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).