CITIBANK PROPERTY
FINANCIAL STATEMENT
Year Ended December 31, 2023
To the Board of Directors
of Medalist Diversified REIT, Inc.
Opinion
We have audited the accompanying statement of revenues and certain operating expenses and the related notes to the statement of revenues and certain operating expenses (the “Statement”) of Citibank Property (the “Property”), as defined in Note 1 of the Statement, for the year ended December 31, 2023.
In our opinion, the Statement referred to above present fairly, in all material respects, the revenues and certain operating expenses of the Property as of December 31, 2023, in accordance 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.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Statement section of our report. We are required to be independent of the Property and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Statement
Management is responsible for the preparation and fair presentation of the Statement in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Statement that are free from material misstatement, whether due to fraud or error.
In preparing the Statement, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Property’s ability to continue as a going concern within one year after the date that the Statements is available to be issued.
Auditor’s Responsibilities for the Audit of the Statement
Our objectives are to obtain reasonable assurance about whether the Statement as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the Statement.
In performing an audit in accordance with generally accepted auditing standards, we:
● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
● | Identify and assess the risks of material misstatement of the Statement, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the Statement. |
● | Obtain an understanding of internal control relevant to the audit 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 Property’s internal control. Accordingly, no such opinion is expressed. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the Statement. |
● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Property’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ Cherry Bekaert LLP
Richmond, Virginia
May 7, 2024
STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES
Year Ended December 31, 2023
| | | |
| | Year ended | |
| | December 31, 2023 | |
| | ||
REVENUE | | | |
Single tenant net lease property revenues | | $ | 128,444 |
Total revenues | | | 128,444 |
| | | |
CERTAIN OPERATING EXPENSES | | | |
Total certain operating expenses | | | - |
| | | |
Revenues in excess of certain operating expenses | | $ | 128,444 |
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 the Citibank Property, a single tenant net leased property located at 3535 N. Central Avenue, Chicago, IL, 60634 (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 period 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, 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 year ended December 31, 2023 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 the Financial Accounting Standards Board Accounting Standards Codification (“ASC”).
Revenue recognition:
The Property’s single source of revenue is from an absolute net lease (the “Lease”) with Citibank, N.A., a national banking association (the “Tenant”).
The Property recognizes rental revenue from the Tenant 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 would be recognized as revenue in the period the applicable expenses are incurred. However, under the absolute net structure of the Lease, the Tenant is responsible for the direct payment of such expenses. Accordingly, no such tenant recovery revenues are recorded on the Statement in connection with the lease on the Property.
Recognition of revenues from leases is covered under Accounting Standard Update 2016-02, Leases (Topic 842) (“ASC No. 842”). Medalist Diversified REIT, Inc. (the “Company”) adopted ASC No. 842 on January 1, 2023. Upon the adoption of ASC No. 842, the Company elected the practical expedient that permits lessors to elect to not separate non-lease components from associated lease components if certain criteria are met. Management assessed these criteria with respect to the operating leases related to the Property and determined they qualify for this non-separation practical expedient. However, since there are no non-lease components under the Lease, base rent revenues are the only component of rent revenues recorded under single tenant net lease property revenues on the Statement for the year ended December 31, 2023.
Operating expenses:
Under the terms of the Lease, the Tenant is responsible for the direct payment of all utilities, real estate taxes and repairs and maintenance costs. In addition, the Tenant is responsible for maintaining insurance on the Property. Accordingly, no expenses are included in the Statement.
Income taxes:
As a limited liability company, the Property’s taxable income or loss is allocated to the members of RMP N. Central Ave, LLC. Therefore, no provision or liability for income taxes has been included in the financial statements.
Use of estimates:
Management has made a number of estimates and assumptions relating to the reporting and disclosure of revenues 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
The Lease is the only lease agreement in place with a tenant to lease space in the Property. As of December 31, 2023, the minimum future cash rents receivable under the Lease in each of the next five years and thereafter are as follows:
| | | |
| | (Unaudited) | |
2024 | | $ | 66,257 |
2025 | | | 135,165 |
2026 | | | 137,868 |
2027 | | | 140,626 |
2028 | | | 143,438 |
Thereafter | | | 371,649 |
Total future rents | | $ | 995,003 |
Note 4. Tenant Concentrations
As of December 31, 2023, the Tenant represented 100 percent of the Property’s rental revenues.
Note 5. Commitments and Contingencies
The Property may be 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 if any such actions arise, the ultimate settlement of these actions will not have a material adverse effect on the Property’s results of operations. As of December 31, 2023, there were no such commitments or contingencies.
Note 6. Subsequent Events
As of May 7, 2024, the following event has occurred subsequent to the December 31, 2023 effective date of the accompanying Statement:
On March 28, 2024, the Property was acquired by MDR Central Avenue, LLC, a wholly-owned subsidiary of Medalist Diversified REIT, Inc. (the “Purchaser”) from RMP 3535 N. Central Ave., LLC (the “Seller”). The sole manager and member of the Seller is CWS BET Seattle, LP, a Delaware limited partnership, a company controlled and owned by Frank Kavanaugh, the Purchaser’s Chief Executive Officer and a member of the Purchaser’s Board of Directors.