UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 30, 2019
Medalist Diversified REIT, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 001-38719 | 47-5201540 | ||
|
(State or other jurisdiction of
incorporation or organization) |
(Commission File Number)
|
(I.R.S. Employer Identification No.) |
11 S. 12th Street, Suite 401
Richmond, Virginia 23219
(Address of principal executive offices)
(804) 344-4435
(Registrant’s telephone number, including area code)
None
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging Growth Company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | MDRR | Nasdaq Capital Market |
Explanatory Note
This Form 8-K/A amends and supplements the Form 8-K filed by Medalist Diversified REIT, Inc. (the “Company”) on September 4, 2019 (the “Original Filing”) to (i) delete the reference to Item 1.01 in the submission heading and reflect the correct Item number 2.01 and (ii) to include the historical financial statements and 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, and Item 1.01 of the Original 8-K shall be amended and replaced in its entirety with Item 2.01 below.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
On August 30, 2019, Medalist Diversified REIT, Inc. (the “Company”), through its operating partnership, Medalist Diversified Holdings, L.P., closed on its acquisition of Ashley Plaza, a retail shopping center totaling approximately 160,356 square feet of gross leasable area in Goldsboro, North Carolina, for a purchase price of $15,200,000, exclusive of closing costs. Ashley Plaza was previously owned by RCG-Goldsboro, LLC, a Georgia limited liability company, an unaffiliated seller.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Property Acquired
The following Statements of Revenues and Certain Expenses for Ashley Plaza are set forth in Exhibit 99.1, which is incorporated herein by reference.
Report of Independent Auditors.
Statements of Revenues and Certain Expenses for the six months ended June 30, 2019 and the year ended December 31, 2018.
Notes to Statements of Revenues and Certain Expenses for the six months ended June 30, 2019 and the year ended December 31, 2018.
(b) Pro Forma Financial Information
The following pro forma financial statements for the Company are set forth in Exhibit 99.2, which is incorporated herein by reference.
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2019.
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2019.
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2018.
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2018.
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2019.
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2019.
(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: September 24, 2019 | 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) of our report dated September 24, 2019 with respect to the statement of revenues and certain operating expenses of the Ashley Plaza shopping center for the year ended December 31, 2018, which report appears in Form 8-K/A of Medalist Diversified REIT, Inc. dated September 24, 2019.
/s/ Cherry Bekaert LLP
Richmond, Virginia
September 24, 2019
Exhibit 99.1
ASHLEY PLAZA
FINANCIAL STATEMENT
Six Months Ended June 30, 2019 (unaudited) and
Year Ended December 31, 2018
Table of Contents
| Report of Independent Auditor | 1 |
| Statement of Revenues and Certain Operating Expenses | 2 |
| Notes to Statement of Revenues and Certain Operating Expenses | 3 |
Report of Independent Auditor
Board of Directors
Medalist Diversified REIT, Inc.
We have audited the accompanying statement of revenues and certain operating expenses (the “Statement”) of Ashley Plaza shopping center (the “Property”), as defined in Note 1 of the Statement, for the year ended December 31, 2018.
Management’s Responsibility for the Statement
Management is responsible for the preparation and fair presentation of this Statement, in accordance with accounting principles generally accepted in the United States of America that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on this Statement 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 Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Statement, 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 Statement 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 Statement.
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 Statement referred to above presents fairly, in all material respects, the revenues and certain operating expenses of the Property for the year ended December 31, 2018 in conformity 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.
/s/ Cherry Bekaert LLP
Richmond, Virginia
September 24, 2019
ASHLEY PLAZA
STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
Six Months Ended June 30, 2019 (unaudited) and
Year Ended December 31, 2018
| Six months ended | ||||||||
| June 30, 2019 | 2018 | |||||||
| (unaudited) | ||||||||
| REVENUE | ||||||||
| Retail center property revenues | $ | 644,636 | $ | 982,775 | ||||
| Retail center property tenant reimbursements | 90,104 | 116,043 | ||||||
| Total revenues | 734,740 | 1,098,818 | ||||||
| CERTAIN OPERATING EXPENSES | ||||||||
| Real estate taxes and insurance | 45,960 | 85,507 | ||||||
| Operating and maintenance | 67,022 | 167,211 | ||||||
| Management fee | 20,093 | 26,534 | ||||||
| Total certain operating expenses | 133,075 | 279,252 | ||||||
| Revenues in excess of certain operating expenses | $ | 601,665 | $ | 819,566 | ||||
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 Ashley Plaza shopping center (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 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 is not aware of any material factors during the six months ended June 30, 2019 (unaudited) or the year ended December 31, 2018 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.
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 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 June 30, 2019, 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, 2019 | $ | 663,156 | ||
| 2020 | 1,312,982 | |||
| 2021 | 1,250,343 | |||
| 2022 | 1,132,098 | |||
| 2023 | 975,772 | |||
| Thereafter | 4,071,940 | |||
| Total future rents | $ | 9,406,291 | ||
The above schedule takes into consideration all renewals, expirations and new leases executed from the period from January 1, 2019 through June 30, 2019.
Note 4. Tenant Concentrations
For the six months ended June 30, 2019 (unaudited), five tenants combine to represent approximately 68% of the Property’s rental revenues. For the year ended December 31, 2018, five tenants combine to represent approximately 70% 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.
Note 6. Subsequent Events
Management has evaluated subsequent events through September 24, 2019, 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
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, 2019, the related unaudited condensed consolidated statements of operations, changes in stockholders’ equity, and cash flows for the six months ended June 30, 2019 and the audited condensed consolidated statements of operations for the year ended December 31, 2018.
The following unaudited pro forma consolidated balance sheet as of June 30, 2019 has been prepared to give effect to the acquisition of Ashley Plaza as if the acquisition occurred on June 30, 2019.
The following unaudited pro forma consolidated statements of operation for the year ended December 31, 2018 has been prepared to give effect to the acquisition of Ashley Plaza as if the acquisition occurred on January 1, 2018.
The following unaudited pro forma consolidated statements of operation for the six months ended June 30, 2019 has been prepared to give effect to the acquisition of Ashley Plaza as if the acquisition occurred on January 1, 2019.
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 acquisition of Ashley Plaza been consummated as of the date indicated.
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2019
| Pro Forma | ||||||||||||
| Adjustments | ||||||||||||
| Historical | Ashley Plaza | Pro Forma | ||||||||||
| June 30, 2019 (a) | Acquisition (b) | June 30, 2019 | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| ASSETS | ||||||||||||
| Investment properties, net | $ | 45,320,863 | $ | 14,199,028 | (c) | $ | 59,519,891 | |||||
| Cash | 9,106,107 | (3,485,444 | )(d) | 5,620,663 | ||||||||
| Restricted cash | 1,564,035 | 139,813 | (e) | 1,703,848 | ||||||||
| Rent and other receivables, net of allowance | 51,314 | - | 51,314 | |||||||||
| Unbilled rent | 412,649 | - | 412,649 | |||||||||
| Advance deposits | 128,093 | - | 128,093 | |||||||||
| Intangible assets, net | 2,155,746 | 2,337,510 | (f) | 4,493,256 | ||||||||
| Interest rate cap, at fair value | 22,383 | - | 22,383 | |||||||||
| Prepaid expenses | 93,285 | - | 93,285 | |||||||||
| Other assets | 118,600 | - | 118,600 | |||||||||
| Total Assets | $ | 58,973,075 | $ | 13,190,907 | $ | 72,163,982 | ||||||
| LIABILITIES | ||||||||||||
| Accounts payable and accrued liabilities | $ | 1,256,317 | $ | 16,492 | (g) | $ | 1,272,809 | |||||
| Intangible liabilities, net | 392,703 | 978,715 | (f) | 1,371,418 | ||||||||
| Line of credit, short term, net | - | 970,000 | (h) | 970,000 | ||||||||
| Mortgages payable, net | 33,242,670 | 11,225,700 | (i) | 44,468,370 | ||||||||
| Total Liabilities | $ | 34,891,690 | $ | 13,190,907 | $ | 48,082,597 | ||||||
| EQUITY | ||||||||||||
| Preferred stock | $ | - | $ | - | $ | - | ||||||
| Common stock | 44,861 | - | 44,861 | |||||||||
| Additional paid-in capital | 31,640,887 | - | 31,640,887 | |||||||||
| Offering costs | (2,792,523 | ) | - | (2,792,523 | ) | |||||||
| Accumulated deficit | (7,713,101 | ) | - | (7,713,101 | ) | |||||||
| Total Shareholders' Equity | 21,180,124 | - | 21,180,124 | |||||||||
| Noncontrolling interests - Hampton Inn Property | 1,438,353 | - | 1,438,353 | |||||||||
| Noncontrolling interests - Hanover Square Property | 574,098 | - | 574,098 | |||||||||
| Noncontrolling interests - Operating Partnership | 888,810 | - | 888,810 | |||||||||
| Total Equity | $ | 24,081,385 | $ | - | $ | 24,081,385 | ||||||
| Total Liabilities and Equity | $ | 58,973,075 | $ | 13,190,907 | $ | 72,163,982 | ||||||
See notes to unaudited pro forma consolidated financial statements
MEDALIST DIVERSIFIED REIT, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2019
Notes to unaudited pro forma consolidated balance sheet as of June 30, 2019
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company as of June 30, 2019. |
| (b) | Represents the acquisition of Ashley Plaza as if it had occurred on June 30, 2019. Ashley Plaza was purchased by MDR Ashley Plaza, LLC, which is wholly owned by Medalist Diversified Holdings, LP (the “Operating Partnership”), of which the Company is the General Partner. The purchase price of the property was $15,200,000 plus capitalized closing and acquisition costs of $357,823. |
| (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 $3,485,444 in cash from the Company. Pro forma cash from the Company has been adjusted over the actual cash investment made to reflect the impact of removing prepaid expenses, accrued liabilities and prorated revenues and expenses arising from the acquisition from the pro forma consolidated balance sheet. |
| (e) | Restricted cash represents deposits paid by the Company at closing for real estate tax escrows and operating and capital reserves. |
| (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) | Represents security deposits transferred to the Company at closing. |
| (h) | The Company utilized $1,000,000 in funds from a line of credit (classified on the pro forma consolidated balance sheet as “Line of credit, short term, net) with deferred financing costs totaling $30,000 to fund a portion of the purchase price. |
| (i) | The Company obtained a mortgage payable totaling $11,400,000 with deferred financing costs totaling $174,300, 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 year ended December 31, 2018
| Pro forma | ||||||||||||
| Historical | Adjustments | Pro forma | ||||||||||
| Year ended | Ashley Plaza | Year ended | ||||||||||
| December 31, 2018 (a) | Acquisition | December 31, 2018 | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| REVENUE | ||||||||||||
| Retail center property revenues | $ | 2,372,666 | $ | 1,083,659 | (b) | $ | 3,456,325 | |||||
| Retail center property tenant reimbursements | 541,116 | 116,043 | (c) | 657,159 | ||||||||
| Hotel property room revenues | 3,636,485 | - | 3,636,485 | |||||||||
| Hotel property other revenues | 39,684 | - | 39,684 | |||||||||
| Total Revenue | $ | 6,589,951 | $ | 1,199,702 | $ | 7,789,653 | ||||||
| OPERATING EXPENSES | ||||||||||||
| Retail center property operating expenses | 976,468 | 279,252 | (d) | 1,255,720 | ||||||||
| Hotel property operating expenses | 2,608,825 | - | 2,608,825 | |||||||||
| Share based compensation expenses | 790,340 | - | 790,340 | |||||||||
| Legal, accounting and other professional fees | 924,651 | - | 924,651 | |||||||||
| Corporate general and administrative expenses | 119,679 | - | 119,679 | |||||||||
| Loss on impairment | 191,578 | - | 191,578 | |||||||||
| Depreciation and amortization | 2,043,323 | 896,760 | (e) | 2,940,083 | ||||||||
| Total Operating Expenses | 7,654,864 | 1,176,012 | 8,830,876 | |||||||||
| Operating Loss | (1,064,913 | ) | 23,690 | (1,041,223 | ) | |||||||
| Interest expense | 1,917,183 | 522,176 | (f) | 2,439,359 | ||||||||
| Net Loss from Operations | (2,982,096 | ) | (498,486 | ) | (3,480,582 | ) | ||||||
| Other income | 44,094 | - | 44,094 | |||||||||
| Net Loss before Income Taxes | (2,938,002 | ) | (498,486 | ) | (3,436,488 | ) | ||||||
| Income tax expense | 53,151 | - | 53,151 | |||||||||
| Net Loss | (2,991,153 | ) | (498,486 | ) | (3,489,639 | ) | ||||||
| Less: Net loss attributable to Hampton Inn Property noncontrolling interests | (166,314 | ) | - | (166,314 | ) | |||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (15,177 | ) | - | (15,177 | ) | |||||||
| Less: Net loss attributable to Operating Partnership noncontrolling interests | (66,339 | ) | - | (66,339 | ) | |||||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (2,743,323 | ) | $ | (498,486 | ) | $ | (3,241,809 | ) | |||
| Loss per share from operations - basic and diluted | $ | (1.39 | ) | $ | (1.65 | ) | ||||||
| Weighted-average number of shares - basic and diluted | 1,967,980 | 1,967,980 | ||||||||||
| Dividends declared per common share | $ | 0.525 | $ | 0.525 | ||||||||
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, 2018
Notes to unaudited pro forma consolidated statement of operations for the year ended December 31, 2018
| (a) | Historical financial information was derived from the audited condensed consolidated financial statements of the Company for the year ended December 31, 2018. |
| (b) | Represents rental revenues for Ashley Plaza that would have been recognized for the year ended December 31, 2018 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 $100,884 in net amortization of above and below market leases. |
| (c) | Represents tenant reimbursement revenues for Ashley Plaza that would have been recognized for the year ended December 31, 2018. |
| (d) | Represents operating expenses for Ashley Plaza for the year ended December 31, 2018, 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 Ashley Plaza’s property manager. |
| (e) | Represents depreciation and amortization expense for Ashley Plaza for the year ended December 31, 2018 as if the Company had acquired Ashley Plaza on January 1, 2018. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 27 years for the building and five 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. |
| (f) | Represents interest expense on the mortgage payable and note payable, short term for the year ended December 31, 2018 as if the loans were outstanding for the full 12 months of 2018. Interest expense on the mortgage payable is based on the principal amount of $11,400,000 and is calculated at the stated annual rate of 3.75%. 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 (10 years). |
The line of credit, short term, bears interest at a variable rate calculated at 250 basis points over one month LIBOR as published in the Wall Street Journal. Interest expense on the line of credit, short term is based on the outstanding principal balance of $1,000,000 and is calculated at 4.724%, the rate in effect as of September 1, 2019 on the variable rate loan as if the loans were outstanding for the full 12 months of 2018. A one-eighth (1/8) percentage point change in one month LIBOR would result in an adjustment to net income of $1,250 for the year ended December 31, 2018. 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 (6 months).
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statements of Operations
For the six months ended June 30, 2019
| Pro Forma | ||||||||||||
| Historical | Adjustments | Pro Forma | ||||||||||
| Six Months Ended | Ashley Plaza | Six Months Ended | ||||||||||
| June 30, 2019 (a) | Acquisition | June 30, 2019 | ||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||
| REVENUE | ||||||||||||
| Retail center property revenues | $ | 1,504,004 | $ | 695,078 | (b) | $ | 2,199,082 | |||||
| Retail center property tenant reimbursements | 279,137 | 90,104 | (c) | 369,241 | ||||||||
| Hotel property room revenues | 1,430,443 | - | 1,430,443 | |||||||||
| Hotel property other revenues | 37,992 | - | 37,992 | |||||||||
| Total Revenue | $ | 3,251,576 | $ | 785,182 | $ | 4,036,758 | ||||||
| OPERATING EXPENSES | ||||||||||||
| Retail center property operating expenses | $ | 519,557 | $ | 133,075 | (d) | $ | 652,632 | |||||
| Hotel property operating expenses | 1,198,734 | - | 1,198,734 | |||||||||
| Legal, accounting and other professional fees | 543,809 | - | 543,809 | |||||||||
| Corporate general and administrative expenses | 139,149 | - | 139,149 | |||||||||
| Depreciation and amortization | 1,128,345 | 448,380 | (e) | 1,576,725 | ||||||||
| Total Operating Expenses | 3,529,594 | 581,455 | 4,111,049 | |||||||||
| Loss on disposition of FF&E | 983,855 | - | 983,855 | |||||||||
| Operating Loss | (1,261,873 | ) | 203,727 | (1,058,146 | ) | |||||||
| Interest expense | 1,016,833 | 276,088 | (f) | 1,292,921 | ||||||||
| Net Loss from Operations | (2,278,706 | ) | (72,361 | ) | (2,351,067 | ) | ||||||
| Other income | 20,021 | - | 20,021 | |||||||||
| Decrease in fair value - interest rate cap | (104,414 | ) | - | (104,414 | ) | |||||||
| Net Loss | (2,363,099 | ) | (72,361 | ) | (2,435,460 | ) | ||||||
| Less: Net loss attributable to Hampton Inn Property noncontrolling interests | (570,678 | ) | - | (570,678 | ) | |||||||
| Less: Net loss attributable to Hanover Square Property noncontrolling interests | (6,845 | ) | - | (6,845 | ) | |||||||
| Less: Net loss attributable to Operating Partnership noncontrolling interests | (39,942 | ) | - | (39,942 | ) | |||||||
| Net Loss Attributable to Medalist Common Shareholders | $ | (1,745,634 | ) | $ | (72,361 | ) | $ | (1,817,995 | ) | |||
| Loss per share from operations - basic and diluted | $ | (0.61 | ) | $ | (0.63 | ) | ||||||
| Weighted-average number of shares - basic and diluted | 2,867,478 | 2,867,478 | ||||||||||
| Dividends declared per common share | $ | 0.175 | $ | 0.175 | ||||||||
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, 2019
Notes to unaudited pro forma consolidated statement of operations for the six months ended June 30, 2019
| (a) | Historical financial information was derived from the unaudited condensed consolidated financial statements of the Company for the six months ended June 30, 2019. |
| (b) | Represents rental revenues for Ashley Plaza that would have been recognized for the six months ended June 30, 2019 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 $50,442 in net amortization of above and below market leases. |
| (c) | Represents tenant reimbursement revenues for Ashley Plaza that would have been recognized for the six months ended June 30, 2019. |
| (d) | Represents operating expenses for Ashley Plaza for the six months ended June 30, 2019, 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 Ashley Plaza’s property manager. |
| (e) | Represents depreciation and amortization expense for Ashley Plaza for the six months ended June 30, 2019 as if the Company had acquired Ashley Plaza on January 1, 2019. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 27 years for the building and five 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. |
| (f) | Represents interest expense on the mortgage payable and note payable, short term for the six months ended June 30, 2019 as if the loans were outstanding for the full six months ending June 30, 2019. Interest expense on the mortgage payable is based on the principal amount of $11,400,000 and is calculated at the stated fixed annual rate of 3.75%. 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 (10 years). |
The line of credit, short term, bears interest at a variable rate calculated at 250 basis points over one month LIBOR as published in the Wall Street Journal. Interest expense on the line of credit, short term is based on the outstanding principal balance of $1,000,000 and is calculated at 4.724%, the rate in effect as of September 1, 2019 on the variable rate loan as if the loans were outstanding for the full six months ending June 30, 2019. A one-eighth (1/8) percentage point change in one month LIBOR would result in an adjustment to net income of $625 for the six months ended June 30, 2019. 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 (6 months).