Medalist Diversified REIT, Inc. (NASDAQ:MDRR) is a Virginia-based real estate investment trust that specializes in acquiring, owning, and managing commercial real estate in the Southeast region of the United States. The company's portfolio consists of a diverse mix of retail, flex-industrial, and single-tenant net lease (STNL) properties, positioning it as a unique player in the REIT landscape.
Business Overview and History
Medalist Diversified REIT was formed in 2015 as a Maryland corporation, with the primary goal of acquiring, repositioning, renovating, leasing, and managing income-producing properties. The company began operations in 2017 after electing to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Initially, Medalist was externally managed by Medalist Fund Manager, Inc., which made all investment decisions that were approved by the company's Board of Directors.
During its early years, the company focused on building a portfolio of retail and flex-industrial properties located in secondary and tertiary markets in Virginia, North Carolina, and South Carolina. In 2021, Medalist Diversified REIT expanded its portfolio by acquiring additional flex-industrial properties, including the Greenbrier Business Center and the Parkway Property, further diversifying its asset base.
However, the company faced challenges including tenant defaults and early lease terminations, which resulted in impairment charges and losses. To address these issues, in July 2023, Medalist terminated its external management agreement and transitioned to an internally-managed structure. This management restructuring incurred significant one-time expenses but positioned the company to have more direct control over its operations and investment decisions going forward.
In 2024, Medalist expanded its focus to include the management and growth of a STNL property portfolio across the United States. This shift has allowed the company to diversify its asset base and capitalize on the attractive risk-return profile of STNL investments. As of December 31, 2024, Medalist's portfolio consisted of 10 properties, including four retail centers, three flex-industrial properties, and three STNL properties.
Financial Performance and Ratios
Medalist Diversified REIT has demonstrated steady financial performance in recent years, despite the challenges posed by the COVID-19 pandemic. For the fiscal year ended December 31, 2024, the company reported total revenue of $9.74 million, a slight decrease from the $10.27 million reported in the prior year. This decline was primarily attributable to the sale of the Hanover Square Shopping Center Property in March 2024, which resulted in a $1.05 million reduction in retail center property revenues.
Despite the revenue decrease, Medalist's net income for the year ended December 31, 2024, was $744,330, a significant improvement from the net loss of $4.57 million reported in the previous year. This turnaround was driven by a $2.82 million gain on the disposal of the Hanover Square property, as well as reduced interest expense and lower management restructuring costs. Additionally, decreases in bad debt expense, legal and professional fees, and depreciation and amortization contributed to the improved financial performance.
The company's annual operating cash flow for 2024 was $1.80 million, while annual free cash flow stood at $893,740. These figures demonstrate Medalist's ability to generate positive cash flow from its operations and investments.
For the most recent quarter (Q4 2024), Medalist reported revenue of $2.53 million and a net loss of $281,176. The year-over-year revenue increase in this quarter was primarily due to the addition of the Citibank Property to the STNL portfolio, while the net income decrease was attributed to higher corporate general and administrative expenses.
Liquidity
The company's liquidity position remains strong, with cash and cash equivalents totaling $4.78 million as of December 31, 2024, up from $2.23 million a year earlier. Medalist's current ratio and quick ratio, both measures of short-term liquidity, stood at 6.34 as of the end of 2024, indicating the company's ability to meet its short-term obligations.
Medalist's debt position is also well-managed, with a debt-to-equity ratio of 3.33 as of December 31, 2024. The company's long-term debt-to-capitalization ratio, a measure of its overall leverage, was 0.77, suggesting a prudent use of debt financing to support its growth initiatives.
Additionally, Medalist maintains a $4.0 million line of credit with Wells Fargo Bank, National Association, which was fully available as of December 31, 2024. This credit facility bears interest at a floating rate of SOFR + 3.1% and matures on September 30, 2026, providing the company with additional financial flexibility.
Operational Highlights and Growth Initiatives
One of the key drivers of Medalist's recent performance has been the successful execution of its STNL property acquisition strategy. In March 2024, the company acquired the Citibank Property, a 4,350 square foot single-tenant building in Chicago, Illinois, for $2.40 million. This transaction was followed by the acquisitions of the Buffalo Wild Wings Property in Bowling Green, Kentucky, and the United Rentals Property in Huntsville, Alabama, in January and February 2025, respectively.
These STNL acquisitions not only diversified Medalist's portfolio but also provided stable, long-term cash flows and the potential for attractive risk-adjusted returns. The company's focus on high-quality tenants and strategic geographic positioning has been a key differentiator in its STNL investment approach.
In addition to its STNL initiatives, Medalist has continued to actively manage its existing retail and flex-industrial properties. The company's proactive leasing efforts and property management strategies have helped maintain occupancy rates and drive consistent financial performance from these assets.
Portfolio Composition and Performance
As of December 31, 2024, Medalist's portfolio consisted of three reportable segments:
1. Retail Center Properties: This segment is the largest part of MDRR's portfolio, comprising four properties with a total rentable area of 553,057 square feet. These properties are located in secondary and tertiary markets in Virginia, North Carolina, and South Carolina. Key properties include the Franklin Square Property, Ashley Plaza Property, Lancer Center Property, and Salisbury Marketplace Property. In 2024, this segment generated $6.62 million in revenues, representing 68% of the company's total revenues. The occupancy rate for retail properties was 92.4% as of December 31, 2024, with a weighted average lease term of 5.2 years.
2. Flex Center Properties: This segment consists of three mixed-use industrial/office properties with a total rentable area of 218,276 square feet. These properties are located in Greenville, South Carolina; Chesapeake, Virginia; and Virginia Beach, Virginia. Key properties include the Brookfield Center Property, Greenbrier Business Center Property, and Parkway Property (in which MDRR owns an 82% tenant-in-common interest). In 2024, this segment generated $2.75 million in revenues, representing 28% of the company's total revenues. The occupancy rate for flex properties was 98.1% as of December 31, 2024, with a weighted average lease term of 3.2 years.
3. Single Tenant Net Lease (STNL) Properties: This segment is the smallest but fastest-growing part of MDRR's portfolio, consisting of three single-tenant net lease properties with a total rentable area of 12,348 square feet. These properties are located in Chicago, Illinois, and Goldsboro, North Carolina. Key properties include the Citibank Property, East Coast Wings Property, and T-Mobile Property. In 2024, this segment generated $359,889 in revenues, representing 4% of the company's total revenues. The occupancy rate for STNL properties was 100% as of December 31, 2024, with a weighted average lease term of 6.6 years.
Risks and Challenges
As with any real estate investment trust, Medalist Diversified REIT is exposed to a variety of risks and challenges that could impact its future performance. These include:
1. Concentration risk: While the company has made strides to diversify its portfolio, a significant portion of its revenue is still derived from its retail and flex-industrial properties, which are susceptible to changes in regional economic conditions and consumer spending patterns.
2. Tenant risk: The financial health and stability of Medalist's tenants, particularly its larger anchor tenants, can have a significant impact on the company's rental income and occupancy rates.
3. Interest rate risk: As a real estate company with a sizable debt load, Medalist is exposed to fluctuations in interest rates, which could affect its borrowing costs and overall profitability.
4. Regulatory and environmental risks: As a property owner, Medalist is subject to various federal, state, and local regulations, as well as potential environmental liabilities that could result in unexpected expenses or legal challenges.
5. Competitive landscape: The commercial real estate industry is highly competitive, and Medalist must continually evaluate its investment strategies and property management practices to maintain a competitive edge.
Industry Trends and Market Position
The commercial real estate sector, particularly in the Southeast region of the United States where Medalist primarily operates, has experienced a compound annual growth rate (CAGR) of approximately 5% over the past five years. This growth trend has provided a favorable backdrop for Medalist's operations and expansion strategies.
Medalist's focus on secondary and tertiary markets in the Southeast, combined with its growing STNL portfolio, positions the company to capitalize on both regional economic growth and the stability offered by long-term, single-tenant leases. The company's strategic shift towards STNL properties aligns with broader industry trends favoring stable, low-maintenance real estate investments.
Outlook and Conclusion
Medalist Diversified REIT has navigated the challenges of the past few years with resilience, leveraging its diversified portfolio and strategic focus on STNL acquisitions to drive improved financial performance. The company's recent transition to internal management and its ongoing efforts to expand its STNL portfolio suggest a promising path forward.
Looking ahead, Medalist's management team has expressed confidence in the company's ability to continue growing its asset base and generating stable, long-term cash flows. The company's strong liquidity position and prudent use of leverage provide a solid foundation for future investment and operational initiatives.
Medalist continues to evaluate options to create stand-alone STNL properties from its existing portfolio and to explore the acquisition of additional STNL properties in geographic markets across the United States. This strategy aligns with the company's goal of diversifying its revenue streams and reducing concentration risk.
While Medalist Diversified REIT faces its share of risks, the company's diversified business model, experienced management team, and strategic focus on high-quality assets position it well to navigate the evolving commercial real estate landscape. As Medalist continues to execute on its growth plans, investors will be closely watching the company's ability to consistently deliver value and capitalize on emerging opportunities within the REIT sector.