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.
