10-K: Medalist Diversified Exits REIT Status, Reports 2025 Loss

Medalist Diversified, Inc. reports a strategic shift from REIT status to a DST sponsorship model, alongside a net loss of $2.39 million for 2025, driven by increased operating expenses and asset impairments.

Summary

• Revoked REIT election effective January 1, 2026, and changed name from Medalist Diversified REIT, Inc. to Medalist Diversified, Inc. on March 2, 2026.
• Transitioning primary focus to building a Delaware Statutory Trust (DST) sponsorship program to generate fee income and increase assets under management.
• The new strategy will focus on net lease assets with nationally recognized or investment-grade tenants in high-growth metropolitan areas (southeast, mountain states, and California), and may opportunistically pursue non-real estate investments, including crypto assets and marketable securities.
• Reported a net loss attributable to common stockholders of $2,388,837 for the year ended December 31, 2025, a significant decrease from net income of $27,524 in 2024.
• Total revenue increased to $10,396,618 in 2025 from $9,735,127 in 2024, primarily due to single tenant net lease (STNL) property acquisitions.
• Total operating expenses increased by $1,416,617 to $10,140,136 in 2025, driven by higher share-based compensation, legal/accounting fees, corporate general and administrative expenses, and asset impairments.
• Sold Salisbury Marketplace Property for $9,930,000, resulting in a gain of $841,278.
• Sold Buffalo Wild Wings and United Rentals Properties for $2,507,500 and $2,792,000 respectively, resulting in losses of $52,760 and $57,079.
• Acquired the Tesla Pensacola Property for $14,544,504, funded by a $14,700,000 line of credit, which was subsequently repaid.
• Initiated the DST Program by contributing the Tesla Pensacola Property to MDRR XXV DST 1 and began selling beneficial interests, with 17.2% sold as of March 2, 2026, generating $1,479,670 in net proceeds.
• Owned 3.36 bitcoin as of December 31, 2025, with an unrealized loss of $44,026.
• Cash provided by operating activities decreased to $1,530,751 in 2025 from $1,796,137 in 2024.
• Cash used in investing activities was $6,979,859 in 2025, compared to cash provided of $2,062,407 in 2024.
• Cash provided by financing activities was $3,510,442 in 2025, compared to cash used of $1,595,413 in 2024.
• Repurchased 11,320 common shares at an average price of $12.44 in 2025; the repurchase program expired on May 15, 2025.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging period marked by a significant strategic pivot and substantial financial losses, despite some revenue growth. The shift to a DST model and non-real estate investments introduces new uncertainties, and the decline in key profitability metrics and cash flow from operations indicates operational headwinds.

Positives

• Total revenue increased by $661,491 to $10,396,618 in 2025, primarily driven by STNL property acquisitions.
• Successfully sold the Salisbury Marketplace Property for $9,930,000, generating a gain on disposal of $841,278.
• The Greenbrier Business Center Property was sold for $11,000,000 on February 13, 2026, with proceeds used to reduce the Wells Fargo Mortgage Facility.
• The Parkway Property was sold for $7,825,000 on February 27, 2026, with proceeds used to repay the Parkway Mortgage.
• Initiation of the DST sponsorship program is expected to generate fee income and increase assets under management, diversifying revenue streams.
• Maintained high occupancy rates across most properties, including Ashley Plaza (99.0%), Franklin Square (98.7%), Brookfield Center (100.0%), Greenbrier Business Center (97.9%), Parkway Property (97.3%), Citibank (100.0%), East Coast Wings (100.0%), T-Mobile (100.0%), and Tesla Pensacola (100.0%).

Negatives

• Reported a net loss attributable to common stockholders of $2,388,837 in 2025, a significant decline from net income of $27,524 in 2024.
• Total operating expenses increased substantially by $1,416,617, or 16.2%, to $10,140,136 in 2025.
• Legal, accounting, and other professional fees increased to $1,594,707 in 2025 from $1,170,270 in 2024.
• Corporate general and administrative expenses increased to $1,283,334 in 2025 from $968,435 in 2024.
• Incurred an impairment of assets held for sale totaling $662,394 in 2025.
• Recorded losses on disposal of the Buffalo Wild Wings Property ($52,760) and United Rentals Property ($57,079).
• Incurred a loss on extinguishment of debt of $430,644 in 2025.
• Reported an unrealized loss on crypto assets of $44,026 in 2025.
• Cash provided by operating activities decreased by $265,386, or 14.8%, in 2025.
• Cash used in investing activities significantly increased to $6,979,859 in 2025, compared to cash provided of $2,062,407 in 2024.
• The Lancer Center Property's occupancy rate decreased to 61.5% in 2025 from 100.0% in 2024 and 2023, indicating significant vacancies.
• Revocation of REIT status effective January 1, 2026, will result in higher federal and state income taxes, reducing earnings.

Risks

• May not successfully execute the strategic repositioning from a traditional equity REIT model to a DST Program and capital allocation-focused structure.
• Ability to dispose of certain legacy real estate assets on favorable terms is subject to real estate market conditions, capital markets availability, buyer demand, and interest rate levels.
• Obligations to pay income taxes will increase beginning in 2026 due to REIT election revocation, reducing earnings.
• May fail to realize the anticipated benefits of revoking REIT election, or benefits may take longer to realize or not offset costs.
• Strategic transition could impact market perception of publicly traded common stock, leading to increased volatility.
• Inability to effectively deploy cash balances, potentially leading to lower yields if suitable investment opportunities are not identified.
• Future growth depends on the ability to raise additional capital and make investments in a competitive environment.
• Investments in marketable securities are subject to market, interest, and credit risk.
• Investment in bitcoin is subject to high market volatility and regulatory uncertainty.
• May never reach sufficient size to achieve portfolio diversity, increasing dependence on individual investments.
• The DST Program could subject the company to liabilities from litigation or otherwise, and there is no guarantee it will provide expected tax benefits to investors.
• DST Properties may be less liquid than other assets, impairing the ability to utilize cash proceeds from sales.
• Real estate investments are subject to risks particular to real property, including adverse economic conditions, changes in laws, competition, and natural disasters.
• Expects to lease a significant portion of real estate to middle-market businesses, which are more susceptible to adverse market conditions.
• May be adversely affected by unfavorable economic changes in specific geographic areas where real estate investments are concentrated.
• May not be able to re-lease or renew leases on favorable terms or at all, leading to extended periods of declining or no revenues.
• Some leases are below-market, have long terms, or unfavorable renewal options, limiting the ability to increase rental revenues.
• Bankruptcy, insolvency, or diminished creditworthiness of tenants could seriously harm operating results and financial condition.
• Net leases may require the company to pay property-related expenses that are not the obligations of tenants.
• Restrictions in the Parkway Property's tenant in common agreement may adversely impact the investment.
• Use of mortgage and other debt financing increases expenses, may limit financial flexibility, and could subject properties to foreclosure.
• High levels of debt or increases in interest rates could increase loan payments, reducing returns and cash available for distribution.
• Lenders may require restrictive covenants relating to operations, limiting flexibility and distributions.
• Failure to maintain certain financial thresholds could trigger cash management controls and adversely affect liquidity.
• Ability to obtain financing on reasonable terms would be impacted by negative capital market conditions.
• Some mortgage loans may have due-on-sale provisions, impacting property sales or refinancing.
• Lenders may be able to recover against other real estate investments under recourse mortgage loans.
• May be required to make payments under 'bad boy carve-out guaranties' in connection with certain mortgages.
• Interest-only indebtedness may increase the risk of default and ultimately reduce funds available for distribution.
• Entering into derivative or hedging contracts could expose the company to contingent liabilities and certain risks and costs.
• Interest rates might increase, impacting borrowing activities and asset valuations.
• Dependent on information systems and third parties; systems failures, including cybersecurity threats, could significantly disrupt business.
• If unable to maintain effective internal control over financial reporting, the ability to produce accurate financial statements could be impaired.
• May incur losses as a result of ineffective risk management processes and strategies.
• Future sales of common stock or other equity in the public market may adversely affect the market price.
• The market price of common stock may be volatile, resulting in substantial losses for investors.
• Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
• Maryland law may limit the ability of a third party to acquire control of the company.
• Utilization of artificial intelligence could expose the company to liability and affect business.
• Use of social media presents risks of brand damage or unintended information disclosure.
• If unable to retain or obtain key personnel, the ability to implement investment strategies could be hindered.
• Operating Partnership may issue additional OP Units to third parties without stockholder consent, reducing ownership percentage.
• Conflicts of interest may exist or could arise between the interests of stockholders and holders of OP Units.
• Actual and perceived changes in U.S. trade policies may have a material adverse effect on business.
• Inflation may adversely affect financial condition and results of operations.
• Disruptions in the financial markets and uncertain economic conditions could adversely affect market rental rates, commercial real estate values, and ability to secure debt financing.

Future Outlook

The company is transitioning its primary focus to building a Delaware Statutory Trust (DST) sponsorship program to generate fee income and increase assets under management. This strategy involves identifying real estate investments suitable for DST vehicles, focusing on net lease assets with nationally recognized or investment-grade tenants in high-growth metropolitan areas. The company may also pursue opportunistic non-real estate-related investments, including crypto assets, marketable securities, and U.S. treasuries. Management expects current resources, including cash on hand, proceeds from property sales, and operating cash, to be sufficient to meet anticipated liquidity needs for the next twelve months and beyond. The company will continue to evaluate the use of FFO and AFFO as non-GAAP measures in future periods.

Management Comments

• Our Board of Directors and management believe that our company's current focus on unlocking its potential value and increasing assets under management and fee income through our DST Program provides an attractive balance of risk and returns and aligns with a measured approach to raising growth capital.
• Management believes that separately evaluating these two components of our cash provided by operating activities provides management with additional insight into this GAAP measure.
• Management believes that separating changes in assets and liabilities, the second component, from net operating income (loss) adjusted for non-cash operating activities, the first component, is a meaningful measure of our operating performance, along with adjusted net operating income and adjusted funds from operations.
• Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.
• The Company believes that its properties are currently in material compliance with applicable environmental, as well as non-environmental, statutory and regulatory requirements.
• The Company is not presently subject to any material litigation nor, to its knowledge, is any other litigation threatened against the Company, including routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which would be covered by liability insurance and any of which collectively would not be expected to have a material adverse effect on the Company's liquidity, results of operations or business or financial condition.

Industry Context

StockSavvy.ai notes that Medalist Diversified's strategic pivot from a traditional REIT model to a DST sponsorship platform reflects a broader industry trend among smaller REITs seeking to diversify revenue streams beyond direct property ownership and leverage fee-based income. This shift allows for greater investment flexibility, including non-real estate assets like crypto, which is an unconventional move for a former REIT, potentially appealing to a niche investor base seeking tax-deferred exchange opportunities. The focus on net lease assets in high-growth areas aligns with stable income strategies, while the inclusion of crypto assets introduces a higher risk/reward profile, distinguishing it from more traditional real estate investment vehicles.

Comparison to Industry Standards

• The shift from a traditional REIT to a DST sponsorship model is a significant deviation from the standard REIT structure, which typically focuses on direct ownership and management of income-producing real estate to distribute most taxable income to shareholders.
• The inclusion of crypto assets in the investment strategy is highly unusual for a company transitioning from a REIT, setting it apart from most traditional real estate investment firms and even other DST sponsors.
• The Lancer Center Property's occupancy rate of 61.5% is significantly below industry averages for well-managed retail centers, which typically aim for 90% or higher, indicating underperformance in that specific asset.
• The company's reliance on a staffing agreement with Gunston Consulting, LLC (owned by the CFO) for key personnel, rather than direct employment, is an atypical operational structure compared to larger, more established public companies.
• The stated goal of focusing on net lease assets with nationally recognized or investment-grade tenants in high-growth areas aligns with common strategies for stable, long-term real estate income, comparable to larger net lease REITs like Realty Income (O) or National Retail Properties (NNN), though Medalist's current scale is much smaller.

Corporate Governance

Legal Proceedings

• Not presently subject to any material litigation.
• No other litigation is threatened, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business.
• Routine actions are expected to be covered by liability insurance and are not expected to have a material adverse effect on liquidity, results of operations, business, or financial condition.

Related Party Transactions

• **Buffalo Wild Wings Property Acquisition (January 24, 2025)**: Acquired from CWS BET Seattle, LP, a company controlled and owned by Frank Kavanaugh (President, CEO, Chairman of the Board). The transaction was approved by the Audit Committee as arms-length.
• **United Rentals Property Acquisition (February 21, 2025)**: Acquired from Dionysus Investments, LLC, controlled and owned by Frank Kavanaugh. The transaction was approved by the Audit Committee as arms-length.
• **Citibank Property Acquisition (March 28, 2024)**: Acquired from RMP 3535 N. Central Ave., LLC, controlled and owned by Frank Kavanaugh. The transaction was approved by the Audit Committee as arms-length.
• **Private Placement of Operating Partnership Units (October 11, 2024)**: Frank Kavanaugh purchased 160,000 OP Units for $2,000,000. The transaction was approved by the Audit Committee as arms-length.
• **Private Placement of Common Shares (December 13, 2024)**: Kory Kramer (independent director) purchased 100,000 shares for $1,250,000; Marc Carlson (independent director) purchased 100,000 shares for $1,250,000; Brent Winn (CFO) purchased 6,000 shares for $75,000. The transaction was approved by the Audit Committee as arms-length.
• **Exchange of Common Shares for OP Units (August 8, 2025 & November 14, 2025)**: Francis P. Kavanaugh exchanged an aggregate of 242,409 Common Shares for OP Units. The exchange was reviewed and approved by a majority of the Audit Committee and the Board.
• **Staffing Agreement (November 13, 2023)**: With Gunston Consulting, LLC, whose sole member is C. Brent Winn, Jr. (CFO). The company reimburses the consultant for approved employee salaries, payroll taxes, benefits, and related expenses at cost without markup.
• **Former Property Management Fees (through August 31, 2024)**: Paid to Shockoe Properties, LLC (a subsidiary of Dodson Properties, LLC), an entity in which William R. Elliott (one of the owners of the company's former manager) held a 6.32% interest. Mr. Elliott also received a fee equal to 5% of the property management fees paid by the company to Dodson Properties or its affiliates.

Stakeholder Impact

• **Shareholders**: Face potential for increased stock price volatility due to the strategic transition and shift in investment profile. Dividends will be subject to higher tax burdens due to the loss of REIT status. There is a risk of dilution from future equity raises and potential for losses if strategic initiatives fail, but also potential for long-term value creation if the DST program is successful.
• **Investors in DST Program**: Offered opportunities for tax-deferred exchange transactions under Section 1031 of the Code. However, there is a risk that the DST Program may not provide the expected tax benefits, and their investment performance will be tied to the underlying DST Properties.
• **Employees**: Key personnel, including the President, CEO, and CFO, are employed through a third-party staffing agreement, indicating an outsourced operational model for core management functions.
• **Customers (Tenants)**: May be impacted by broader economic conditions, changes in rental rates, and property management changes. There is a risk of lease defaults or terminations, particularly for middle-market businesses.
• **Creditors**: The company's reliance on debt financing increases risk. High debt levels could lead to higher interest charges and restrictive covenants, and there is a risk of foreclosure on properties if cash flow is insufficient to service debt.

Next Steps

• Continue efforts to sell DST Interests in the XXV DST.
• Evaluate direct and indirect real estate investments that support the DST Program.
• Consider selective dispositions of properties from the legacy portfolio to generate capital for the DST Program.
• Focus on identifying real estate investments suitable for DST vehicles, specifically net lease assets with nationally recognized tenants or investment-grade credit ratings in high-growth metropolitan areas.
• May pursue opportunistic non-real estate-related investments, including equity or other ownership interests in entities, indirect investments in real property, crypto assets, marketable securities, and U.S. treasuries.
• Complete the sale of the Franklin Square Property, for which a purchase and sale agreement was entered into on February 3, 2026.
• Continue to declare quarterly dividends on common stock, subject to Board discretion and applicable law.
• Evaluate the continued use of FFO and AFFO as non-GAAP, alternative measures of operating performance in future periods.
• File the Definitive Proxy Statement for the 2026 Annual Meeting of Shareholders no later than 120 days after the end of the fiscal year ended December 31, 2025.

Key Dates

Recommendation

The company reported a significant net loss in 2025, a substantial decrease in cash flow from operations, and a sharp decline in Adjusted Funds from Operations (AFFO), indicating deteriorating financial performance. The strategic pivot from a REIT to a DST sponsorship model, while potentially offering long-term benefits, introduces considerable execution risk and uncertainty, especially with the unconventional inclusion of crypto assets. The loss of REIT tax benefits, coupled with increased operating expenses and asset impairments, suggests a challenging outlook. Given the financial deterioration and the high-risk nature of the strategic transition, a seasoned investor would likely recommend selling to mitigate exposure to these uncertainties.

Keywords

Real Estate Investment Trust, REIT, Delaware Statutory Trust, DST Program, Net Lease, Commercial Real Estate, Property Dispositions, Strategic Repositioning, Financial Performance, SEC Filing, 10-K, Bitcoin, Crypto Assets, Corporate Governance, Risk Management, Financial Reporting, Investment Strategy, Asset Management, Share Repurchase, Debt Financing, Market Volatility, Taxation, Maryland Corporation, Nasdaq Capital Market