Exhibit 99.1
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 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 statement of operations for the six months ended June 30, 2019 and the audited condensed consolidated statement 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 Clemson Best Western Hotel (the “Property”) as if the acquisition occurred on June 30, 2019.
The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2018 has been prepared to give effect to the acquisition of Clemson Best Western Hotel as if the acquisition occurred on January 1, 2018.
The following unaudited pro forma consolidated statement of operations for the six months ended June 30, 2019 has been prepared to give effect to the acquisition of Clemson Best Western Hotel 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 Clemson Best Western Hotel 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 | ||||||||||||
Clemson Best | ||||||||||||
Historical | Western Property | Pro Forma | ||||||||||
June 30, 2019 (a) | Acquisition (b) | June 30, 2019 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
ASSETS | ||||||||||||
Investment properties, net | $ | 45,320,863 | $ | 10,328,953 | (c) | $ | 55,649,816 | |||||
Cash | 9,106,107 | (2,083,182 | )(d) | 7,022,925 | ||||||||
Restricted cash | 1,564,035 | 188,575 | (e) | 1,752,610 | ||||||||
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 | - | 2,155,746 | |||||||||
Interest rate cap, at fair value | 22,383 | 11,800 | (f) | 34,183 | ||||||||
Prepaid expenses | 93,285 | - | 93,285 | |||||||||
Other assets | 118,600 | 34,600 | (g) | 153,200 | ||||||||
Total Assets | $ | 58,973,075 | $ | 8,480,746 | $ | 67,453,821 | ||||||
LIABILITIES | ||||||||||||
Accounts payable and accrued liabilities | $ | 1,256,317 | - | $ | 1,256,317 | |||||||
Intangible liabilities, net | 392,703 | - | 392,703 | |||||||||
Line of credit, short term, net | - | 1,000,000 | (h) | 1,000,000 | ||||||||
Related party note payable, short term | - | - | - | |||||||||
Mortgages payable, net | 33,242,670 | 7,480,746 | (i) | 40,723,416 | ||||||||
Total Liabilities | $ | 34,891,690 | $ | 8,480,746 | $ | 43,372,436 | ||||||
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 | $ | 8,480,746 | $ | 67,453,821 |
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, 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 Clemson Best Western Hotel as if it had occurred on June 30, 2019. Clemson Best Western Hotel was purchased by MDR Clemson, 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 $9,750,000 plus capitalized closing, lease buy-out and acquisition costs of $578,953 and the actual acquisition date was September 27, 2019. |
(c) | Amounts recorded to investment properties include tangible assets acquired at closing, including land, site improvements, building and furniture, fixtures and equipment, and are recorded at fair value in accordance with Accounting Standards Codification (“ASC”) 805. |
(d) | The acquisition cost, net of debt, was funded with $2,083,182 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 unaudited pro forma consolidated balance sheet. |
(e) | Restricted cash represents deposits paid by the Company at closing for real estate tax and insurance escrows and operating and capital reserves. |
(f) | The Company entered into an Interest Rate Protection Transaction to limit the Company’s exposure to increases in interest rates on the variable rate mortgage loan on the Property. Under this agreement, the Company’s interest rate exposure is capped at 8.4 percent if USD 1-Month LIBOR BBA exceeds 3.5 percent. In accordance with the guidance on derivatives and hedging, the Company records all derivatives on the balance sheet at fair value. For purposes of the pro forma consolidated balance sheet, fair value is determined by the cash paid at closing to obtain the Interest Rate Protection. |
(g) | Represents the net cost to transfer the Property’s membership in the Best Western franchise to the Company. |
(h) | The Company utilized $1,000,000 in funds from a line of credit, short term to fund a portion of the purchase price. |
(i) | The Company obtained a mortgage payable totaling $7,750,000 with deferred financing costs totaling $269,254, which are presented as a direct reduction of the associated debt. |
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2018
Pro Forma | ||||||||||||
Adjustments | ||||||||||||
Historical | Clemson Best | Pro forma | ||||||||||
Year ended | Western Property | Year ended | ||||||||||
December 31, 2018 (a) | Acquisition | December 31, 2018 | ||||||||||
(unaudited) | (unaudited) | |||||||||||
REVENUE | ||||||||||||
Retail center property revenues | $ | 2,372,666 | $ | - | $ | 2,372,666 | ||||||
Retail center property tenant reimbursements | 541,116 | - | 541,116 | |||||||||
Flex/industrial property revenues | - | - | - | |||||||||
Flex/industrial property tenant reimbursements | - | - | - | |||||||||
Hotel property room revenues | 3,636,485 | 2,061,174 | (b) | 5,697,659 | ||||||||
Hotel property other revenues | 39,684 | 442,547 | (c) | 482,231 | ||||||||
Total Revenue | $ | 6,589,951 | $ | 2,503,721 | $ | 9,093,672 | ||||||
OPERATING EXPENSES | ||||||||||||
Retail center property operating expenses | 976,468 | - | 976,468 | |||||||||
Flex/industrial property operating expenses | - | - | - | |||||||||
Hotel property operating expenses | 2,608,825 | 2,119,494 | (d) | 4,728,319 | ||||||||
Share based compensation expenses | 790,340 | - | 790,340 | |||||||||
Legal, accounting and other professional fees | 938,049 | - | 938,049 | |||||||||
Corporate general and administrative expenses | 106,281 | - | 106,281 | |||||||||
Loss on impairment | 191,578 | - | 191,578 | |||||||||
Depreciation and amortization | 2,043,323 | 573,855 | (e) | 2,617,178 | ||||||||
Total Operating Expenses | 7,654,864 | 2,693,349 | 10,348,213 | |||||||||
Operating Loss | (1,064,913 | ) | (189,628 | ) | (1,254,541 | ) | ||||||
Interest expense | 1,917,183 | 691,113 | (f) | 2,608,296 | ||||||||
Net Loss from Operations | (2,982,096 | ) | (880,741 | ) | (3,862,837 | ) | ||||||
Other income | 44,094 | - | 44,094 | |||||||||
Net Loss before Income Taxes | (2,938,002 | ) | (880,741 | ) | (3,818,743 | ) | ||||||
Income tax expense | 53,151 | - | 53,151 | |||||||||
Net Loss | (2,991,153 | ) | (880,741 | ) | (3,871,894 | ) | ||||||
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 | ) | $ | (880,741 | ) | $ | (3,624,064 | ) | |||
Loss per share from operations - basic and diluted | $ | (1.39 | ) | $ | (1.84 | ) | ||||||
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 statement of operations
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 hotel room revenues for Clemson Best Western Hotel that would have been recognized for the year ended December 31, 2018 as if the acquisition occurred on January 1, 2018 based on historical operations of the previous owner. |
(c) | Represents food and beverage and other revenues that would have been recognized for the year ended December 31, 2018 as if the acquisition occurred on January 1, 2018 based on historical operations of the previous owner. |
(d) | Represents operating expenses for Clemson Best Western Hotel that would have been incurred for the year ended December 31, 2018 as if the acquisition occurred on January 1, 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. |
(e) | Represents depreciation and amortization expense for Clemson Best Western Hotel for the year ended December 31, 2018 as if the Company had acquired Clemson Best Western Hotel on January 1, 2018. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 30 years for the building, 3 years for furniture, fixtures and equipment, and 6.4 years for land improvements. |
(f) | Represents interest expense on the mortgage payable and line of credit, 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 outstanding principal balance of $7,750,000 and is calculated at 7.15%, the rate in effect as of September 30, 2019 on the variable rate loan as if the loans were outstanding for the full 12 months of 2018. The mortgage payable bears interest at a variable rate based on the USD LIBOR one-month rate plus 4.9% with a minimum rate of 7.15%. As of September 30, 2019, the USD LIBOR one-month rate was 2.015%. If LIBOR exceeded 2.25%, a one-eighth (1/8) percentage point change in the USD LIBOR one-month rate would result in an adjustment to net income of $9,688 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 (three years).
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 the USD LIBOR one-month rate would result in an adjustment to net income of $1,250 for the year ended December 31, 2018.
Medalist Diversified REIT, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 2019
Pro Forma | ||||||||||||
Adjustments | ||||||||||||
Historical | Clemson Best | Pro Forma | ||||||||||
Six Months Ended | Western Property | Six Months Ended | ||||||||||
June 30, 2019 (a) | Acquisition | June 30, 2019 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||
REVENUE | ||||||||||||
Retail center property revenues | $ | 1,504,004 | $ | - | $ | 1,504,004 | ||||||
Retail center property tenant reimbursements | 279,137 | - | 279,137 | |||||||||
Flex/industrial property revenues | - | - | - | |||||||||
Flex/industrial property tenant reimbursements | - | - | - | |||||||||
Hotel property room revenues | 1,430,443 | 1,088,902 | (b) | 2,519,345 | ||||||||
Hotel property other revenues | 37,992 | 253,880 | (c) | 291,872 | ||||||||
Total Revenue | $ | 3,251,576 | $ | 1,342,782 | $ | 4,594,358 | ||||||
OPERATING EXPENSES | ||||||||||||
Retail center property operating expenses | $ | 519,557 | $ | - | $ | 519,557 | ||||||
Flex/industrial property operating expenses | - | - | - | |||||||||
Hotel property operating expenses | 1,198,734 | 995,177 | (d) | 2,193,911 | ||||||||
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 | 286,928 | (e) | 1,415,273 | ||||||||
Total Operating Expenses | 3,529,594 | 1,282,105 | 4,811,699 | |||||||||
Loss on disposition of FF&E | 983,855 | - | 983,855 | |||||||||
Operating (Loss) Income | (1,261,873 | ) | 60,677 | (1,201,196 | ) | |||||||
Interest expense | 1,016,833 | 345,557 | (f) | 1,362,390 | ||||||||
Net Loss from Operations | (2,278,706 | ) | (284,879 | ) | (2,563,585 | ) | ||||||
Other income | 20,021 | - | 20,021 | |||||||||
Decrease in fair value - interest rate cap | (104,414 | ) | - | (104,414 | ) | |||||||
Net Loss | (2,363,099 | ) | (284,879 | ) | (2,647,978 | ) | ||||||
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 | ) | $ | (284,879 | ) | $ | (2,030,513 | ) | |||
Loss per share from operations - basic and diluted | $ | (0.61 | ) | $ | (0.71 | ) | ||||||
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 statement of operations
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 hotel room revenues for Clemson Best Western Hotel that would have been recognized for the six months ended June 30, 2019 as if the acquisition occurred on January 1, 2019 based on historical operations of the previous owner. |
(c) | Represents food and beverage and other revenues that would have been recognized for the six months ended June 30, 2019 as if the acquisition occurred on January 1, 2019 based on historical operations of the previous owner. |
(d) | Represents operating expenses for Clemson Best Western Hotel for the six months ended June 30, 2019 as if the acquisition occurred on January 1, 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. |
(e) | Represents depreciation and amortization expense for Clemson Best Western Hotel for the six months ended June 30, 2019 as if the Company had acquired Clemson Best Western Hotel on January 1, 2019. Depreciation expense is calculated using the straight-line method over the estimated remaining useful life of 30 years for the building, 3 years for furniture, fixtures and equipment, and 6.4 years for land improvements. |
(f) | Represents interest expense on the mortgage payable and line of credit, short term, for the six months ended June 30, 2019 as if the loans were outstanding for the full six months ended June 30, 2019. |
Interest expense on the mortgage payable is based on the outstanding principal balance of $7,750,000 and is calculated at 7.15%, the rate in effect as of September 30, 2019 on the variable rate loan as if the loans were outstanding for the full six months ended June 30, 2019. The mortgage payable bears interest at a variable rate based on the USD LIBOR one-month rate plus 4.9% with a minimum rate of 7.15%. As of September 30, 2019, the USD LIBOR one-month rate was 2.015%. If LIBOR exceeded 2.25%, a one-eighth (1/8) percentage point change in the USD LIBOR one-month rate would result in an adjustment to net income of $4,844 for the six months ended June 30, 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 (three years).
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 loan were outstanding for the full six months ended June 30, 2019. A one-eighth (1/8) percentage point change in the USD LIBOR one-month rate would result in an adjustment to net income of $625 for the six months ended June 30, 2019.