Investment Summary. We are reiterating our Buy rating and $1.50 PT on MDRR following 4Q results. AFFO/share beat our estimates by $0.03. 2021 same-store results were strong, with NOI up 33%. The company ended 2021 with acquisitions of three properties at cap rates in 7-7.5% range and sale of a hotel property, and reinstated common dividend. In 4Q21, MDRR announced a common stock repurchase plan and repurchased common shares in 1Q22 at $1.04/share. We view MDRR as undervalued at the current price and view risk/ reward as favorable for investors.
4Q Beat, Raising Estimates. MDRR’s 4Q AFFO/sh. beat our estimate by $0.03. The variance to our estimate was higher NOI, and lower G&A and interest expense. We have raised our 2022 AFFO/sh. estimate to $0.05 from $0.03 and FFO/sh. estimate to $0.06 from $0.04, reflecting 4Q results.
Strong Operating performance. In 4Q21, same-store occupancy for retail properties was up 40 bps y/y to 93.1% and occupancy for flex was up 620 bps y/y to 100%. Same-store NOI was up 31% and same-store revenues were up 11%, in 2021. The company has one hotel property remaining in its portfolio that was 100% occupied (lease with Clemson university through May 2022).
Asset Recycling. In 4Q, the company acquired a flex property for $7.5M. Sources of acquisition funding include mortgage debt and common stock issuance. We model $25M of acquisitions in both 2022 and 2023 at a 7.25% cap rate. The company sold one hotel property in 3Q21 and plans to sell the remaining hotel property. We would view sale of hotel properties as a positive.
Common Stock Repurchases. As of 4Q, MDRR has $62.1M in mortgage debt at a 4.2% interest rate and average maturity of 6.3 years. Cash position was $4.8M. In 2022, we model $9.5M in common stock issuance and $5.0M in new debt to fund acquisitions. Recall that MDRR announced a common stock repurchase plan in 4Q21. Under the plan, the company can repurchase up to 500,000 common shares at a price of up to $4.80/share. In 1Q22 (as of 3/15), MDRR repurchased 268,070 common shares at $1.04/share. We view a share repurchase plan as an effective use of capital at the current stock price.
Attractive Common Dividend Yield. Recall that MDRR reinstated a common stock dividend of $0.02/share (annualized $0.08/share) in 3Q21. As of March 15, common dividend yield was 7.5%. 4Q22 AFFO payout was $76.5%.
Discounted Valuation. Our 12-month price target is unchanged at $1.50, and is based on NAV/sh. of $2.00 (unchanged), applied cap rate of 7.25% (based on company's target cap rates of 7-7.5%) and NAV/sh. discount of 25% (unchanged). We apply a 25% NAV/sh. discount because of high leverage, small company size and external management structure.