its three segments – retail center properties, flex center properties, and STNL properties – demonstrates its ability to adapt to market conditions and optimize its portfolio. While challenges remain, particularly in the retail sector, Medalist Diversified REIT’s strategic initiatives and financial management provide a solid foundation for future growth and value creation.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.