Medalist Diversified REIT, Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2022

	OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file no: 001-38719

MEDALIST DIVERSIFIED REIT, INC.

Maryland

47-5201540

(State or other jurisdiction

of incorporation)

(IRS Employer

Identification No.)

1051 E. Cary Street Suite 601

James Center Three

Richmond, VA, 23219

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (804) 344-4435


Title of Each Class	Name of each Exchange on Which Registered	Trading Symbol(s)
Common Stock, $0.01 par value per share	The Nasdaq Capital Market	MDRR
8.0% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share	The Nasdaq Capital Market	MDRRP

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ ◻ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ⌧ Yes No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	◻	Accelerated filer	◻

Non-accelerated filer	◻ (Do not check if a smaller reporting company)	Smaller reporting company	☒

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ ☒ No

The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at May 9, 2022 was 17,439,947.

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Medalist Diversified REIT, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2022

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PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021	3

	Condensed Consolidated Statements of Operations for theThree Months Ended March 31, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54

Item 4.	Controls and Procedures	54

PART II. OTHER INFORMATION		54

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	56

Signatures		57

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	March 31, 2022		December 31, 2021
	(Unaudited)
ASSETS
Investment properties, net	$	68,762,027	$	69,407,915
Cash		4,629,945		4,370,405
Restricted cash		3,449,089		3,013,572
Rent and other receivables, net of allowance of $25,793 and $13,010, as of March 31, 2022 and December 31, 2021, respectively		344,358		466,141
Assets held for sale		9,897,045		9,846,208
Unbilled rent		887,168		872,322
Intangible assets, net		3,724,381		4,200,392
Other assets		498,732		370,133
Total Assets	$	92,192,745	$	92,547,088

LIABILITIES
Accounts payable and accrued liabilities	$	1,345,520	$	1,307,257
Intangible liabilities, net		1,784,995		1,880,612
Mortgages payable, net		54,353,683		54,517,822
Mortgages payable, net, associated with assets held for sale		7,615,368		7,615,368
Mandatorily redeemable preferred stock, net		4,281,563		4,227,640
Total Liabilities	$	69,381,129	$	69,548,699

EQUITY
Common stock, 17,114,215 and 16,052,617 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	$	171,142		160,524
Additional paid-in capital		50,769,941		49,645,428
Offering costs		(3,350,946)		(3,350,946)
Accumulated deficit		(26,287,080)		(24,981,346)
Total Stockholders’ Equity		21,303,057		21,473,660
Noncontrolling interests - Hanover Square Property		136,284		146,603
Noncontrolling interests - Parkway Property		499,602		500,209
Noncontrolling interests - Operating Partnership		872,673		877,917
Total Equity	$	22,811,616	$	22,998,389
Total Liabilities and Equity	$	92,192,745	$	92,547,088

See notes to condensed consolidated financial statements

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Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended
	March 31,
	2022		2021
REVENUE
Retail center property revenues	$	1,525,085	$	1,193,641
Flex center property revenues		613,390		182,827
Hotel property room revenues		762,200		1,286,748
Hotel property other revenues		3,289		8,637
Total Revenue	$	2,903,964	$	2,671,853

OPERATING EXPENSES
Retail center property operating expenses	$	450,125	$	327,930
Flex center property operating expenses		161,381		54,088
Hotel property operating expenses		372,860		797,395
Bad debt expense		12,783		3,196
Share based compensation expenses		233,100		149,981
Legal, accounting and other professional fees		459,869		491,855
Corporate general and administrative expenses		80,706		69,137
Loss on impairment		36,670		—
Impairment of assets held for sale		175,671		—
Depreciation and amortization		1,155,197		653,233
Total Operating Expenses		3,138,362		2,546,815
Operating (loss) income		(234,398)		125,038
Interest expense		841,424		2,434,132
Net Loss from Operations		(1,075,822)		(2,309,094)
Other income		95,439		1,352
Net Loss		(980,383)		(2,307,742)
Less: Net loss attributable to Hampton Inn Property noncontrolling interests		—		(25,238)
Less: Net loss attributable to Hanover Square Property noncontrolling interests		(319)		(7,020)
Less: Net income attributable to Parkway Property noncontrolling interests		10,193		—
Less: Net (loss) income attributable to Operating Partnership noncontrolling interests		(973)		2,040
Net Loss Attributable to Medalist Common Shareholders	$	(989,284)	$	(2,277,524)

Loss per share from operations - basic and diluted	$	(0.06)	$	(0.39)

Weighted-average number of shares - basic and diluted		16,037,073		5,856,365

Dividends paid per common share	$	0.02	$	—

See notes to condensed consolidated financial statements

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Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

For the three months ended March 31, 2022 and 2021

(Unaudited)


	Common Stock											Noncontrolling Interests
				Additional						Total
				Paid in		Offering		Accumulated		Shareholders’		Hampton Inn		Hanover Square		Parkway		Operating
	Shares	Par Value		Capital		Costs		Deficit		Equity		Property		Property		Property		Partnership		Total Equity
Balance, January 1, 2022	16,052,617	$	160,526	$	49,645,426	$	(3,350,946)	$	(24,981,346)	$	21,473,660	$	—	$	146,603	$	500,209	$	877,917	$	22,998,389

Common stock issuances	1,119,668	$	11,197	$	1,177,377	$	—	$	—	$	1,188,574	$	—	$	—	$	—	$	—	$	1,188,574
Common stock repurchases	(268,070)		(2,681)		(283,862)		—		—		(286,543)		—		—		—		—		(286,543)
Share based compensation	210,000		2,100		231,000		—		—		233,100		—		—		—		—		233,100
Net (loss) income	—		—		—		—		(989,284)		(989,284)		—		(319)		10,193		(973)		(980,383)
Dividends and distributions	—		—		—		—		(316,450)		(316,450)		—		(10,000)		(10,800)		(4,271)		(341,521)

Balance, March 31, 2022	17,114,215	$	171,142	$	50,769,941	$	(3,350,946)	$	(26,287,080)	$	21,303,057	$	—	$	136,284	$	499,602	$	872,673	$	22,811,616


	Common Stock											Noncontrolling Interests
				Additional						Total
				Paid in		Offering		Accumulated		Shareholders’		Hampton Inn		Hanover Square		Parkway		Operating
	Shares	Par Value		Capital		Costs		Deficit		Equity		Property		Property		Property		Partnership		Total Equity
Balance, January 1, 2021	4,803,445		48,032		33,105,099		(2,992,357)		(19,298,987)	$	10,861,787		(224,383)	$	189,784	$	—	$	882,555	$	11,709,743

Common stock issuances	2,074,933	$	20,748	$	3,778,520	$	—	$	—	$	3,799,268	$	—	$	—	$	—	$	—	$	3,799,268
Share based compensation	67,256		673		149,308		—		—		149,981		—		—		—		—		149,981
Convertible debenture beneficial conversion feature	—		—		284,052		—		—		284,052		—		—		—		—		284,052
Offering costs	—		—		—		(66,202)		—		(66,202)		—		—		—		—		(66,202)
Net (loss) income	—		—		—		—		(2,277,524)		(2,277,524)		(25,238)		(7,020)		—		2,040		(2,307,742)
Dividends and distributions	—		—		—		—		—		—		—		(12,000)		—		—		(12,000)

Balance, March 31, 2021	4,870,701	$	48,705	$	33,538,459	$	(3,058,559)	$	(21,576,511)	$	12,751,362	$	(249,621)	$	170,764	$	—	$	884,595	$	13,557,100

See notes to condensed consolidated financial statements

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Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended
	March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss	$	(980,383)	$	(2,307,742)

Adjustments to reconcile consolidated net loss to net cash flows from operating activities
Depreciation		771,560		454,774
Amortization		383,637		198,459
Loan cost amortization		28,118		44,190
Mandatorily redeemable preferred stock issuance cost and discount amortization		53,923		49,449
Convertible debenture issuance cost, discount and beneficial conversion feature amortization		—		1,455,324
Above (below) market lease amortization, net		(26,034)		3,237
Bad debt expense		12,783		3,196
Share-based compensation		233,100		149,981
Impairment of assets held for sale		175,671		—
Loss on impairment		36,670		—

Changes in assets and liabilities
Rent and other receivables, net		109,000		107,599
Unbilled rent		(14,846)		(88,092)
Other assets		(128,599)		(288,524)
Accounts payable and accrued liabilities		38,263		424,967
Net cash flows from operating activities		692,863		206,818

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures		(366,059)		(45,150)
Net cash flows from investing activities		(366,059)		(45,150)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends and distributions paid		(341,521)		(12,000)
Repayment of mortgages payable		(192,257)		(134,150)
Proceeds from sales of common stock, net of capitalized offering costs		1,188,574		—
Proceeds from sale of convertible debentures, net of capitalized offering costs		—		1,305,000
Offering costs paid related to common stock offering		—		(66,202)
Repurchases of common stock, including costs and fees		(286,543)		—
Net cash flows from financing activities		368,253		1,092,648

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		695,057		1,254,316
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period		7,383,977		5,096,928
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	8,079,034	$	6,351,244

CASH AND CASH EQUIVALENTS, end of period, shown in condensed consolidated balance sheets		4,629,945		3,681,292
RESTRICTED CASH including assets restricted for capital and operating reserves and tenant deposits, end of period, shown in condensed consolidated balance sheets		3,449,089		2,669,952
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period shown in the condensed consolidated statements of cash flows	$	8,079,034	$	6,351,244

Supplemental Disclosures and Non-Cash Activities:

Other cash transactions:
Interest paid	$	682,456	$	897,369

Non-cash transactions:
Conversion of convertible debentures and accrued interest to common stock	$	—	$	3,799,268
Transfer of investment properties, net to assets held for sale, net		—		9,683,555
Transfer of mortgages payable, net to mortgages payable associated with assets held for sale, net		—		7,592,931

See notes to condensed consolidated financial statements

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Medalist Diversified REIT, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Basis of Presentation and Consolidation

Medalist Diversified Real Estate Investment Trust, Inc. (the “REIT”) is a Maryland corporation formed on September 28, 2015. Beginning with the taxable year ended December 31, 2017, the REIT has elected to be taxed as a real estate investment trust for federal income tax purposes. The REIT serves as the general partner of Medalist Diversified Holdings, LP (the “Operating Partnership”) which was formed as a Delaware limited partnership on September 29, 2015. As of March 31, 2022, the REIT, through the Operating Partnership, owned and operated eight properties, the Shops at Franklin Square, a 134,239 square foot retail property located in Gastonia, North Carolina (the “Franklin Square Property”), the Shops at Hanover Square North (the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville, Virginia, the Ashley Plaza Shopping Center (the "Ashley Plaza Property"), a 160,356 square foot retail property located in Goldsboro, North Carolina, the Clemson Best Western University Inn (the "Clemson Best Western Property"), a hotel with 148 rooms on 5.92 acres in Clemson, South Carolina, Brookfield Center, a 64,880 square foot mixed-use industrial/office property located in Greenville, South Carolina (the “Brookfield Center Property”), the Lancer Center, a 178,626 square foot retail property located in Lancaster, South Carolina (the “Lancer Center Property”), the Greenbrier Business Center, an 89,290 square foot mixed-use industrial/office property located in Chesapeake, Virginia (the “Greenbrier Business Center Property ") and the Parkway Property, a 64,109 square foot mixed-use industrial office property located in Virginia Beach, Virginia (the "Parkway Property"). The Company owns 84 percent of the Hanover Square Property as a tenant in common with a noncontrolling owner which owns the remaining 16 percent interest and 82 percent of the Parkway Property as a tenant in common with a noncontrolling owner which owns the remaining 18 percent interest.

The use of the word “Company” refers to the REIT and its condensed consolidated subsidiaries, except where the context otherwise requires. The Company includes the REIT, the Operating Partnership, wholly owned limited liability corporations which own or operate the properties, the taxable REIT subsidiary which operates the Clemson Best Western Property, and, for periods prior to December 31, 2021, the taxable REIT subsidiary which formerly operated the Hampton Inn Property. As a REIT, certain tax laws limit the amount of “non-qualifying” income that Company can earn, including income derived directly from the operation of hotels. As a result, the Company leases its condensed consolidated hotel property to a taxable REIT subsidiary (“TRS”) for federal income tax purposes. The TRS subsidiary is subject to income tax and is not limited as to the amount of nonqualifying income it can generate, but

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the Company’s TRS subsidiary is limited in terms of its value as a percentage of the total value of the Company’s assets. The Company’s TRS subsidiary enters into agreements with a third party to manage the operations of the hotel. The Company prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). References to the condensed consolidated financial statements and references to individual financial statements included herein, reference the condensed consolidated financial statements or the respective individual financial statement. All material balances and transactions between the condensed consolidated entities of the Company have been eliminated.

The Company was formed to acquire, reposition, renovate, lease and manage income-producing properties, with a primary focus on (i) commercial properties, including flex-industrial, limited-service hotels, and retail properties, and (ii) multi-family residential properties in secondary and tertiary markets in the southeastern part of the United States, with an expected concentration in Virginia, North Carolina, South Carolina, Georgia, Florida and Alabama. The Company may also pursue, in an opportunistic manner, other real estate-related investments, including, among other things, equity or other ownership interests in entities that are the direct or indirect owners of real property, indirect investments in real property, such as those that may be obtained in a joint venture. While these types of investments are not intended to be a primary focus, the Company may make such investments in its Manager’s discretion.

The Company is externally managed by Medalist Fund Manager, Inc. (the “Manager”). The Manager makes all investment decisions for the Company. The Manager and its affiliated companies specialize in acquiring, developing, owning and managing value-added commercial real estate in the Mid-Atlantic and Southeast regions. The Manager oversees the Company’s overall business and affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment decisions. The Company’s stockholders are not involved in its day-to-day affairs.

2. Summary of Significant Accounting Policies

Investment Properties

The Company has adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805), which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. As a result, all of the Company’s acquisitions to date qualified as asset acquisitions and the Company expects future acquisitions of operating properties to qualify as asset acquisitions. Accordingly, third-party transaction costs associated with these acquisitions have been and will be capitalized, while internal acquisition costs will continue to be expensed.

Accounting Standards Codification (“ASC”) 805 mandates that “an acquiring entity shall allocate the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition.” ASC 805 results in an allocation of acquisition costs to both tangible and intangible assets associated with income producing real estate. Tangible assets include land, buildings, site improvements, tenant improvements and furniture, fixtures and equipment, while intangible assets include the value of in-place leases, lease origination costs (leasing commissions and tenant improvements), legal and marketing costs and leasehold assets and liabilities (above or below market leases), among others.

The Company uses independent, third party consultants to assist management with its ASC 805 evaluations. The Company determines fair value based on accepted valuation methodologies including the cost, market, and income capitalization approaches. The purchase price is allocated to the tangible and intangible assets identified in the evaluation.

The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 5 to 42 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized utilizing the straight-line method over the term of the related lease. Amounts allocated to buildings are depreciated over the estimated remaining life of the acquired building or related improvements.

Acquisition and closing costs are capitalized as part of each tangible asset on a pro rata basis. Improvements and major repairs and maintenance are capitalized when the repair and maintenance substantially extend the useful life, increases capacity or improves the efficiency of the asset. All other repair and maintenance costs are expensed as incurred.

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The Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any impairment of investment property when the estimated undiscounted cash flows plus its residual value, is less than the carrying value of the property. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of the property over its estimated fair value. The Company estimates fair value using unobservable data such as projected future operating income, estimated capitalization rates, or multiples, leasing prospects and local market information. The Company may decide to sell properties that are held for use and the sale prices of these properties may differ from their carrying values.

Other than the tenant-specific losses on impairment described below, the Company did not record any impairment adjustments to its investment properties resulting from events or changes in circumstances during the three months ended March 31, 2022 or 2021, that would result in the projected value being below the carrying value of the Company’s properties. During the three months ended March 31, 2022, two tenants defaulted on their leases and abandoned their premises. The Company determined that the carrying value of certain intangible assets and liabilities associated with these leases that were recorded as part of the purchase of the these properties should be written off. As a result, the Company recorded a loss on impairment of $36,670 for the three months ended March 31, 2022. No such tenant-related loss on impairment was recorded during the three months ended March 31, 2021.

Assets Held for Sale

The Company may decide to sell properties that are held as investment properties. The accounting treatment for the disposal of long-lived assets is covered by ASC 360. Under this guidance, the Company records the assets associated with these properties, and any associated mortgages payable, as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. Properties classified as held for sale are reported at the lower of their carrying value or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value, less estimated costs to sell, an impairment charge is recognized. The Company determines fair value based on the three-level valuation hierarchy for fair value measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

During February 2021, the Company committed to a plan for the sale of an asset group associated with the Clemson Best Western Hotel Property that includes the land, site improvements, building, building improvements and furniture, fixtures and equipment. As of March 31, 2021, the Company recorded this asset group, and the associated mortgage payable, as held for sale. As of March 31, 2021, the Company determined that the fair value of the Clemson Best Western Property exceeded the carrying value of its asset group, and the Company did not record impairment of assets held for sale associated with this asset group.

During subsequent periods since the asset group associated with the Clemson Best Western Property were initially classified as held for sale, the Company has continued to follow its disposal plan. Under ASC 360, during subsequent reporting periods after the asset group is classified as held for sale, it is necessary to evaluate the amounts previously used for the estimated fair value of the asset group. Up to and including the reporting periods ending December 31, 2021, the Company reviewed and reassessed the estimated fair value of the asset group and believed that the fair value, less estimated costs to sell, exceeds the Company’s carrying cost in the property. Accordingly, the Company did not record impairment of assets held for sale related to the Clemson Best Western Property for the year ended December 31, 2021.

However, as of March 31, 2022, the Company has determined that the carrying value of the asset group associated with the Clemson Best Western Hotel Property exceed its fair value, less estimated costs to sell, and recorded impairment of assets held for sale of $175,671 on its condensed consolidated statement of operations for the three months ended March 31, 2022. No such impairment of assets held for sale was recorded during the three months ended March 31, 2021.

Under ASC 360, for an asset group to qualify as held for sale, the sale of the asset group must be probable and the transfer of the asset group must be expected to qualify for recognition as a completed sale within one year. However, there may be events or circumstances beyond a reporting entity’s control that extent the period required to complete the sale of an asset group that qualify for an exception to the one-year rule under ASC 360-10-4-11. The Company believes that the asset group associated with the Clemson Best Western Hotel Property qualifies for one of these exceptions, and the Company has continued to record the Clemson Best Western Hotel Property as held for sale, as of March 31, 2022.

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See Note 3 for additional details on impairment of assets held for sale as of March 31, 2022 and 2021.

Intangible Assets and Liabilities, net

The Company determines, through the ASC 805 evaluation, the above and below market lease intangibles upon acquiring a property. Intangible assets (or liabilities) such as above or below-market leases and in-place lease value are recorded at fair value and are amortized as an adjustment to rental revenue or amortization expense, as appropriate, over the remaining terms of the underlying leases. The Company amortizes amounts allocated to tenant improvements, in-place lease assets and other lease-related intangibles over the remaining life of the underlying leases. The analysis is conducted on a lease-by-lease basis.

The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of its intangible assets may not be recoverable, but at least annually. During the three months ended March 31, 2022, two tenants defaulted on their leases and abandoned their premises. The Company determined that the book value of the intangible assets and liabilities, net, associated with these leases of $36,670, that were recorded as part of the purchase of these properties should be written off. This amount is included in the loss on impairment reported on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2022. No such loss on impairment was recorded for the three months ended March 31, 2021.

Details of the deferred costs, net of amortization, arising from the Company’s purchases of its retail center properties and flex center properties are as follows:


	March 31,
	2022
	(unaudited)		December 31, 2021
Intangible Assets
Leasing commissions	$	1,087,583	$	1,153,736
Legal and marketing costs		145,134		163,019
Above market leases		288,790		360,509
Net leasehold asset		2,202,874		2,523,128
	$	3,724,381	$	4,200,392

Intangible Liabilities
Below market leases, net	$	(1,784,995)	$	(1,880,612)

Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases. Adjustments to rental revenue related to the above and below market leases during the three months ended March 31, 2022 and 2021, respectively, were as follows:


	For the three months ended
	March 31,
	2022		2021
	(unaudited)		(unaudited)
Amortization of above market leases	$	(69,583)	$	(53,613)
Amortization of below market leases		95,617		50,376
	$	26,034	$	(3,237)

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Amortization of lease origination costs, leases in place and legal and marketing costs represent a component of depreciation and amortization expense. Amortization related to these intangible assets during the three months ended March 31, 2022 and 2021, respectively, were as follows:


	For the three months ended
	March 31,
	2022		2021
	(unaudited)		(unaudited)
Leasing commissions	$	(63,032)	$	(43,245)
Legal and marketing costs		(14,559)		(6,294)
Net leasehold asset		(306,046)		(148,920)
	$	(383,637)	$	(198,459)

As of March 31, 2022 and December 31, 2021, the Company’s accumulated amortization of lease origination costs, leases in place and legal and marketing costs totaled $2,671,116 and $2,779,370, respectively. During the three months ended March 31, 2022, the Company wrote off $486,783 in accumulated amortization related to fully amortized intangible assets and $5,108 in accumulated amortization related to the write off of assets related to the tenant defaults, discussed above.

Future amortization of above and below market leases, lease origination costs, leases in place, legal and marketing costs and tenant relationships is as follows:


	For the
	remaining nine
	months ending
	December 31,
	2022		2023		2024		2025		2026		2027-2041		Total
Intangible Assets
Leasing commissions	$	160,998	$	178,745	$	140,415	$	117,225	$	83,901	$	406,299	$	1,087,583
Legal and marketing costs		39,357		39,978		23,911		14,122		7,091		20,675		145,134
Above market leases		111,696		84,096		36,312		19,224		13,562		23,900		288,790
Net leasehold asset		606,143		453,012		297,023		213,034		133,627		500,035		2,202,874
	$	918,194	$	755,831	$	497,661	$	363,605	$	238,181	$	950,909	$	3,724,381

Intangible Liabilities
Below market leases, net	$	(260,437)	$	(260,491)	$	(191,865)	$	(140,004)	$	(107,217)	$	(824,981)	$	(1,784,995)

Conditional Asset Retirement Obligation

A conditional asset retirement obligation represents a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement depends on a future event that may or may not be within the Company’s control. Currently, the Company does not have any conditional asset retirement obligations. However, any such obligations identified in the future would result in the Company recording a liability if the fair value of the obligation can be reasonably estimated. Environmental studies conducted at the time the Company acquired its properties did not reveal any material environmental liabilities, and the Company is unaware of any subsequent environmental matters that would have created a material liability.

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 did not record any conditional asset retirement obligation liabilities during the three months ended March 31, 2022 and 2021, respectively.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents. Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash and equivalents and its trade accounts receivable.

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The Company places its cash and cash equivalents and any restricted cash held by the Company on deposit with financial institutions in the United States which are insured by the Federal Deposit Insurance Company ("FDIC") up to $250,000. The Company's credit loss in the event of failure of these financial institutions is represented by the difference between the FDIC limit and the total amounts on deposit. Management monitors the financial institutions credit worthiness in conjunction with balances on deposit to minimize risk. As of March 31, 2022, the Company held four cash accounts with an aggregate balance that exceeded the FDIC limit by $2,410,643. As of December 31, 2021, the Company held five cash accounts with an aggregate balance that exceeded the FDIC limit by $2,377,633.

Restricted cash represents (i) amounts held by the Company for tenant security deposits, (ii) escrow deposits held by lenders for real estate tax, insurance, and operating reserves, (iii) an escrow for the first year of dividends on the Company’s mandatorily redeemable preferred stock, and (iv) capital reserves held by lenders for investment property capital improvements.

Tenant security deposits are restricted cash balances held by the Company to offset potential damages, unpaid rent or other unmet conditions of its tenant leases. As of March 31, 2022 and December 31, 2021, the Company reported $222,864 and $222,265, respectively, in security deposits held as restricted cash.

Escrow deposits are restricted cash balances held by lenders for real estate taxes, insurance and other operating reserves. As of March 31, 2022 and December 31, 2021, the Company reported $1,896,758 and $1,523,837, respectively, in escrow deposits.

Capital reserves are restricted cash balances held by lenders for capital improvements, leasing commissions furniture, fixtures and equipment, and tenant improvements. As of March 31, 2022 and December 31, 2021, the Company reported $1,329,467 and $1,267,470, respectively, in capital property reserves.


	March 31, 2022		December 31,
Property and Purpose of Reserve	(unaudited)		2021
Clemson Best Western Property - improvements		50,013		50,012
Clemson Best Western Property - furniture, fixtures and equipment		315,955		275,109
Franklin Square Property - leasing costs		710,068		700,000
Brookfield Center Property – maintenance reserve		103,431		92,349
Greenbrier Business Center – capital reserve		150,000		150,000
Total	$	1,329,467	$	1,267,470

Share Retirement

ASC 505-30-30-8 provides guidance on accounting for share retirement and establishes two alternative methods for accounting for the repurchase price paid in excess of par value. The Company has elected the method by which the excess between par value and the repurchase price, including costs and fees, is recorded to additional paid in capital on the Company’s condensed consolidated balance sheets. During the three months ended March 31, 2022, the Company repurchased 268,070 shares of its common stock at a total cost of $278,277 at an average price of $1.038 per common share. The Company incurred fees of $8,266 associated with these transactions. Of the total repurchase price, $2,681 was recorded to common stock and the difference, $283,862, was recorded to additional paid in capital on the Company’s condensed consolidated balance sheet. No such amounts were recorded during the three months ended March 31, 2021.

Revenue Recognition

Retail and Flex Center Property Revenues

The Company recognizes minimum rents from its retail center properties and flex center properties on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset being recorded on the condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, the Company reported $887,168 and $872,322, respectively, in unbilled rent.

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The Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common Area Maintenance or “CAM” expenses). The Company includes these reimbursements, along with other revenue derived from late fees and seasonal events, on the condensed consolidated statements of operations under the captions "Retail center property revenues” and “Flex center property tenant revenues.” (See Recent Accounting Pronouncements, below.) This significantly reduces the Company’s exposure to increases in costs and operating expenses resulting from inflation or other outside factors. The Company accrues reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred. The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is the average total square footage of all leasable buildings at the property. The Company also receives payments for these reimbursements from substantially all its tenants on a monthly basis throughout the year.

The Company recognizes differences between previously estimated recoveries and the final billed amounts in the year in which the amounts becomefinal. Since these differences are determined annually under the leases and accrued as of December 31 in the year earned, no such revenues were recognized during the three months ended March 31, 2022 or 2021.

The Company recognizes lease termination fees in the period that the lease is terminated and collection of the fees is reasonably assured. Upon early lease termination, the Company provides for losses related to unrecovered intangibles and other assets. During the three months ended March 31, 2022 and 2021, respectively, no such termination costs were recognized.

Hotel Property Revenues

Hotel revenues from the Clemson Best Western Property (and for prior year periods, the Hampton Inn Property) are recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes the hotel’s services. Revenues from the Company’s occupancy agreement with Clemson University are recognized as earned, which is as rooms are occupied or otherwise reserved for use by the University.

The Clemson Best Western Property (and for prior year periods, the Hampton Inn Property) is required to collect certain taxes and fees from customers on behalf of government agencies and remit them back to the applicable governmental agencies on a periodic basis. The Clemson Best Western Property has a legal obligation to act as a collection agent. The Clemson Best Western Property does not retain these taxes and fees; therefore, they are not included in revenues. The Clemson Best Western Property records a liability when the amounts are collected and relieves the liability when payments are made to the applicable taxing authority or other appropriate governmental agency.

Hotel Property Operating Expenses

All personnel of the Clemson Best Western Property (and in prior year periods, the Hampton Inn Property) are directly or indirectly employees of Marshall Hotels and Resorts, Inc. (“Marshall”), the Company’s hotel management firm. In addition to fees and services discussed above, the Hampton Inn Property and Clemson Best Western Property reimburse Marshall for all employee related service costs, including payroll salaries and wages, payroll taxes and other employee benefits paid by Marshall on behalf of the respective property. For the Clemson Best Western Property, total amounts incurred for payroll salaries and wages, payroll taxes and other employee benefits for the three months ended March 31, 2022 and 2021, were $131,939 and $103,553, respectively. For the Hampton Inn Property, which the Company sold on August 31, 2021, total amounts incurred for payroll salaries and wages, payroll taxes and other employee benefits for the three months ended March 31, 2022 and 2021, were $0 and $164,427, respectively.

Rent and other receivables

Rent and other receivables include tenant receivables related to base rents and tenant reimbursements. Rent and other receivables do not include receivables attributable to recording rents on a straight-line basis, which are included in unbilled rent, discussed above. The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer credit worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels, and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease. A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As of March 31, 2022 and December 31, 2021, the Company’s allowance for uncollectible rent totaled $25,793 and $13,010, respectively, which are comprised of amounts specifically identified based on management’s review of individual tenants’ outstanding receivables. Management determined that no additional general reserve is considered necessary as of March 31, 2022 and December 31, 2021, respectively.

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Income Taxes

Beginning with the Company’s taxable year ended December 31, 2017, the REIT has elected to be taxed as a real estate investment trust for federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code and applicable Treasury regulations relating to REIT qualification. In order to maintain this REIT status, the regulations require the Company to distribute at least 90% of its taxable income to shareholders and meet certain other asset and income tests, as well as other requirements. If the Company fails to qualify as a REIT, it will be subject to tax at regular corporate rates for the years in which it fails to qualify. If the Company loses its REIT status it could not elect to be taxed as a REIT for five years unless the Company’s failure to qualify was due to reasonable cause and certain other conditions were satisfied.

During the three months ended March 31, 2022, the Company's Clemson Best Western TRS entity generated taxable income. However, the Company believes that the net operating loss carry forward from prior years will offset the taxable income for the three months ended March 31, 2022, so no income tax expense was recorded. During the three months ended March 31, 2021, the Company’s Hampton Inn TRS entity generated a tax loss, so no income tax expense was recorded. During the three months ended March 31, 2022,the Company no longer owned the Hampton Inn Property.

Management has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has determined that the Company had no uncertain income tax positions.

Use of Estimates

The Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and revenues and expenses during the reported period. The Company’s actual results could differ from these estimates.

Noncontrolling Interests

There are four elements of noncontrolling interests in the capital structure of the Company. The ownership interests not held by the REIT are considered noncontrolling interests. Accordingly, noncontrolling interests have been reported in equity on the condensed consolidated balance sheets but separate from the Company’s equity. On the condensed consolidated statements of operations, the subsidiaries are reported at the condensed consolidated amount, including both the amount attributable to the Company and noncontrolling interests. The Company’s condensed consolidated statements of changes in stockholders’ equity includes beginning balances, activity for the period and ending balances for shareholders’ equity, noncontrolling interests and total equity.

The first noncontrolling interest is in the Hampton Inn Property, which the Company and the noncontrolling owner sold on August 31, 2021. Prior to its sale, the Hampton Inn Property’s net income (loss) was allocated to the noncontrolling ownership interest based on its percent ownership. During the three months ended March 31, 2021, 22 percent of the Hampton Inn’s net loss of $114,717, or $25,238, was allocated to the noncontrolling partnership interest. No such allocation was necessary during the three months ended March 31, 2022 due to the sale of the property on August 31, 2021.

The second noncontrolling interest is in the Hanover Square Property in which the Company owns an 84 percent tenancy in common interest through its subsidiary and an outside party owns a 16 percent tenancy in common interest. The Hanover Square Property’s net loss is allocated to the noncontrolling ownership interest based on its 16 percent ownership. During the three months ended March 31, 2022, 16 percent of the Hanover Square Property’s net loss of $1,992, or $319, was allocated to the noncontrolling ownership interest. During the three months ended March 31, 2021, 16 percent of the Hanover Square Property’s net loss of $43,882, or $7,020 was allocated to the noncontrolling ownership interest.

The third noncontrolling interest is in the Parkway Property in which the Company owns an 82 percent tenancy in common interest through its subsidiary and an outside party owns an 18 percent tenancy in common interest. The Parkway Property's net loss is allocated to the noncontrolling ownership interest based on its 18 percent ownership. During the three months ended March 31, 2022, 18 percent of the Parkway Property's net income of $56,624 or $10,193, was allocated to the noncontrolling ownership interest. Since the Company did not own the Parkway Property during the three months ended March 31, 2021, no such noncontrolling interest allocation was made during the three months ended March 31, 2021.

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The fourth noncontrolling ownership interest are the units in the Operating Partnership that are not held by the REIT. In 2017, 125,000 Operating Partnership units were issued to members of the selling LLC which owned the Hampton Inn Property who elected to participate in a 721 exchange, which allows the exchange of interests in real property for shares in a real estate investment trust. These members of the selling LLC invested $1,175,000 in the Operating Partnership in exchange for 125,000 Operating Partnership units. Additionally, as discussed above, effective on January 1, 2020, 93,850 Operating Partnership units were issued in exchange for approximately 3.45 percent of the noncontrolling owner’s tenant in common interest in the Hampton Inn Property. On August 31, 2020, a unitholder converted 5,319 Operating Partnership units into shares of Common Stock. As of March 31, 2022, there were 213,531 Operating Partnership units outstanding.

The Operating Partnership units not held by the REIT represent 1.23 percent and 1.31 percent of the outstanding Operating Partnership units as of March 31, 2022 and December 31, 2021, respectively. The noncontrolling interest percentage is calculated at any point in time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest ownership percentage will change as additional common or preferred shares are issued by the REIT, or additional Operating Partnerships units are issued or as units are exchanged for the Company’s $0.01 par value per share Common Stock. During periods when the Operating Partnership’s noncontrolling interest changes, the noncontrolling ownership interest is calculated based on the weighted average Operating Partnership noncontrolling ownership interest during that period. The Operating Partnership’s net loss is allocated to the noncontrolling unit holders based on their ownership interest.

During the three months ended March 31, 2022, a weighted average of 1.28 percent of the Operating Partnership’s net loss of $75,822, or $973, was allocated to the noncontrolling unit holders. During the three months ended March 31, 2021, a weighted average of 3.37 percent of the Operating Partnership’s net income of $60,555, or $2,040, was allocated to the noncontrolling unit holders.

Recent Accounting Pronouncements

For each of the accounting pronouncements that affect the Company, the Company has elected or plans to elect to follow the rule that allows companies engaging in an initial public offering as an Emerging Growth Company to follow the private company implementation dates.

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Accounting for Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The amendments in this update govern a number of areas including, but not limited to, accounting for leases, replacing the existing guidance in ASC No. 840, Leases. Under this standard, among other changes in practice, a lessee’s rights and obligations under most leases, including existing and new arrangements, must be recognized as assets and liabilities, respectively, on the balance sheets. Other significant provisions of this standard include (i) defining the “lease term” to include the non-cancelable period together with periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining the initial lease liability to be recorded on the balance sheets to contemplate only those variable lease payments that depend on an index or that are in substance “fixed,” (iii) a dual approach for determining whether lease expense is recognized on a straight-line or accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased asset’s economic benefits and (iv) a requirement to bifurcate certain lease and non-lease components. The lease standard was effective for public companies for fiscal years beginning after December 15, 2018 (including interim periods within those fiscal years) and for private companies, fiscal years beginning after December 15, 2019, with early adoption permitted. The FASB subsequently deferred the effective date of ASU 2016-02 for private companies by one year, to fiscal years beginning after December 15, 2020, to provide those companies with additional time to address various implementation challenges and complexities. In June 2020, the FASB further deferred the effective date due to the effects on private companies from business and capital market disruptions caused by the novel coronavirus (“COVID-19”) pandemic. Following those deferrals, ASU 2016-02 is now effective for private companies for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. The Company adopted the standard effective on January 1, 2022 using the modified retrospective approach within ASU 2018-11, which allows for the application date to be the beginning of the reporting period in which the entity first applies the new standard.. The Company historically has not been and is not currently a “lessee” under any lease agreements, and thus did not have any arrangements requiring the recognition of lease assets or liabilities on its balance sheet.

As a “lessor”, the Company has active lease agreements with over 100 tenants across its portfolio of investment properties. On a prospective and retrospective basis, the accounting for those leases under ASU 2016-02 (ASC No. 842) is substantially unchanged from the previous guidance in ASC No. 840. However, upon the adoption of ASC No. 842, the Company has elected the practical expedient permitting lessors to elect by class of underlying asset to not separate non-lease components (for example, maintenance services, including common area maintenance) from associated lease components (the “non-separation practical expedient”) if both of the following criteria are met: (1) the timing and pattern of transfer of the lease and non-lease component(s) are the same and (2) the lease component would be classified as an operating lease if it were accounted for separately. If both criteria are met, the combined component is accounted for in accordance with ASC No. 842 if the lease component is the predominant component of the combined component; otherwise, the combined component is accounted for in accordance with the revenue recognition standard. The Company assessed the criteria above with respect to our operating leases and determined that they qualify for the non-separation practical expedient. As a result, the Company has accounted for and presented the revenues from these leases, including tenant reimbursements, as a single line item on its condensed consolidated statements of operations for the three months ended March 31, 2022. Prior to the adoption of ASC No. 842, the Company separated lease related revenue from its retail center and flex center properties into two components. Fixed rental payments under its leases (recognized on a straight-line basis over the term of the underlying lease) were recorded as retail center property revenues and flex center property revenues. Variable payments made under the leases made by tenants for real estate taxes, insurance and common area maintenance (“CAM”) expenses were recorded as retail center and flex center tenant reimbursements. For comparability, the Company has adjusted its comparative condensed consolidated statement of operations for the three months ended March 31, 2021, to conform to the 2022 financial statement presentation. The prior period operating lease income presented in retail center property revenues include $183,348 previously classified as retail center property tenant reimbursements and $43,123 previously classified as flex center property tenant reimbursements. These reclassifications had no effect on total revenues, net income, total assets, total liabilities or equity.

Credit Losses on Financial Instruments

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better calculate credit loss estimates. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. The Company is continuing to evaluate the impact the adoption of the guidance will have on its condensed consolidated financial statements. Credit losses primarily arise from tenant defaults and historically have not been significant. The Company will adopt the update on the required effective date of January 1, 2023, and does not expect it to have a material impact on its condensed consolidated financial statements.

Effects of Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The London Interbank Offered Rate (LIBOR), which is widely used as a reference interest rate in debt agreements and other contracts, was effectively discontinued for new contracts as of December 31, 2021, and its publication for existing contracts is scheduled to be discontinued by June 30, 2023. Financial market regulators in certain jurisdictions throughout the world undertook reference rate reform initiatives to guide the transition and modification of debt agreements and other contracts that are based on LIBOR to the successor reference rate that will replace it. ASU 2020-04 was issued to provide companies that are impacted by these changes with the opportunity to elect certain expedients and exceptions that are intended to ease the potential burden of accounting for or recognizing the effects of reference rate reform on financial reporting. Companies may generally elect to make use of the expedients and exceptions provided by ASU 2020-04 for any reference rate contract modifications that occur in reporting periods that encompass the timeline from March 12, 2020 to December 31, 2022. The Company’s Clemson Best Western Property mortgage loan and its corresponding interest rate protection agreement use USD LIBOR as the reference interest rate (see Note 5, below). However, that loan matures in October 2022, which is prior to the date that publication of the applicable USD LIBOR rate is discontinued, therefore no transition to a replacement reference rate is currently expected. The Company’s Parkway Property is financed by a mortgage loan with a corresponding interest rate protection agreement which both use USD LIBOR as the reference interest rate (see Note 5, below). The mortgage loan matures on November 1, 2031, and the interest rate protection agreement expires on December 1, 2026. The Company is continuing to review the guidance in ASU 2020-04 and anticipates that it will use the expedients and exceptions provided therein with respect to the replacement of USD LIBOR as the reference rate in the Parkway Property mortgage loan and corresponding interest rate protection agreement. However, the Company does not expect that any changes under ASU 2020-04 will have a material impact on its condensed consolidated financial statements.

Debt With Conversion Options

In August 2020, the FASB issued ASU 2020-06, Debt - Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The objective of ASU 2020-06 is to reduce the current complexity involved in accounting for convertible financial instruments by reducing the number of accounting models applicable to those instruments in the existing guidance. Following the adoption of ASU 2020-06, companies are expected to encounter fewer instances in which a convertible financial instrument must be separated into a debt or equity component and a derivative component for accounting purposes due to the embedded conversion feature. As a result of these revisions, debt instruments issued with a beneficial conversion feature will no longer require separation and thus will be accounted for as a single debt instrument under the updated guidance. In addition to those changes, ASU 2020-06 adds several incremental financial statement disclosures with respect to a company’s convertible financial instruments and makes certain refinements with respect to calculating the effect of those instruments on a company’s diluted earnings per share. ASU 2020-06 is effective for public companies for fiscal years beginning after December 15, 2021 (including interim periods within those fiscal years), and for private companies, fiscal years beginning after December 15, 2023. Early adoption of the guidance is permitted, but no earlier than fiscal years beginning after December 15, 2020. As discussed in Note 5, below, during the period from October 2020 to January 2021, the Company issued debentures that were convertible into shares of its common stock. While those debentures were subject to the accounting guidance for convertible financial instruments, they were fully converted into common stock during the period from January to May 2021 and are no longer outstanding. The Company is continuing to evaluate the changes to the accounting guidance for convertible financial instruments set forth under ASU 2020-06 and will adopt the updated guidance as of January 1, 2024, with application to any convertible instruments that may be outstanding at or issued after that date.

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Evaluation of the Company’s Ability to Continue as a Going Concern

Under the accounting guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether or not the entity’s current financial condition, including its sources of liquidity at the date that the condensed consolidated financial statements are issued, will enable the entity to meet its obligations as they come due arising within one year of the date of the issuance of the Company’s condensed consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the entity will be able to continue as a going concern. The Company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

In applying applicable accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months as well as the Company’s recurring business operating expenses.

The Company concludes that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these condensed consolidated financial statements within the parameters set forth in the accounting guidance.

3. Investment Properties

Investment properties consist of the following:


	March 31, 2022		December 31,
	(unaudited)		2021
Land	$	14,142,555	$	14,142,555
Site improvements		4,431,338		4,431,338
Buildings and improvements (1)		57,327,476		57,322,242
Investment properties at cost (2)		75,901,369		75,896,135
Less accumulated depreciation		7,139,342		6,488,220
Investment properties, net	$	68,762,027	$	69,407,915

(1)

Includes tenant improvements (both those acquired at the acquisition and those constructed after the acquisition), tenant inducements, capitalized leasing commissions and other capital costs incurred post-acquisition.

(2)

Excludes intangible assets and liabilities (see Note 2, above, for a discussion of the Company's accounting treatment of intangible assets), escrow deposits and property reserves.

The Company’s depreciation expense on investment properties was $771,560 and $454,774 for the three months ended March 31, 2022 and 2021, respectively.

Capitalized tenant improvements

The Company carries two categories of capitalized tenant improvements on its condensed consolidated balance sheets, both of which are recorded under investment properties, net on the Company’s condensed consolidated balance sheets. The first category is the allocation of acquisition costs to tenant improvements that is recorded on the Company’s condensed consolidated balance sheet as of the date of the Company’s acquisition of the investment property. The second category are tenant improvement costs incurred and paid by the Company subsequent to the acquisition of the investment property. Both are recorded as a component of investment properties on the Company’s condensed consolidated balance sheets. Depreciation expense on both categories of tenant improvements is recorded as a component of depreciation expense on the Company’s condensed consolidated statement of operations.

The Company generally records depreciation of capitalized tenant improvements on a straight-line basis over the terms of the related leases. Details of these deferred costs, net of depreciation are as follows:

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	March 31,
	2022		December 31,
	(unaudited)		2021
Capitalized tenant improvements – acquisition cost allocation, net	$	1,699,457	$	1,840,612
Capitalized tenant improvements incurred subsequent to acquisition, net		291,973		257,340

During the three months ended March 31, 2022 and 2021, the Company recorded $56,281 and $45,150, respectively, in capitalized tenant improvements.

Depreciation of capitalized tenant improvements incurred subsequent to acquisition was $21,648 and $11,769 for the three months ended March 31, 2022 and 2021, respectively.

Depreciation of capitalized tenant improvements arising from the acquisition cost allocation was $127,276 and $62,567 for the three months ended March 31, 2022 and 2021, respectively.

Capitalized leasing commissions

The Company carries two categories of capitalized leasing commissions on its condensed consolidated balance sheets. The first category is the allocation of acquisition costs to leasing commissions that is recorded as an intangible asset (see Note 2, above, for a discussion of the Company’s accounting treatment for intangible assets) on the Company’s condensed consolidated balance sheet as of the date of the Company’s acquisition of the investment property. The second category is leasing commissions incurred and paid by the Company subsequent to the acquisition of the investment property. These costs are carried on the Company’s condensed consolidated balance sheets under investment properties.

The Company generally records depreciation of capitalized leasing commissions on a straight-line basis over the terms of the related leases. Details of these deferred costs, net of depreciation are as follows:


	March 31, 2022		December 31,
	(unaudited)		2021
Capitalized leasing commissions, net	$	415,457	$	356,327

During the three months ended March 31, 2022 and 2021, the Company recorded $78,921 and $0, respectively in capitalized leasing commissions. Depreciation of capitalized leasing commissions was $19,791 and $14,712 for the three months ended March 31, 2022 and 2021, respectively.

Assets held for sale

The Company records properties as assets held for sale, and any associated mortgages payable, net, as mortgages payable, net, associated with assets held for sale, on the Company's condensed consolidated balance sheets when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year.

During February 2021, the Company committed to a plan to sell an asset group associated with the Clemson Best Western Hotel Property that includes the land, site improvements, building, building improvements and furniture, fixtures and equipment. As a result, as of March 31, 2021, the Company reclassified these assets, and the related mortgage payable, net, for the Clemson Best Western Property as assets held for sale and liabilities associated with assets held for sale, respectively. The Company expects that it will retain cash and restricted cash and will be responsible for the extinguishment of any accounts payable and other liabilities associated with the Clemson Best Western Property. Accordingly, these amounts were excluded from the assets and related liabilities that had been reclassified as assets held for sale and liabilities associated with assets held for sale as of March 31, 2021.

As discussed in Note 2, above, for an asset group to qualify as held for sale, the sale of the asset group must be probable and the transfer of the asset group must be expected to qualify for recognition as a completed sale within one year. The Company believes that the Clemson Best Western Hotel Property qualifies for an exception to this one-year rule. Accordingly, as of March 31, 2022, management believes that its plans to sell the Clemson Best Western Hotel Property continue to meet the criteria for the asset to be recorded an asset held for sale and, as of March 31, 2022, the assets held for sale on the Company’s condensed consolidated balance sheets included certain assets associated with the Clemson Best Western Property. However, as of March 31, 2022, the Company has

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determined that the carrying value of the asset group associated with the Clemson Best Western Hotel Property exceed its fair value, less estimated costs to sell, and recorded impairment of assets held for sale of $175,671 on its condensed consolidated statement of operations for the three months ended March 31, 2022. No such impairment of assets held for sale was recorded during the three months ended March 31, 2021.

As of March 31, 2022 and December 31, 2021, assets held for sale and liabilities associated with assets held for sale consisted of the following:


	March 31, 2022		December 31,
	(unaudited)		2021
Investment properties, net	$	9,897,045	$	9,846,208
Total assets held for sale	$	9,897,045	$	9,846,208


	March 31, 2022		December 31,
	(unaudited)		2021
Mortgages payable, net	$	7,615,368	$	7,615,368
Total liabilities associated with assets held for sale	$	7,615,368	$	7,615,368

4. Mandatorily Redeemable Preferred Stock

On February 19, 2020, the Company issued and sold 200,000 shares of 8.0% Series A cumulative redeemable preferred stock at $23.00 per share, resulting in gross proceeds of $4,600,000. Net proceeds from the issuance were $3,860,882, which includes the impact of the underwriter’s discounts, selling commissions and legal, accounting and other professional fees, and is presented on the Company’s condensed consolidated balance sheets as mandatorily redeemable preferred stock.

The mandatorily redeemable preferred stock has an aggregate liquidation preference of $5 million, plus any accrued and unpaid dividends thereon. The mandatorily redeemable preferred stock is senior to the Company’s common stock and any class or series of capital stock expressly designated as ranking junior to the mandatorily redeemable preferred stock as to distribution rights and rights upon liquidation, dissolution or winding up (“Junior Stock”). The mandatorily redeemable preferred stock is on a parity with any class or series of the Company’s capital stock expressly designated as ranking on a parity with the mandatorily redeemable preferred stock as to distribution rights and rights upon liquidation, dissolution or winding up (“Parity Stock”).

If outstanding on February 19, 2025, the mandatorily redeemable preferred stock must be redeemed by the Company on that date, the fifth anniversary of the date of issuance. Beginning on February 19, 2022, the second anniversary of the issuance, the Company may redeem the outstanding mandatorily redeemable preferred stock for an amount equal to its aggregate liquidation preference, plus any accrued but unpaid dividends. The holders of the mandatorily redeemable preferred stock may also require the Company to redeem the stock upon a change of control of the Company for an amount equal to its aggregate liquidation preference plus any accrued and unpaid dividends thereon.

Holders of the mandatorily redeemable preferred stock generally have no voting rights. However, if the Company does not pay dividends on the mandatorily redeemable preferred stock for six consecutive quarterly periods, the holders of that stock, voting together as a single class with the holders of any outstanding Parity Stock having similar voting rights, will be entitled to vote for the election of two additional directors to serve on the Company’s Board of Directors until the Company pays all dividends owed on the mandatorily redeemable preferred stock. The affirmative vote of the holders of at least two-thirds of the outstanding shares of mandatorily redeemable preferred stock, voting together as a single class with the holders of any other class or series of the Company’s preferred stock upon which like voting rights have been conferred and are exercisable, is required for the Company to authorize, create or increase the number of shares of any class or series of capital stock expressly designated as ranking senior to the mandatorily redeemable preferred stock as to distribution rights and rights upon the Company’s liquidation, dissolution or winding up. In addition, the affirmative vote of at least two-thirds of the outstanding shares of mandatorily redeemable preferred stock (voting as a separate class) is required to amend the Company’s charter (including the articles supplementary designating the mandatorily redeemable preferred stock) in a manner that materially and adversely affects the rights of the holders of mandatorily redeemable preferred stock. Among other things, the Company may, without any vote of the holders of mandatorily redeemable preferred stock, issue additional shares of mandatorily redeemable preferred stock and may authorize and issue additional shares of any class or series of any Junior Stock or Parity Stock.

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The Company has classified the mandatorily redeemable preferred stock as a liability in accordance with ASC Topic No. 480, “Distinguishing Liabilities from Equity,” which states that mandatorily redeemable financial instruments should be classified as liabilities and therefore the related dividend payments are treated as a component of interest expense in the accompanying condensed consolidated statements of operations (see Note 5, below, for a discussion of interest expense associated with the mandatorily redeemable preferred stock).

For all periods the mandatorily redeemable preferred stock has been outstanding, the Company has paid a cash dividend on the stock equal to 8 percent per annum, paid quarterly, as follows:


Payment Date	Record Date	Amount per share		For the period
April 27, 2020	April 24, 2020	$	0.37	February 19, 2020 - April 27, 2020
July 24, 2020	July 22, 2020		0.50	April 28, 2020 - July 24, 2020
October 26, 2020	October 23, 2020		0.50	July 25, 2020 - October 26, 2020
February 1, 2021	January 29, 2021		0.50	October 27, 2020 - February 1, 2021
April 30, 2021	April 26, 2021		0.50	February 2, 2021 – April 30, 2021
July 26, 2021	July 12, 2021		0.50	May 1, 2021 - July 26, 2021
October 27, 2021	October 25, 2021		0.50	July 27, 2021 – October 26, 2021
January 20, 2022	January 13, 2022		0.50	October 27, 2021 - January 19, 2022
April 21, 2022	April 18, 2022		0.50	January 20, 2022 - April 20, 2022

As of March 31, 2022 and 2021, the Company recorded $70,004 and $70,004, respectively, in accrued but unpaid dividends on the mandatorily redeemable preferred stock. This amount is reported in accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets.

The mandatorily redeemable preferred stock was issued at $23.00 per share, a $2.00 per share discount. The total discount of $400,000 is being amortized over the five-year life of the shares using the effective interest method. Additionally, the Company incurred $739,118 in legal, accounting, other professional fees and underwriting discounts related to this offering. These costs were recorded as deferred financing costs on the accompanying condensed consolidated balance sheets as a direct deduction from the carrying amount of the mandatorily redeemable preferred stock liability and are being amortized using the effective interest method over the term of the agreement.

Amortization of the discount and deferred financing costs related to the mandatorily redeemable preferred stock totaling $53,923 and $49,449 were included in interest expense for the three months ended March 31, 2022 and 2021 respectively, in the accompanying condensed consolidated statements of operations. Accumulated amortization of the discount and deferred financing costs was $420,681 and $366,758 as of March 31, 2022 and December 31, 2021, respectively.

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5. Loans Payable

Mortgages Payable

The Company’s mortgages payables, net consists of the following:


						March 31,
	Monthly		Interest			2022		December 31,
Property	Payment		Rate		Maturity	(unaudited)		2021
Franklin Square (a)		Interest only	3.808	%	December 2031	$	13,250,000	$	13,250,000
Hanover Square (b)	$	56,882	4.25	%	December 2027		10,071,489		10,134,667
Ashley Plaza (c)	$	52,795	3.75	%	September 2029		11,089,857		11,127,111
Brookfield Center (d)	$	22,876	3.90	%	November 2029		4,736,045		4,758,344
Lancer Center (e)	$	34,667	4.00	%	March 2026		6,447,916		6,488,034
Greenbrier Business Center (f)		Interest only	4.00	%	July 2026		4,495,000		4,495,000
Parkway Center (g)		Variable	Variable		October 2026		5,060,802		5,090,210
Unamortized issuance costs, net							(797,426)		(825,544)
Total mortgages payable, net						$	54,353,683	$	54,517,822

(a)

The original mortgage loan for the Franklin Square Property in the amount of $14,275,000 matured on October 6, 2021. Effective on October 6, 2021, the Company entered into a forbearance agreement with the current lender extending the maturity date for thirty days with a right to extend the maturity date for an additional thirty days. On November 8, 2021, the Company closed on a new loan in the principal amount of $13,250,000 with a ten-year term and a maturity date of December 6, 2031. In addition to the funds from the new loan, the Company used $2,242,273 in cash on hand for loan issuance costs (totaling $283,721), to fund escrows and to repay the remaining balance of the original mortgage loan. The Company has guaranteed the payment and performance of the obligations of the new mortgage loan. The new mortgage loan bears interest at a fixed rate of 3.808 percent and is interest only until January 6, 2025, at which time the monthly payment will become $61,800, which includes interest and principal based on a 30 year amortization schedule. The Company accounted for this refinancing transaction under debt extinguishment accounting in accordance with ASC 470. The new mortgage includes covenants for the Company to maintain a net worth of $13,250,000, excluding the assets and liabilities associated with the Franklin Square Property and for the Company to maintain liquid assets of no less than $1,000,000. As of March 31, 2022 and December 31, 2021, the Company believes that it is compliant with these covenants.

(b)

The mortgage loan for the Hanover Square Property bears interest at a fixed rate of 4.25 percent until January 1, 2023, when the interest rate will adjust to a new fixed rate which will be determined by adding 3.00 percentage points to the daily average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available by the Federal Reserve Board, with a minimum of 4.25 percent. The fixed monthly payment of $56,882 which includes interest at the fixed rate, and principal, based on a 25 year amortization schedule. The mortgage loan agreement for the Hanover Square property includes covenants to (i) maintain a Debt Service Coverage Ratio (“DSCR”) in excess of 1.35 and (ii) maintain a loan-to-value of real estate ratio of 75 percent. As of March 31, 2022 and December 31, 2021, respectively, the Company believes that it is compliant with these covenants.

(c)

The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75 percent and was interest only for the first twelve months. Beginning on October 1, 2020, the monthly payment became $52,795 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty year amortization schedule.

(d)

The mortgage loan for the Brookfield Property bears interest at a fixed rate of 3.90 percent and is interest only for the first twelve months. Beginning on November 1, 2020, the monthly payment became $22,876 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty year amortization schedule.

(e)

The mortgage loan for the Lancer Center Property bears interest at a fixed rate of 4.00 percent. The monthly payment is $34,667 which includes interest at the fixed rate and principal, based on a twenty-five year amortization schedule. The Company has provided a guaranty of the payment of and performance under the terms of the Lancer Center Property mortgage.

(f)

The Company assumed the mortgage loan for the Greenbrier Business Center Property from the seller. The mortgage loan bears interest at a fixed rate of 4.00 percent and is interest only until August 1, 2022, at which time the monthly payment will

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become $23,873, which includes interest at the fixed rate, and principal, based on a twenty-five year amortization schedule. The Greenbrier Business Center Property mortgage includes covenants to maintain a debt service coverage ratio above 1.35 to 1.00 and maintain an occupancy rate of at least 80 percent. As of March 31, 2022 and December 31, 2021, respectively, the Company believes that it is compliant with these covenants.

(g)

The mortgage loan for the Parkway Property bears interest at a variable rate based on LIBOR with a minimum rate of 2.25 percent. The interest rate payable is the ICE LIBOR rate plus 225 basis points. As of March 31, 2022 and December 31, 2021, the rate in effect for the Parkway Property mortgage was 2.4806 percent and 2.3493 percent, respectively. The monthly payment, which varies based on the interest rate in effect each month, includes interest at the variable rate, and principal based on a 30 year amortization schedule.

Mortgages payable, net, associated with assets held for sale

The Company’s mortgages payables, net, associated with assets held for sale, consists of the following:

Balance

March 31,

Monthly

Interest

2022

December 31,

Property

Payment

Rate

Maturity

(unaudited)

2021

Clemson Best Western (a)

Interest only

Variable

October 2022

7,750,000

Unamortized issuance costs, net

(134,632)

Total mortgages payable, net, associated with assets held for sale

7,615,368

(a)

As of March 31, 2021, the Company reclassified the mortgage loan for the Clemson Best Western Property to mortgages payable, net, associated with assets held for sale. The mortgage loan for the Clemson Best Western Property bears interest at a variable rate based on LIBOR with a minimum rate of 7.15 percent. The interest rate payable is the USD LIBOR one-month rate plus 4.9 percent. As of March 31, 2022 and December 31, 2021, respectively, the rate in effect for the Clemson Best Western Property mortgage was 7.15 percent. The mortgage payable on the Clemson Best Western Property matures on October 6, 2022. The Company has an option to extend the term of the mortgage by one year, until October 6, 2023, under certain conditions which the Clemson Best Western Property may not meet. If the Company has not been successful in its efforts to sell the Clemson Best Western Property by the loan maturity date, the Company plans to refinance the mortgage. There is no guarantee that the Company will be successful in refinancing the mortgage.

Convertible Debentures

On October 27, 2020, the Company entered into a definitive agreement with a financing entity to issue and sell convertible debentures in an aggregate principal amount of up to $5 million pursuant to a private offering exempt from registration under the Securities Act of 1933, as amended. The debentures were issued at a 5 percent discount to the principal amount, accrue interest at a rate of 5 percent per annum (payable at conversion or maturity), and were closed in three separate tranches as follows: (i) convertible debenture of $1.5 million issued and sold on October 27, 2020 upon the signing of the definitive agreement, (ii) convertible debenture of $2.0 million issued and sold on December 22, 2020 upon the filing of a registration statement with the U.S. Securities and Exchange Commission (“SEC”) relating to the shares of common stock that may be issued upon the conversion of the convertible debentures, and (iii) convertible debenture of $1.5 million issued and sold on January 5, 2021, the date the registration statement was declared effective by the SEC. The second and third closings of the convertible debentures were subject to the Company successfully obtaining approval from its common stockholders for the issuance of shares of common stock that may be issued upon the conversion of the convertible debentures. Net proceeds from the issuance and sale of the convertible debentures totaled $4,231,483.


						Debt
		Principal				Issuance		Net Cash
Tranche	Closing Date	Amount		Discount		Costs – Cash		Proceeds
Tranche 1	October 27, 2020	$	1,500,000	$	(75,000)	$	(155,555)	$	1,269,445
Tranche 2	December 22, 2020		2,000,000		(100,000)		(207,407)		1,692,593
Tranche 3	January 5, 2021		1,500,000		(75,000)		(155,555)		1,269,445
Total		$	5,000,000	$	(250,000)	$	(518,517)	$	4,231,483

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The 5 percent issue discount totaled $250,000 and was amortized over the one-year term of the debentures using the effective interest method. The Company also paid a total of $518,517 in issuance costs, including legal, accounting, other professional fees, and underwriting discounts. In addition to the closing costs paid in cash, the Company paid $123,000 in debt issuance costs in common shares of the Company. These issuance costs were recorded as deferred debt issuance costs on the accompanying condensed consolidated balance sheets as a direct deduction from the carrying amount of the convertible debentures and were amortized over the one-year term of the debentures using the effective interest method.

Based on the terms and relevant conversion details, the debt component and embedded conversion option of the debentures are not bifurcated for accounting purposes under ASC 815, Derivative Instruments and Hedging Activities. Because the variable conversion price of the debentures was lower than the market price of the Company’s common stock at the commitment date, the debentures have a beneficial conversion feature as outlined in ASC 470, Debt. The intrinsic value of the beneficial conversion feature totaled $946,840 and was recorded as an increase in additional paid-in capital and a corresponding incremental discount on the carrying value of the debentures.

Each tranche of the convertible debentures had a maturity date one year from its closing date. At its option, the holder at any time may elect to convert any portion of the principal and accrued interest into shares of the Company’s common stock. Conversions into common stock occur at the lower of (1) a fixed conversion price of $2.47, or (2) a variable conversion price equal to 88 percent of the volume-weighted average price of the Company’s common shares for the ten consecutive trading days preceding the conversion date, except that the conversion price cannot be lower than $0.6175. Based on securities and stock exchange regulations, the agreement limits the percentage of the Company’s common shares that may be held at any time by the debenture holder, which effectively limits the amount of principal and interest that the debenture holder may convert without disposing of shares received in earlier conversions. The agreement includes customary representations and warranties, as well as provisions for conversion price adjustments that prevent dilution of the holder’s conversion shares in the event the Company issues additional shares of its common stock prior to the maturity or full conversion of the debentures. At its option, the Company may redeem all or any portion of the outstanding principal and accrued interest prior to the maturity date at a 15% premium to the principal amount, provided that the trading price of its common stock at that time is less than the $2.47 fixed conversion price and it provides the holder with ten business days’ written notice to allow the holder the opportunity to elect conversion of the debentures prior to the redemption.

Between January 6, 2021 and May 11, 2021, the convertible debenture holder completed the full conversion of the total $5,000,000 principal balance of the convertible debentures and $58,788 in accrued interest, to the Company’s common shares, receiving 3,181,916 common shares in a series of 17 conversions at an average conversion price of $1.59 per common share.

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Interest expense

Interest expense, including amortization of capitalized issuance costs consists of the following:


	For the three months ended March 31, 2022
	(unaudited)
			Amortization of
	Mortgage		discounts and		Other
	Interest		capitalized		interest
	Expense		issuance costs		expense		Total
Franklin Square	$	126,140	$	7,093	$	—	$	133,233
Hanover Square		104,854		3,223		—		108,077
Hampton Inn		—		—		—		—
Ashley Plaza		104,147		4,358		—		108,505
Clemson Best Western		138,531		—		386		138,917
Brookfield Center		46,254		2,838		—		49,092
Lancer Center		63,746		7,156		—		70,902
Greenbrier Business Center		44,950		693		—		45,643
Parkway Center		30,375		2,757		—		33,132
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		53,923		100,000		153,923
Total interest expense	$	658,997	$	82,041	$	100,386	$	841,424


	For the three months ended March 31, 2021
	(unaudited)
			Amortization
	Mortgage		of discounts and		Other
	Interest		capitalized		interest
	Expense		issuance costs		expense		Total
Franklin Square	$	167,731	$	2,322	$	—	$	170,053
Hanover Square		110,832		3,234		—		114,066
Hampton Inn		169,000		9,000		4,378		182,378
Ashley Plaza		106,086		4,359		—		110,445
Clemson Best Western		138,531		22,437		1,576		162,544
Brookfield Center		47,084		2,838		—		49,922
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		49,449		100,000		149,449
Amortization and interest on convertible debentures		—		1,455,324		36,219		1,491,543
Other interest		—		—		3,732		3,732
Total interest expense	$	739,264	$	1,548,963	$	145,905	$	2,434,132

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Interest accrued and accumulated amortization of capitalized issuance costs consist of the following:


	As of March 31, 2022
	(unaudited)				As of December 31, 2021
			Accumulated				Accumulated
			amortization of				amortization
	Accrued		capitalized		Accrued		of capitalized
	interest		issuance costs		interest		issuance costs
Franklin Square	$	43,448	$	9,457	$	—	$	2,364
Hanover Square		35,670		50,213		38,287		46,990
Ashley Plaza		35,811		45,037		—		40,679
Clemson Best Western		47,716		134,622		47,716		134,622
Brookfield Center		15,904		28,380		15,979		25,542
Lancer Center		21,905		25,127		22,042		17,971
Greenbrier Business Center		15,482		1,617		15,482		924
Parkway Center		10,463		4,595		9,966		1,838
Amortization and preferred stock dividends ⁽¹⁾ on mandatorily redeemable preferred stock		70,004		420,681		70,004		366,758
Total	$	296,403	$	719,729	$	219,476	$	637,688

(1)

Recorded as accrued interest under accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively .

Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of March 31, 2022 are as follows:


			Mortgages
			Payable
			Associated
			with Assets
	Mortgages		Held for
	Payable		Sale		Total
For the remaining nine months ending December 31, 2022	$	658,777	$	7,750,000	$	8,408,777
2023		961,743		—		961,743
2024		995,251		—		995,251
2025		1,272,970		—		1,272,970
2026		10,940,397		—		10,940,397
Thereafter		40,321,971		—		40,321,971
Total principal payments and debt maturities		55,151,109		7,750,000		62,901,109
Less unamortized issuance costs		(797,426)		(134,632)		(932,058)
Net principal payments and debt maturities	$	54,353,683	$	7,615,368	$	61,969,051

6. Rentals under Operating Leases

Future minimum rents (based on recognizing future rents on the straight-line basis) to be received under noncancelable tenant operating leases for each of the next five years and thereafter, excluding common area maintenance and other expense pass-throughs, as of March 31, 2022 are as follows:


For the remaining nine months ending December 31, 2022	$	5,006,964
2023		6,062,067
2024		4,869,830
2025		4,113,579
2026		2,901,598
Thereafter		5,251,352
Total minimum rents	$	28,205,390

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7. Equity

The Company has authority to issue 1,000,000,000 shares consisting of 750,000,000 shares of common stock, $0.01 par value per share ("Common Shares"), and 250,000,000 shares of preferred stock, $0.01 par value per share ("Preferred Shares"). Substantially all of the Company’s business is conducted through its Operating Partnership. The REIT is the sole general partner of the Operating Partnership and owned a 98.77% and 98.69% interest in the Operating Partnership as of March 31, 2022 and December 31, 2021, respectively. Limited partners in the Operating Partnership who have held their units for one year or longer have the right to redeem their common units for cash or, at the REIT’s option, Common Shares at a ratio of one common unit for one common share. Under the Agreement of Limited Partnership, distributions to unit holders are made at the discretion of the REIT. The REIT intends to make distributions in a manner that will result in limited partners of the Operating Partnership receiving distributions at the same rate per unit as dividends per share are paid to the REIT’s holders of Common Shares.

April 2021 Common Stock Issuance

On April 13, 2021, the Company issued and sold 8,000,000 Common Shares at an offering price of $1.50 per share. Net proceeds from the issuance totaled $10,886,337, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and estimated legal and accounting fees.

Form S-3 Shelf Registration

On June 21, 2021, the Company filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”). The registration statement is intended to provide the Company additional flexibility to finance future business opportunities through timely and cost-effective access to capital markets. Under the shelf registration statement, the Company may, from time to time, issue common stock up to an aggregate amount of $150 million. The shelf registration statement was declared effective by the SEC on July 27, 2021. The Company has incurred $84,926 in legal costs, filing fees and other costs associated with this registration which are recorded as offering costs as part of stockholders' equity on the Company’s condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021 , respectively.

Standby Equity Purchase Agreement

On November 17, 2021, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with a financing entity. Under this agreement, the Company will be able to sell up to $6,665,299 of its shares of common stock at the Company’s request any time during the 36 months following the execution of the SEPA. The shares would be purchased at 96.5% of the market price (as defined in the agreement) and would be subject to certain limitations, including that the financing entity could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. As of March 31, 2022, the Company has generated net proceeds of $1,188,574 from the issuance of 1,119,668 shares at an average price of $1.062 per common share under the SEPA.


Issuance Date	Shares Issued	Price Per Share		Total Proceeds
March 3, 2022	90,600	$	1.088	$	98,574
March 14, 2022	276,190		1.050		290,000
March 17, 2022	278,810		1.076		300,000
March 21, 2022	474,068		1.0547		500,000
Total	1,119,668	$	1.062	$	1,188,574

Common Stock Repurchase Plan

In December 2021, the Company’s board of directors approved a program to purchase up to 500,000 shares of the Company’s common stock in the open market, up to a maximum price of $4.80 per share. The repurchase program does not obligate the Company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. As of March 31, 2022, the Company had repurchased 268,070 shares of its common stock at a total cost of $278,277 at an

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average price of $1.038 per common share. The Company incurred fees of $8,266 associated with these transactions. All repurchased shares were retired in accordance with Maryland law.


Purchase (Trade) Date	Shares Purchased	Price Per Share		Total Cost (1)
January 4, 2022	400	$	1.060	$	424
January 5, 2022	48,205		1.060		51,093
January 6, 2022	100,000		1.046		104,556
January 7, 2022	30,000		1.050		31,500
January 10, 2022	50,000		1.020		51,000
January 14, 2022	100		1.010		101
January 21, 2022	39,365		1.006		39,603
Total	268,070	$	1.038	$	278,277

(1)

Total cost before transaction fees.

Common shares and operating partnership units outstanding

As of March 31, 2022 and December 31, 2021, respectively, there were 17,327,746 and 16,266,148 common units of the Operating Partnership outstanding with the REIT owning 17,114,215 and 16,052,617, respectively, of these common units. As of March 31, 2022 and Decemer 31, 2021, respectively, there were 17,114,215 and 16,052,617 Common Shares of the REIT outstanding. As of March 31, 2022 and December 31, 2021, respectively, there were 213,531 and 213,531 common units of the Operating Partnership that were eligible for conversion to the Company’s Common Shares.

2018 Equity Incentive Plan

The Company’s 2018 Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of Directors on July 27, 2018 and approved by the Company’s shareholders on August 23, 2018. The Plan permits the grant of stock options, stock appreciation rights, stock awards, performance units, incentive awards and other equity-based awards (including LTIP units of the Company’s Operating Partnership) to its employees or an affiliate (as defined in the Plan) of the Company and for up to the greater of (i) 240,000 shares of common stock and (ii) eight percent (8)% of the number of fully diluted shares of the Company’s Common Shares (taking into account interests in the Operating Partnership that may become convertible into Common Shares).

On March 16, 2021, the Company’s Compensation Committee approved a grant of 40,356 Common Shares to the Company’s three independent directors, and a grant of 26,900 shares to the chief financial officer of the Company. The effective date of the grants was March 16, 2021. The Common Shares granted vest immediately and are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common Shares vested immediately, the fair value of the grants, or $149,981, was recorded to share based compensation expense on the Company’s condensed consolidated statements of operations on the effective date of the grant. The fair value of the grants was determined by the market price of the Company’s Common Shares on the effective date of the grant.

On March 2, 2022, the Company’s Compensation Committee approved a grant of 60,000 Common Shares to two employees of the Manager who also serve as directors of the Company, a grant of 90,000 Common Shares to the Company’s three independent directors, and a grant of 60,000 shares to the chief financial officer of the Company. The effective date of the grants was March 2, 2022. The Common Shares granted vest immediately and are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common Shares vested immediately, the fair value of the grants, or $233,100, was recorded to share based compensation expense on the Company’s condensed consolidated statements of operations on the effective date of the grant. The fair value of the grants was determined by the market price of the Company’s Common Shares on the effective date of the grant.

On each January 1 during the term of the Plan, the maximum number of shares of common stock that may be issued under the Plan will increase by eight percent (8)% of any additional shares of common stock or interests in the Operating Partnership issued (i) after the completion date the Company’s initial registered public offering of common stock, in the case of the January 1, 2019 adjustment, or (ii) in the preceding calendar year, in the case of any adjustment subsequent to January 1, 2020. As of January 1, 2022, the shares available for issuance under the plan was adjusted to 904,146 shares.

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Earnings per share

Basic earnings per share for the Company’s Common Shares is calculated by dividing income (loss) from continuing operations, excluding the net income (loss) attributable to noncontrolling interests, by the Company’s weighted-average number of Common Shares outstanding during the period. Diluted earnings per share is computed by dividing the net income attributable to common shareholders, excluding the net loss attributable to noncontrolling interests, by the weighted average number of Common Shares, including any dilutive shares. As of March 31, 2022 and 2021, respectively, 213,531 and 213,531 of the Operating Partnership’s 213,531 common units outstanding were eligible to be converted, on a one-to-one basis, into Common Shares. The Operating Partnership’s common units and the equivalent common shares attributable to the convertible debentures have been excluded from the Company’s diluted earnings per share calculation because their inclusion would be antidilutive.

The Company's loss per common share is determined as follows:


	Three months ended March 31,
	2022		2021
Basic and diluted shares outstanding
Weighted average Common Shares – basic		16,037,073		5,856,365
Effect of conversion of operating partnership units		213,531		213,531
Effect of conversion of convertible debentures (1)		—		739,128
Weighted average Common Shares – diluted		16,250,604		6,809,024

Calculation of earnings per share – basic and diluted
Net loss attributable to common shareholders	$	(989,284)	$	(2,277,524)
Weighted average Common Shares – basic and diluted		16,037,073		5,856,365
Loss per share – basic and diluted	$	(0.06)	$	(0.39)

(1)

Represents the number of shares that would be issued if all outstanding convertible debentures and accrued interest were converted into Common Shares on March 31, 2021 at a price equal to 88 percent of the lowest volume weighted average price for the prior 10 trading days, or $1.9079 pershare.

Dividends and Distributions

During the three months ended March 31, 2022, dividends in the amount of $0.02 per share were paid on January 20, 2022, to shareholders of record on January 13, 2022. During the three months ended March 31, 2021, no dividends were paid. Total dividends and distributions to noncontrolling interests paid during the three months ended March 31, 2022 and 2021, respectively, are as follows:


	Three months ended March 31,
	2022		2021
Common shareholders (dividends)	$	316,450	$	—
Hanover Square Property noncontrolling interest (distributions)		10,000		12,000
Parkway Property noncontrolling interest (distributions)		10,800		—
Operating Partnership unit holders (distributions)		4,271		—
Total dividends and distributions	$	341,521	$	12,000

8. Commitments and Contingencies

Insurance

The Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all of the properties in its portfolio, in addition to other coverages that may be appropriate for certain of its properties. Additionally, the Company carries a directors and officers liability insurance policy that covers such claims made against the Company and its directors and officers. The Company believes the policy specifications and insured limits are appropriate and adequate for its properties given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may not be sufficient to fully cover its losses.

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Concentration of Credit Risk

The Company is subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others, the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential liability under environmental and other laws. The Company’s portfolio of properties is dependent upon regional and local economic conditions and is geographically concentrated in the Mid-Atlantic, specifically in South Carolina, North Carolina and Virginia, which represented 100 percent of the total annualized base revenues of the properties in its portfolio as of March 31, 2022. The Company’s geographic concentration may cause it to be more susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio. Additionally, the Company’s retail shopping center properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one or more of these tenants.

Other Risks and Uncertainties

Since March 2020, the Company’s investment properties have been significantly impacted by (i) measures taken by local, state and federal authorities to mitigate the impact of COVID-19, such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders and (ii) significant changes in consumer behavior and business and leisure travel patterns. While most, if not all, of the initial measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from the continued mutation of COVID-19 into new variants, and the possibility that changes in consumer behavior and business and leisure travel patterns will continue, the negative impact on consumer behavior, including demand for the goods and services of our retail tenants within our portfolio, and room demand for our hotel properties, could continue to be significant in future periods.

Retail Center and Flex Center Properties

As of the date of this Quarterly Report on Form 10-Q, all of the tenants in the Company’s retail properties and flex properties are open.

As is the case with retail landlords across the U.S., the Company received a number of rent relief requests from tenants which were impacted by mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders and significant changes in consumer behavior. The Company evaluated each of these requests on a case-by-case basis. During the period following the onset of the COVID-19 pandemic, from March 2020 through December 2020, the Company granted lease concessions in the form of (i) rent deferrals or (ii) rent abatements. The deferral and abatement agreements have reduced the rent revenues the Company has recognized in all subsequent periods, including during the three months ended March 31, 2022 and 2021, and will reduce the rent revenues the Company expects to receive in future periods.

Under the rent deferral agreements, all of which were reached during the year ended December 31, 2020, the Company granted rent deferrals to various tenants in return for an agreement by the tenants to repay deferred and unpaid rent over a specified time period or before a certain date. Deferred rent is recognized as retail center property revenues or flex center property revenues on the Company’s condensed consolidated statement of operations and as rent and other receivables on the Company’s condensed consolidated balance sheets. As of March 31, 2022, all rent deferral periods have ended and, in all cases, tenants have commenced repayment of the deferred rent amounts. As of the date of this Quarterly Report on Form 10-Q, all tenants are current on their deferred rent repayment.

Under the rent abatement agreements, all of which were reached during the year ended December 31, 2020, the Company agreed to permanently abate rent in exchange for lease extensions of between one and three years, depending on the amount of the abatement. In one case, the Company agreed to abate a portion of a tenant’s base rent in exchange for future rent payments based on the tenant’s monthly sales. Abated rent is excluded from future minimum rents in Note 6, above.

While the Company’s rent collections from its retail and flex center properties have stabilized, the extent of the continued impact of COVID-19 and its new variants on revenues from the Company’s retail and flex center properties and tenants remains uncertain and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the continued efficacy of vaccines against new variants, development and deployment of of treatments, and potential mutations of COVID-19 and the response thereto.

Revenues will continue to be impacted by the deferral and abatement agreements that the Company has granted to various tenants and could continue to be negatively impacted until consumer demand for the goods and services of the Company’s retail and

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flex center tenants returns to levels prior to the virus outbreak. Additionally, the direct and indirect economic effects of the pandemic and containment measures and the potential for changes in consumer behavior and business and leisure travel patterns could continue to have a significant negative impact on consumer demand for the goods and services of the Company’s retail tenants within its portfolio in the coming months.

Hotel Properties

Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the United States, resulting in significant decreases in the Company’s revenues from the Hampton Inn Property (which the Company sold on August 31, 2021) and the Clemson Best Western Property, and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the resulting economic decline, it is difficult to project the duration of revenue declines for the industry and the Company.

Due to the risk and uncertainty associated with continued ownership of the Company’s hotel properties, the Company sold its Hampton Inn Property on August 31, 2021. While the Company’s occupancy agreement with Clemson University for the Clemson Best Western Property has resulted in 100 percent occupancy rates from September 2020 through March 2022, due to the continued risk and uncertainties associated with hotels, the Company has committed to a plan to sell its Clemson Best Western Hotel Property. See Note 3, above. There is no assurance that the Company will be able to complete the sale of the Clemson Best Western Property. Despite the Company’s decision to sell its hotel properties, the Company has not removed hotel properties from its investment policy and will consider future opportunistic acquisitions of hotel properties in the future.

Until such time as the virus is contained or eradicated and room demand for the Company’s hotel property and consumer demand for the goods and services of the Company’s retail and flex center tenants returns to more customary levels, the Company may continue to experience material reductions in its operating revenue. The anticipated negative impact on revenues, discussed above, from the Company’s retail, flex center and hotel property has also, and will continue, to impact the Company’s liquidity, resulting in reduced cash flow to meet the Company’s obligations and to fund dividend distribution payments.

Regulatory and Environmental

As the owner of the buildings on its properties, the Company could face liability for the presence of hazardous materials (e.g., asbestos or lead) or other adverse conditions (e.g., poor indoor air quality) in its buildings. Environmental laws govern the presence, maintenance, and removal of hazardous materials in buildings, and if the Company does not comply with such laws, it could face fines for such noncompliance. Also, the Company could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials or adverse conditions in its buildings, and the Company could incur material expenses with respect to abatement or remediation of hazardous materials or other adverse conditions in its buildings. In addition, some of the Company’s tenants routinely handle and use hazardous or regulated substances and wastes as part of their operations at the Company’s properties, which are subject to regulation. Such environmental and health and safety laws and regulations could subject the Company or its tenants to liability resulting from these activities. Environmental liabilities could affect a tenant’s ability to make rental payments to the Company, and changes in laws could increase the potential liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise materially and adversely affect the Company’s operations. The Company is not aware of any material contingent liabilities, regulatory matters or environmental matters that may exist.

Seasonality

The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Historically, occupancy rates and hotel revenues for the Company’s Clemson Best Western Property are highest in the spring and fall months, due to sporting events at Clemson University. However, throughout most of 2020 and all of 2021, the Clemson Best Western Property was fully occupied by Clemson University. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.

Litigation

The Company is not currently involved in any litigation or legal proceedings.

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9. Related Party Transactions

Medalist Fund Manager, Inc. (the “Manager”)

The Company is externally managed by the Manager, which makes all investment decisions for the Company. The Manager oversees the Company’s overall business and affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment decisions.

The Company pays the Manager a monthly asset management fee equal to 0.125% of stockholders’ equity, payable in arrears in cash. For purposes of calculating the asset management fee, the Company’s stockholders’ equity means: (a) the sum of (1) the net proceeds from (or equity value assigned to) all issuances of the Company’s equity and equity equivalent securities (including common stock, common stock equivalents, preferred stock and OP Units issued by the Company’s operating partnership) since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (2) the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (b) any amount that the Company has paid to repurchase its common stock issued in this or any subsequent offering. Stockholders’ equity also excludes (1) any unrealized gains and losses and other non-cash items (including depreciation and amortization) that have impacted stockholders’ equity as reported in the Company’s condensed consolidated financial statements prepared in accordance with GAAP, and (2) one-time events pursuant to changes in GAAP, and certain non-cash items not otherwise described above, in each case after discussions between the Company’s Manager and its independent director(s) and approval by a majority of its independent directors. For the three months ended March 31, 2022 and 2021, the Company incurred $210,148 and $175,040 , in asset management fees, respectively.

The Manager also receives an acquisition fee of 2.0% of the purchase price plus transaction costs, for each property acquired or investment made on the Company’s behalf at the closing of the acquisition of such property or investment, in consideration for the Manager’s assistance in effectuating such acquisition. Acquisition fees are allocated and added to the fair value of the tangible assets acquired and recorded as part of investment properties, net, on the Company’s condensed consolidated balance sheets. No acquisition fees were earned or paid during the three months ended March 31, 2022 or March 31, 2021, respectively. On March 16, 2021, the Manager agreed to defer one-half of all acquisition fees until the Company’s stock price reaches $5.00 per share. As of March 31, 2022 and December 31, 2021, the Company had accrued a total of $251,955 in acquisition fees resulting from the Company’s 2021 acquisitions. These accrued acquisition fees are recorded under accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheet as of March 31, 2022 and December 31, 2021.

The Manager will be entitled to an incentive fee, payable quarterly, equal to an amount, not less than zero, equal to the difference between (1) the product of (x) 20% and (y) the difference between (i) Adjusted Funds from Operations (AFFO) (as further defined below) for the previous 12-month period, and (ii) the product of (A) the weighted average of the issue price of equity securities issued in this offering and in future offerings and transactions, multiplied by the weighted average number of all shares of common stock outstanding on a fully-diluted basis (including any restricted stock units, any restricted shares of common stock and OP Units) in the previous 12-month period, exclusive of equity securities issued prior to this offering, and (B) 7%, and (2) the sum of any incentive fee paid to the Manager with respect to the first three calendar quarters of such previous 12-month period. For purposes of calculating the incentive fee during the first years after completion of this offering, adjusted funds from operations (“AFFO”) will be determined by annualizing the applicable period following completion of this offering. AFFO is calculated by removing the effect of items that do not reflect ongoing property operations. The Company further adjusts funds from operations (“FFO”) for certain items that are not added to net income in the National Association of Real Estate Investment Trusts’ (NAREIT) definition of FFO, such as acquisition expenses, equity based compensation expenses, and any other non-recurring or non-cash expenses, which are costs that do not relate to the operating performance of the Company’s properties, and subtract recurring capital expenditures (and, when calculating the incentive fee only, we further adjust FFO to include any realized gains or losses on real estate investments). No incentive fees were earned or paid during the three months ended March 31, 2022 or 2021.

Other related parties

The Company pays Shockoe Properties, LLC, a subsidiary of Dodson Properties, an entity in which one of the owners of the Manager holds a 6.32 percent interest, an annual property management fee of up to three percent of the monthly gross revenues of the Franklin Square, Hanover Square, Ashley Plaza, Brookfield, Lancer Center, Greenbrier Business Center and Parkway properties. These fees are paid in arrears on a monthly basis. During the three months ended March 31, 2022 and 2021, the Company paid Shockoe Properties, LLC property management fees of $62,072 and $40,566, respectively.

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10. Segment Information

The Company establishes operating segments at the property level and aggregates individual properties into reportable segments based on product types in which the Company has investments. As of March 31, 2022, the Company had the following reportable segments: retail center properties, flex center properties and hotel properties. During the periods presented, there have been no material intersegment transactions.

Although the Company’s flex center property has tenants that are similar to tenants in its retail center properties, the Company considers its flex center properties as a separate reportable segment. Flex properties are considered by the real estate industry as a distinct subset of the industrial market segment. Flex properties contain a mix of industrial/warehouse and office spaces. Warehouse space that is not air conditioned can be used flexibly by building office or showroom space that is air conditioned, depending on tenants’ needs.

Net operating income ("NOI") is a non-GAAP financial measure and is not considered a measure of operating results or cash flows from operations under GAAP. NOI is the primary performance measure reviewed by management to assess operating performance of properties and is calculated by deducting operating expenses from operating revenues. Operating revenues include rental income, tenant reimbursements, hotel income, and other property income; and operating expenses include retail center property and hotel operating costs. The NOI performance metric consists of only revenues and expenses directly related to real estate rental operations. NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability of operating expenses. NOI, as the Company calculates it, may not be directly comparable to similarly titled, but differently calculated, measures for other REITs.

Asset information and capital expenditures by segment are not reported because the Company does not use these measures to assess performance. Depreciation and amortization expense, along with other expense and income items, are not allocated among segments.

The following table presents property operating revenues, expenses and NOI by product type:


	For the three months ended March 31,
	Hotel properties				Retail center properties				Flex center property				Total
	2022		2021		2022		2021		2022		2021		2022		2021
Revenues	$	765,489	$	1,295,385	$	1,525,085	$	1,193,641	$	613,390	$	182,827	$	2,903,964	$	2,671,853
Operating expenses		372,860		797,395		450,125		327,930		161,381		54,088		984,366		1,179,413
Bad debt expense		—		—		7,791		3,196		4,992		—		12,783		3,196
Net operating income	$	392,629	$	497,990	$	1,067,169	$	862,515	$	447,017	$	128,739	$	1,906,815	$	1,489,244

11. Subsequent Events

As of May 9, 2022, the following events have occurred subsequent to the March 31, 2022 effective date of the condensed consolidated financial statements:

Common Stock Dividend

On April 21, 2022, a dividend in the amount of $0.02 per share was paid to common stock shareholders and operating partnership unit holders of record on April 18, 2022.

Mandatorily Redeemable Preferred Stock Dividend

On April 21, 2022, a dividend in the amount of $0.50 per share was paid to mandatorily redeemable preferred stock shareholders of record on April 18, 2022 for the period from January 20, 2022 through April 20, 2022.

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Contract to Acquire the Salisbury Marketplace Shopping Center

On April 8, 2022, the Company entered into an agreement with an unrelated party to acquire a retail center commonly referred to as the Salisbury Marketplace Shopping Center. Closing on the acquisition is subject to due diligence and customary contingencies. There is no guarantee that the Company will close on this acquisition.

Contract for the Sale of the Clemson Best Western Property

On May 4, 2022, the Company entered into a contract with an unrelated party to sell the Clemson Best Western Property for $10,150,000. There is no guarantee that the Company will close on this sale.

Common Stock Issuances Under Standby Equity Purchase Agreement

As of the date of this Quarterly Report on Form 10-Q, the Company has generated an additional $350,313 in proceeds from the issuance of 325,732 shares at an average price of $1.075 under the Standby Equity Purchase Agreement (see Note 7, above).

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based on, and should be read in conjunction with, the condensed, consolidated financial statements and the related notes thereto of Medalist Diversified REIT, Inc. contained in this Quarterly Report on Form 10-Q.

As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to Medalist Diversified REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Medalist Diversified Holdings, LP, a Delaware limited partnership of which we are the sole general partner, except where it is clear from the context that the term only means Medalist Diversified REIT, Inc..

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements are included throughout this Quarterly Report on Form 10-Q. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

●

the competitive environment in which we operate;

●

national, international, regional and local economic conditions;

●

capital expenditures;

●

the availability, terms and deployment of capital;

●

financing risks;

●

the general level of interest rates;

●

changes in our business or strategy;

●

fluctuations in interest rates and increased operating costs;

●

our limited operating history;

●

the degree and nature of our competition;

●

our dependence upon our Manager and key personnel;

●

defaults on or non-renewal of leases by tenants;

●

decreased rental rates or increased vacancy rates;

●

our ability to make distributions on shares of our common stock and preferred stock;

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●

difficulties in identifying properties to acquire and completing acquisitions;

●

our ability to operate as a public company;

●

potential natural disasters such as hurricanes;

●

COVID-19 pandemic;

●

our ability to maintain our qualification as a REIT for U.S. federal income tax purposes;

●

potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or tax laws, and potential increases in real property tax rates; and

●

related industry developments, including trends affecting our business, financial condition and results of operations.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date of this Quarterly Report on Form 10-Q. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

Company Overview

Medalist Diversified REIT Inc. is a Maryland corporation formed on September 28, 2015. Beginning with our taxable year ended December 31, 2017, we believe that we have operated in a manner qualifying us as a real estate investment trust (“REIT”), and we have elected to be taxed as a REIT for federal income tax purposes. Our company serves as the general partner of Medalist Diversified Holdings, LP which was formed as a Delaware limited partnership on September 29, 2015.

Our company was formed to acquire, reposition, renovate, lease and manage income-producing properties, with a primary focus on (i) commercial properties, including flex-industrial and retail properties, (ii) multi-family residential properties and (iii) limited service hotel properties in secondary and tertiary markets in the southeastern part of the United States, with an expected concentration in Virginia, North Carolina, South Carolina, Georgia, Florida and Alabama. We may also pursue, in an opportunistic manner, other real estate-related investments, including, among other things, equity or other ownership interests in entities that are the direct or indirect owners of real property, and indirect investments in real property, such as those that may be obtained in a joint venture. While these types of investments are not intended to be a primary focus, we may make such investments in our Manager’s discretion.

Our company is externally managed by Medalist Fund Manager, Inc. (the “Manager”). The Manager makes all investment decisions for our company. The Manager and its affiliated companies specialize in acquiring, developing, owning and managing value-added commercial real estate in the Mid-Atlantic and Southeast regions. The Manager oversees our company’s overall business and affairs and has broad discretion to make operating decisions on behalf of our company and to make investment decisions. Our company’s stockholders are not involved in its day-to-day affairs.

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As of March 31, 2022, our company owned and operated eight investment properties, the Shops at Franklin Square (the “Franklin Square Property”), a 134,239 square foot retail property located in Gastonia, North Carolina, the Hanover North Shopping Center (the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville, Virginia, the Ashley Plaza Shopping Center (the “Ashley Plaza Property”), a 160,356 square foot retail property located in Goldsboro, North Carolina, the Clemson Best Western University Inn (the “Clemson Best Western Property”), a hotel with 148 rooms on 5.92 acres in Clemson, South Carolina, Brookfield Center (the “Brookfield Center Property”), a 64,880 square foot mixed-use industrial/office property located in Greenville, South Carolina, the Lancer Center, a 178,626 square foot retail property located in Lancaster, South Carolina (the “Lancer Center Property”), the Greenbrier Business Center (the “Greenbrier Business Center Property”), an 89,290 square foot mixed-use industrial/office property located in Chesapeake, Virginia and Parkway 3 & 4 (the “Parkway Property”), a 64,109 square foot mixed-use industrial office property located in Virginia Beach, Virginia. As of March 31, 2022, we owned 84 percent of the Hanover Square Property as a tenant in common with a noncontrolling owner which owned the remaining 16 percent interest and 82 percent of the Parkway Property as a tenant in common with a noncontrolling owner which owns the remaining 18 percent interest

Reporting Segments

We establish operating segments at the property level and aggregate individual properties into reportable segments based on product types in which we have investments. As of March 31, 2022, our reportable segments were retail center properties, flex center properties, and hotel properties.

Recent Trends and Activities

Significant events that have impacted our company are summarized below.

Sale of the Hampton Inn Property

On August 31, 2021, our company sold its interest in the Hampton Inn Property, a 125 room hotel on 2.162 acres in Greensboro, North Carolina, to an unrelated purchaser for $12,900,000. At the time of the sale, our company owned a 78 percent interest in the Hampton Inn Property as a tenant in common with a noncontrolling owner who owned the remaining 22 percent interest. During the year ended December 31, 2020, our company reclassified the Hampton Inn Property as assets held for sale and recognized an impairment charge of $3,494,058 associated with this reclassification. As a result of the closing of the sale of the Hampton Inn Property on August 31, 2021, our company recognized a gain on sale of investment properties of $124,641 for the year ended December 31, 2021.

2021 Investment Property Acquisitions

Lancer Center

On May 14, 2021, we completed our acquisition of the Lancer Center Property, a 178,626 square foot retail property located in Lancaster, South Carolina, through a wholly owned subsidiary. The Lancer Center Property, built in 1987, was 100 percent leased as of December 31, 2021 and is anchored by KJ’s Market, Big Lots, Badcock Furniture, and Harbor Freight. The purchase price for the Lancer Center Property was $10,100,000, less a $200,000 credit to our company for major repairs, paid through a combination of cash provided by our company and the incurrence of new mortgage debt. Our company’s total investment, including $143,130 of loan issuance costs, was $10,205,385. We incurred $305,385 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.

Greenbrier Business Center

On August 27, 2021, we completed our acquisition of the Greenbrier Business Center Property, an 89,290 square foot mixed-use industrial/office property, through a wholly owned subsidiary. The Greenbrier Business Center Property, built in 1987, was 86.8 percent leased as of December 31, 2021. Major tenants include Bridge Church, Superior Staffing, Consolidated Electrical Distributors and Mid-Atlantic Office Technologies. The purchase price for the Greenbrier Business Center Property was $7,250,000, paid through a combination of cash provided by our company and the assumption of mortgage debt. Our total investment, including $13,400 of loan issuance costs, was $7,578,762. Our company incurred $178,763 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.

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Parkway Property

On November 1, 2021, we completed our acquisition of the Parkway 3 & 4 property, a 64,109 square foot, two building portfolio in Virginia Beach, Virginia (the “Parkway Property”) through a wholly owned subsidiary. The Parkway Property, built in 1984, was 100 percent leased as of December 31, 2021. Major tenants include the City of Virginia Beach and GBRS Group. The purchase price for the Parkway Property was $7,300,000, paid through a combination of $2,138,795 in cash provided by our company, $469,492 in cash provided by an unaffiliated non-controlling interest, and the incurrence of a new mortgage payable of $5,100,000. Our company’s total investment, including the investment of the non-controlling interest and $110,263 of loan issuance costs, was $7,598,024. We incurred $298,024 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.

Equity Issuances

On April 13, 2021, our company issued and sold 8,000,000 Common Shares at an offering price of $1.50 per share. Net proceeds from the issuance totaled $10,886,337, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and estimated legal and accounting fees.

Form S-3, Shelf Registration

On June 21, 2021, our company filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”). The registration statement is intended to provide additional flexibility to finance future business opportunities through timely and cost-effective access to capital markets. Under the shelf registration statement, our company may, from time to time, issue common stock up to an aggregate amount of $150 million. The shelf registration statement was declared effective by the SEC on July 27, 2021.

Standby Equity Purchase Agreement

On November 17, 2021, our company entered into a Standby Equity Purchase Agreement (the “SEPA”) with a financing entity. Under this agreement, our company will be able to sell up to $6,665,299 of its shares of common stock at our company’s request any time during the 36 months following the execution of the SEPA. The shares would be purchased at 96.5% of the market price (as defined in the agreement) and would be subject to certain limitations, including that the financing entity could not purchase any shares that would result in it owning more than 4.99% of our company’s common stock. As of March 31, 2022, our company has generated net proceeds of $1,188,573 from the issuance of 1,119,668 shares at an average price of $1.062 per common share under the SEPA.


Issuance Date	Shares Issued	Price Per Share		Total Proceeds
March 3, 2022	90,600	$	1.088	$	98,574
March 14, 2022	276,190		1.050		290,000
March 17, 2022	278,810		1.076		300,000
March 21, 2022	474,068		1.055		500,000
Total	1,119,668	$	1.062	$	1,188,574

Common Stock Repurchase Plan

In December 2021, our company’s board of directors approved a program to purchase up to 500,000 shares of our company’s common stock in the open market, up to a maximum price of $4.80 per share. The repurchase program does not obligate our company to acquire any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at our company’s

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discretion. As of March 31, 2022, our company has repurchased a total of 268,070 shares of common stock on the open market under the Common Stock Repurchase Plan at an average price of $1.038 per share.


Purchase Date	Shares Purchased	Price Per Share		Total Cost
January 4, 2022	400	$	1.060	$	424
January 5, 2022	48,205		1.060		51,093
January 6, 2022	100,000		1.046		104,556
January 7, 2022	30,000		1.050		31,500
January 10, 2022	50,000		1.020		51,000
January 14, 2022	100		1.010		101
January 21, 2022	39,365		1.006		39,603
Total	268,070	$	1.038	$	278,277

Common stock grants under the 2018 Equity Incentive Plan

On March 16, 2021, our company’s Compensation Committee approved a grant of 40,356 Common Shares to our company’s three independent directors, and a grant of 26,900 shares to the chief financial officer of our company. The effective date of the grants was March 16, 2021. The Common Shares granted vest immediately and are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common Shares vested immediately, the fair value of the grants, or $149,981, was recorded to share based compensation expense on our company’s condensed consolidated statements of operations on the effective date of the grant. The fair value of the grants was determined by the market price of our company’s Common Shares on the effective date of the grant.

On March 2, 2022, our company’s Compensation Committee approved a grant of 60,000 Common Shares to two employees of the Manager who also serve as directors of our company, a grant of 90,000 Common Shares to our company’s three independent directors, and a grant of 60,000 shares to the chief financial officer of our company. The effective date of the grants was March 2, 2022. The Common Shares granted vest immediately and are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common Shares vested immediately, the fair value of the grants, or $233,100, was recorded to share based compensation expense on our company’s condensed consolidated statements of operations on the effective date of the grant. The fair value of the grants was determined by the market price of our company’s Common Shares on the effective date of the grant.

Financing Activities

Mortgages payable

Our company financed its acquisitions of its investment properties through mortgages, as follows:


						Balance
						March 31,
	Monthly		Interest			2022		December 31,
Property	Payment		Rate		Maturity	(unaudited)		2021
Franklin Square (a)		Interest only	3.808	%	December 2031	$	13,250,000	$	13,250,000
Hanover Square (b)	$	56,882	4.25	%	December 2027		10,071,489		10,134,667
Ashley Plaza (c)	$	52,795	3.75	%	September 2029		11,089,857		11,127,111
Brookfield Center (e)	$	22,876	3.90	%	November 2029		4,736,045		4,758,344
Lancer Center (f)	$	34,667	4.00	%	March 2026		6,447,916		6,488,034
Greenbrier Business Center (g)		Interest only	4.00	%	July 2026		4,495,000		4,495,000
Parkway Center (h)		Variable	Variable	%	October 2026		5,060,802		5,090,210
Total mortgages payable						$	55,151,109	$	55,343,366

Amounts presented do not reflect unamortized loan issuance costs.

(a)

The original mortgage loan for the Franklin Square Property matured on October 6, 2021. Effective on October 6, 2021, our company entered into a forbearance agreement with the current lender extending the maturity date for thirty days with a right to extend the maturity date for an additional thirty days. On November 8, 2021, we closed on a new loan in the principal amount of $13,250,000 which bears interest at a fixed rate of 3.808 percent, has a ten-year term, and matures on December 6, 2031. In

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addition to the funds from the new loan, our company used $2,242,273 in cash on hand for closing costs and to repay the remaining balance of the original mortgage loan. Our company has guaranteed the payment and performance of the obligations of the new loan. The new mortgage loan bears interest at a fixed rate of 3.808 percent and is interest only until January 6, 2025, at which time the monthly payment will become $61,800, which includes interest and principal based on a 30 year amortization schedule. Our company accounted for this refinancing transaction in accordance with debt extinguishment accounting in accordance with ASC 470. The new mortgage includes covenants for our company to maintain a net worth of $13,250,000, excluding the assets and liabilities associated with the Franklin Square Property and to maintain liquid assets of no less than $1,000,000. As of March 31, 2022 and December 31, 2021, we believe that we are compliant with these covenants.

(b)

(c)

(d)

(e)

The mortgage loan for the Lancer Center Property bears interest at a fixed rate of 4.00 percent. The monthly payment is $34,667 which includes interest at the fixed rate and principal, based on a twenty-five year amortization schedule. Our company has provided a guaranty of the payment of and performance under the terms of the Lancer Center Property mortgage.

(f)

Our company assumed the mortgage loan for the Greenbrier Business Center Property from the seller. The mortgage loan bears interest at a fixed rate of 4.00 percent and is interest only until August 1, 2022, at which time the monthly payment will become $23,873, which includes interest at the fixed rate, and principal, based on a twenty-five year amortization schedule. The Greenbrier Business Center Property mortgage includes covenants to maintain a debt service coverage ratio above 1.35 to 1.00 and maintain an occupancy rate of at least 80 percent. As of March 31, 2022 and December 31, 2021, our company believes that it is compliant with these covenants.

(g)

The mortgage loan for the Parkway Property bears interest at a variable rate based on LIBOR with a minimum rate of 2.25 percent. The interest rate payable is the ICE LIBOR rate plus 225 basis points. As of March 31, 2022, the rate in effect for the Parkway Property mortgage was 2.4806 percent. The monthly payment, which varies based on the interest rate in effect each month, includes interest at the variable rate, and principal based on a 30 year amortization schedule.

Our company financed its acquisitions of its assets held for sale through mortgages which, as of March 31, 2022, are recorded as mortgages payable, net, associated with assets held for sale, on our condensed consolidated balance sheets, as follows:

Balance

March 31,

Monthly

Interest

2022

December 31,

Property

Payment

Rate

Maturity

(unaudited)

2021

Clemson Best Western (a)

Interest only

Variable

October 2022

7,750,000

Amounts presented do not reflect unamortized loan issuance costs.

(a)

As of March 31, 2021, our company reclassified the mortgage loan for the Clemson Best Western Property to mortgages payable, net, associated with assets held for sale. The mortgage loan for the Clemson Best Western Property bears interest at a variable rate based on LIBOR with a minimum rate of 7.15 percent. The interest rate payable is the USD LIBOR one-month

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rate plus 4.9 percent. As of March 31, 2022 and 2021, respectively, the rate in effect for the Clemson Best Western Property mortgage was 7.15 percent. The mortgage payable on our Clemson Best Western Property matures on October 6, 2022. We have an option to extend the term of the mortgage by one year, until October 6, 2023, under certain conditions which the Clemson Best Western Property may not meet. If we have not been successful in our efforts to sell the Clemson Best Western Property by loan maturity date, we plan to refinance the mortgage. There is no guarantee that we will be successful in refinancing the mortgage.

Convertible debenture issuance

On October 27, 2020, our company entered into a definitive agreement with a financing entity to issue and sell convertible debentures in an aggregate principal amount of up to $5 million pursuant to a private offering exempt from registration under the Securities Act of 1933, as amended. The debentures were issued at a 5 percent discount to the principal amount, accrue interest at a rate of 5 percent per annum (payable at maturity), and were closed in three separate tranches as follows: (i) convertible debenture of $1.5 million issued and sold on October 27, 2020 upon the signing of the definitive agreement, (ii) convertible debenture of $2.0 million issued and sold on December 22, 2020 upon the filing of a registration statement with the U.S. Securities and Exchange Commission (“SEC”) relating to the shares of common stock that may be issued upon the conversion of the convertible debentures, and (iii) convertible debenture of $1.5 million issued and sold on January 5, 2021, the date the registration statement was declared effective by the SEC. The second and third closings of the convertible debentures were subject to our company successfully obtaining approval from its common stockholders for the issuance of shares of common stock that may be issued upon the conversion of the convertible debentures. Net proceeds from the issuance and sale of the convertible debentures totaled $4,231,483.

Between January 6, 2021 and May 11, 2021, the convertible debenture holder completed the full conversion of the total $5,000,000 principal balance of the convertible debentures and $58,788 in accrued interest, to our company’s common shares, receiving 3,181,916 common shares in a series of 17 conversions at an average conversion price of $1.59 per common share.

COVID-19 Impact

The following discussion is intended to provide certain information regarding the impacts of the COVID-19 pandemic on our company’s business and management’s efforts to respond to those impacts.

Since March 2020, our company’s investment properties have been significantly impacted by (i) measures taken by local, state and federal authorities to mitigate the impact of COVID-19, such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders and (ii) significant changes in consumer behavior and business and leisure travel patterns. While most of the measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from the continued mutation of COVID-19 into new variants and the possibility of the re-imposition of mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders by some governmental authorities, and the possibility that changes in consumer behavior and business and leisure travel patters will continue, the negative impact on room demand for our hotel properties and consumer demand for the goods and services of our retail tenants within our portfolio could continue to be significant in future periods.

Retail Center and Flex Center Properties

As of the date of this Quarterly Report on Form 10-Q, all of the tenants in our company’s retail properties and flex properties are open.

As is the case with retail landlords across the U.S., our company received a number of rent relief requests from tenants which were impacted by mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders and significant changes in consumer behavior. The Company evaluated each of these requests on a case-by-case basis. During the period following the onset of the COVID-19 pandemic, from March 2020 through December 2020, our company granted lease concessions in the form of (i) rent deferrals or (ii) rent abatements. The deferral and abatement agreements have reduced the rent revenues our company has recognized in all subsequent periods, including during the three months ended March 31, 2022 and 2021, and will reduce the rent revenues our company expects to receive in future periods.

Under the rent deferral agreements, all of which were reached during the year ended December 31, 2020, our company granted rent deferrals to various tenants in return for an agreement by the tenants to repay deferred and unpaid rent over a specified time period

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or before a certain date. Deferred rent is recognized as retail center property revenues or flex center property revenues on our company’s condensed consolidated statement of operations and as rent and other receivables on our company’s condensed consolidated balance sheets. As of March 31, 2022, all rent deferral periods have ended and, in all cases, tenants have commenced repayment of the deferred rent amounts. As of the date of this Quarterly Report on Form 10-Q, all tenants are current on their deferred rent repayment.

Under the rent abatement agreements, all of which were reached during the year ended December 31, 2020, our company agreed to permanently abate rent in exchange for lease extensions of between one and three years, depending on the amount of the abatement. In one case, our company agreed to abate a portion of a tenant’s base rent in exchange for future rent payments based on the tenant’s monthly sales.

While our company’s rent collections from its retail and flex center properties have stabilized, the extent of the continued impact of COVID-19 and its new variants on revenues from our company’s retail and flex center properties and tenants remains uncertain and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the continued efficacy of vaccines against new variants, development and deployment of of treatments, and potential mutations of COVID-19 and the response thereto.

Revenues will continue to be impacted by the deferral and abatement agreements that our company has granted to various tenants and could continue to be negatively impacted until consumer demand for the goods and services of our company’s retail and flex center tenants returns to levels prior to the virus outbreak. Additionally, the direct and indirect economic effects of the pandemic and containment measures and the potential for changes in consumer behavior and business and leisure travel patterns could continue to have a significant negative impact on consumer demand for the goods and services of our company’s retail tenants within its portfolio in the coming months.

Hotel Properties

Beginning in March 2020, COVID-19 caused widespread cancellations of both business and leisure travel throughout the United States, resulting in significant decreases in our company’s revenues from the Hampton Inn Property (which our company sold on August 31, 2021) and the Clemson Best Western Property, and the hospitality industry as a whole. With the overall uncertainty of the longevity of COVID-19 in the U.S. and the resulting economic decline, it is difficult to project the duration of revenue declines for the industry and our company.

Due to the risk and uncertainty associated with continued ownership of our company’s hotel properties, our company sold its Hampton Inn Property on August 31, 2021. While our company’s occupancy agreement with Clemson University for the Clemson Best Western Property has resulted in 100 percent occupancy rates from September 2020 through March 2022, due to the continued risk and uncertainties associated with hotels, our company has committed to a plan to sell its Clemson Best Western Hotel Property. There is no assurance that our company will be able to complete the sale of the Clemson Best Western Property. Despite our company’s decision to sell its hotel properties, our company has not removed hotel properties from its investment policy and will consider future opportunistic acquisitions of hotel properties in the future.

Until such time as the virus is contained or eradicated and room demand for our company’s hotel property and consumer demand for the goods and services of our company’s retail and flex center tenants returns to more customary levels, our company may continue to experience material reductions in its operating revenue. The anticipated negative impact on revenues, discussed above, from our company’s retail, flex center and hotel property has also, and will continue, to impact our company’s liquidity, resulting in reduced cash flow to meet our company’s obligations and to fund dividend distribution payments.

Discussion of Potential Future Impact

While most of the containment measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from new variants of COVID-19 and the possibilities of the re-imposition of mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders by some governmental authorities, the negative impact on room demand for our hotel properties and consumer demand for the goods and services of our retail tenants within our portfolio could continue to be significant in the coming months.

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Our company derives revenues primarily from rents and reimbursement payments received from tenants under leases at our company’s properties. Our company’s operating results therefore depend materially on the ability of its tenants to make required rental payments. The extent to which the COVID-19 pandemic impacts the businesses of our company’s tenants, and our company’s operations and financial condition, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and such containment measures, among others. While the extent of the outbreak and its impact on our company, its tenants and the U.S. retail market is uncertain, a prolonged crisis could result in continued disruptions in the credit and financial markets, a continued rise in unemployment rates, decreases in consumer confidence and consumer spending levels and an overall worsening of global and U.S. economic conditions. The factors described above, as well as additional factors that our company may not currently be aware of, could materially negatively impact our company’s ability to collect rent and could lead to termination of leases by tenants, tenant bankruptcies, decreases in demand for retail space at our company’s properties, difficulties in accessing capital, impairment of our company’s long-lived assets and other impacts that could materially and adversely affect our company’s business, results of operations, financial condition and ability to pay distributions to stockholders.

Off-Balance Sheet Arrangements

As of March 31, 2022 and December 31, 2021, we have no off-balance sheet arrangements.

Summary of Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, “Summary of Significant Accounting Policies,” of our Condensed Consolidated Financial Statements. We believe that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Revenue Recognition

Principal components of our total revenues for our retail center properties and flex center properties include base rents and tenant reimbursements. We accrue minimum (base) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet. Certain lease agreements contain provisions that grant additional rents based on tenants’ sales volumes (contingent or percentage rent) which we recognize when the tenants achieve the specified targets as defined in their lease agreements. We periodically review the valuation of the asset/liability resulting from the straight-line accounting treatment of our leases in light of any changes in lease terms, financial condition or other factors concerning our tenants.

For our hotel property, revenues are recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes the hotel’s services. Revenues from our company’s occupancy agreement with Clemson University are recognized as earned, which is as rooms are occupied by the University.

Rents and Other Tenant Receivables

For our retail center and flex center properties, we record a tenant receivable for amounts due from tenants such as base rents, tenant reimbursements and other charges allowed under the lease terms. We periodically review tenant receivables for collectability and determine the need for an allowance for the uncollectible portion of accrued rents and other accounts receivable based upon customer creditworthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels and current economic trends. We consider a receivable past due once it becomes delinquent per the terms of the lease. A past due receivable triggers certain events such as notices, fees and other actions per the lease.

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Accounting for Leases

Our company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) on January 1, 2022 using the modified retrospective approach within ASU 2018-11, which allows for the application date to be the beginning of the reporting period in which the entity first applies the new standard. Our company historically has not been and is not currently a “lessee” under any lease agreements, and thus did not have any arrangements requiring the recognition of lease assets or liabilities on its balance sheet. As a “lessor”, our company has active lease agreements with over 100 tenants across its portfolio of investment properties.

Upon the adoption of ASC No. 842, our company has elected the practical expedient permitting lessors to elect by class of underlying asset to not separate non-lease components (for example, maintenance services, including common area maintenance) from associated lease components (the “non-separation practical expedient”) if both of the following criteria are met: (1) the timing and pattern of transfer of the lease and non-lease component(s) are the same and (2) the lease component would be classified as an operating lease if it were accounted for separately. If both criteria are met, the combined component is accounted for in accordance with ASC No. 842 if the lease component is the predominant component of the combined component; otherwise, the combined component is accounted for in accordance with the revenue recognition standard. Our company assessed the criteria above with respect to our operating leases and determined that they qualify for the non-separation practical expedient. As a result, we have accounted for and presented the revenues from these leases, including tenant reimbursements, as a single line item on our condensed consolidated statements of operations for the three months ended March 31, 2022. For comparability, we have adjusted our comparative condensed consolidated statement of operations for the three months ended March 31, 2021, to conform to the 2022 financial statement presentation.

Acquisition of Investments in Real Estate

The adoption of ASU 2017-01, as discussed in Note 2, “Summary of Significant Accounting Policies” of the condensed consolidated financial statements included in this report, has impacted our accounting framework for the acquisition of investment properties. Upon acquisition of investment properties, our company estimates the fair value of acquired tangible assets (consisting of land, buildings and improvements, and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place leases, above- and below-market leases, tenant relationships and assumed debt based on evaluation of information and estimates available at that date. Fair values for these assets are not directly observable and estimates are based on comparable market data and other information which is subjective in nature, including estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.

Impairment of Long-Lived Assets

We periodically review investment properties for impairment on a property-by-property basis to identify any events or changes in circumstances that indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not limited to, declines in the property’s cash flows, occupancy and fair market value. If any such events or changes in circumstances are identified, we perform a formal impairment analysis. We measure any impairment of investment property when the estimated undiscounted operating income before depreciation and amortization, is less than the carrying value of the property. To the extent impairment has occurred, we charge to income the excess of carrying value of the property over its estimated fair value. We estimate fair value using data such as operating income, estimated capitalization rates or multiples, leasing prospects and local market information. Our company also reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of its intangible assets may not be recoverable, but at least annually.

REIT Status

We are a Maryland corporation that has elected to be treated, for U.S. federal income tax purposes, as a REIT. We elected to be taxed as a REIT under the Code For the year ended December 31, 2017 and have not revoked such election. A REIT is a corporate entity which holds real estate interests and must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90 percent of its adjusted taxable income to stockholders. As a REIT, we generally will not be subject to corporate level federal income tax on our taxable income if we annually distribute 100 percent of our taxable income to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to regular federal and state corporate income taxes and may not be able to elect to qualify as a REIT for four subsequent taxable years. Our qualification as a REIT requires management to exercise significant judgment and consideration with respect to operational matters and accounting treatment. Therefore, we believe our REIT status is a critical accounting estimate.

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Evaluation of our company’s Ability to Continue as a Going Concern

Under the accounting guidance related to the presentation of financial statements, our company is required to evaluate, on a quarterly basis, whether or not the entity’s current financial condition, including its sources of liquidity at the date that the condensed consolidated financial statements are issued, will enable the entity to meet its obligations as they come due arising within one year of the date of the issuance of our company’s condensed consolidated financial statements and to make a determination as to whether or not it is probable, under the application of this accounting guidance, that the entity will be able to continue as a going concern. Our company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In applying applicable accounting guidance, management considered our company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and our company’s obligations due over the next twelve months, as well as our company’s recurring business operating expenses.

Our company concludes that it is probable that it will be able to meet its obligations arising within one year of the date of issuance of these condensed consolidated financial statements within the parameters set forth in the accounting guidance. For additional information regarding our company’s liquidity, see Note 5 – Loans Payable and Note 8 – Commitments and Contingencies in the notes to our company’s condensed consolidated financial statements.

Liquidity and Capital Resources

Our business model is intended to drive growth through acquisitions. Access to the capital markets is an important factor for our continued success. We expect to continue to issue equity in our company, with proceeds being used to acquire additional investment properties.

Our primary liquidity needs are funding for (1) operations, including operating expenses, corporate and administrative costs, payment of principal of, and interest on, outstanding indebtedness, and escrow and reserve payments associated with long-term debt financing for our properties; (2) investing needs, including property acquisitions and recurring capital expenditures; and (3) financing needs, including cash dividends and debt repayments.

Internal liquidity to fund operating needs will be provided primarily by the rental receipts from our retail properties and flex center property, and revenues from our hotel property. During the three months ended March 31, 2022, the COVID-19 pandemic continued to impact our financial and operational results that provide the liquidity for operating needs. Our company’s retail property and flex property rent revenues continued to be impacted by rent abatement agreements and other concessions. However, our Clemson Best Western Property saw increased revenues resulting from the occupancy agreement with Clemson University. However, this trend is unlikely to continue when the Clemson University occupancy agreement ends in May 2022.

The full extent of the impact of COVID-19 on our company’s liquidity will be dictated by, among other things, its nature, duration and scope, the success of efforts to contain the spread of COVID-19 and the impact of actions taken in response to the pandemic including travel bans and restrictions, quarantines, shelter in place orders, the promotion of social distancing and limitations on business activity, including business closures. New variants of COVID-19, including the omicron variant and sub-variants, and continued resistance to vaccination could result in the re-imposition of limitations on business activity, travel and other restrictions that could increase the extent of the impact on our investment properties. Possible future declines in rental rates and expectations of future rental concessions, including granting free rent to induce tenants to renew their leases early, to retain tenants who are up for renewal, or to attract new tenants, or requests from tenants for rent abatements during periods when they are severely impacted by COVID-19, may result in decreases in our cash flows from our retail and flex properties. The past and potential for future travel bans and stay at home orders have and could continue to materially affect our hotel revenues. At this point, the extent to which the COVID-19 pandemic may continue to impact the economy and our business is uncertain, but pandemics or other significant public health events could have a material adverse effect on our business, results of operations and internal liquidity in the future.

Cash Flows

At March 31, 2022, our consolidated cash and restricted cash on hand totaled $8,079,034 compared to consolidated cash on hand of $6,351,244 at March 31, 2021. Cash from operating activities, investing activities and financing activities for the three months ended March 31, 2022 are as follows:

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Operating Activities

During the three months ended March 31, 2022 our cash provided by operating activities was $692,863 compared to cash provided by operating activities of $206,818 for the three months ended March 31, 2021, an increase of cash provided by operating activities of $486,045.

Cash flows from operating activities has two components. The first component consists of net operating loss adjusted for non-cash operating activities. During the three months ended March 31, 2022, operating activities adjusted for non-cash items resulted in net cash provided by operating activities of $689,045. During the three months ended March 31, 2021, operating activities adjusted for non-cash items resulted in net cash provided in operating activities of $50,868. The increase of $638,177 in cash flows from operating activities for the three months ended March 31, 2022 was a result of improved operating performance across all property types, as well as cash flows from our company’s acquisition of the Lancer Center, Parkway and Greenbrier Business Center properties, none of which we owned during the three months ended March 31, 2021.

The second component consists of changes in assets and liabilities. Increases in assets and decreases in liabilities result in cash used in operations. Decreases in assets and increases in liabilities result in cash provided by operations. During the three months ended March 31, 2022, net changes in asset and liability accounts resulted in $3,818 in cash provided by operations. During the three months ended March 31, 2021, net changes in asset and liability accounts resulted in $155,950 in cash provided by operations. This decrease of $152,132 in changes in assets and liabilities is a result of a decreased change in accounts payable and accrued liabilities of $386,704, offset by an increased change in rent and other receivables, net, of $1,401, unbilled rent of $73,246, and other assets of $159,925.

The net of (i) the $638,177 increase in cash provided by operations from the first category and (ii) the $152,132 decrease in cash provided by operations from the second category results in a total increase of cash provided in operations of $486,045 for the three months ended March 31, 2022.

Investing Activities

During the three months ended March 31, 2022, our cash used in investing activities was $366,059, compared to cash used in investing activities of $45,140 during the three months ended March 31, 2021, an increase in cash used in investing activities of $320,919. During the three months ended March 31, 2022, cash used in investing activities consisted of $366,059 in capitalized expenditures, including $230,857 in building improvements, $78,921 in capitalized leasing commissions, and $56,281 in capitalized tenant improvements. During the three months ended March 31, 2021, cash used in investing activities consisted of $45,150 in capitalized tenant improvements.

There were no non-cash investing activities during the three months ended March 31, 2022. The non-cash investing activity for the three months ended March 31, 2021, that did not affect our cash provided by investing activities, was the transfer of investment properties, net, to assets held for sale, net of $9,683,555.

Financing Activities

During the three months ended March 31, 2022, our cash provided by financing activities was $368,253 compared to cash provided by financing activities of $1,092,648 during the three months ended March 31, 2021, a decrease in cash provided by financing activities of $724,395. During the three months ended March 31, 2022, financing activities generated $1,188,574 in net proceeds, after issuance costs, from common stock issuances under our SEPA (see above), offset by cash used in financing activities, including dividends and distributions of $341,521, mortgage debt principal payments of $192,257 and repurchases of our company’s common stock of $286,543, including costs and fees.

During the three months ended March 31, 2021, financing activities generated net proceeds, after issuance costs, from the closing of the third tranche of our convertible debentures of $1,305,000. Additionally, our company used funds for mortgage debt principal payments of $134,150, distributions to noncontrolling interests of $12,000 and $66,202 in capitalized offering costs related to our April 13, 2021 stock issuance.

There were no non-cash financing activities during the three months ended March 31, 2022. Non-cash financing activities for the three months ended March 31, 2021, that did not affect our cash provided by financing activities were the conversion ofconvertible debentures and accrued interest totaling $3,799,268 into common stock, and the transfer of the mortgage payable, net, of $7,592,931,

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for the Clemson Best Western Property from mortgages payable, net, to mortgages payable, net, associated with assets held for sale on our condensed consolidated balance sheets.

Future Liquidity Needs

Liquidity for general operating needs and our company’s investment properties is generally provided by the rental receipts from our retail properties and flex center property, and revenues from our hotel properties. Liquidity for growth (acquisition of new investment properties) will be provided by raising additional investment capital. In addition, our company continually reviews and evaluates its outstanding mortgages payable for refinancing opportunities. While some of our mortgages payable are not pre-payable, some mortgages payable may present opportunities for refinancing.

The primary, non-operating liquidity need of our company, is $346,555 to pay the dividends and distributions to common shareholders and operating partnership unit holders, and $100,000 to pay the dividends to holders of our mandatorily redeemable preferred stock that were declared on April 5, 2022 and payable on April 21, 2022 to holders of record on April 18, 2022. In addition, our company has approximately $658,777 in principal payments due on its mortgages payable during the remaining nine months ending December 31, 2022. In addition to liquidity required to fund these principal payments, we may also incur some level of capital expenditures for our existing properties that cannot be passed on to our tenants. Our company plans to pay these obligations through a combination of cash on hand, potential dispositions and operating cash.

The mortgage payable on our Clemson Best Western Property matures on October 6, 2022. We have an option to extend the term of the mortgage by one year, until October 6, 2023, under certain conditions, which the Clemson Best Western Property may not meet. If we have not been successful in our efforts to sell the Clemson Best Western Property by the loan maturity date, we plan to refinance the mortgage. There is no guarantee that we will be successful in refinancing the mortgage.

As discussed above, the continuing COVID-19 pandemic outbreak has adversely impacted states and cities where our company’s tenants operate their businesses and where our company’s properties are located. The COVID-19 pandemic could have a material adverse effect on our company’s financial condition, results of operations and cash flows as the reduced economic activity severely impacts certain of our company’s tenants’ businesses, financial condition and liquidity and may cause certain tenants to be unable to meet their obligations to our company in full. Closures of stores operated by our company’s tenants could reduce our company’s cash flows.

To meet these future liquidity needs, we have the following resources:

●

$4,629,945 in unrestricted cash as of March 31, 2022

●

$3,449,089 held in lender reserves for the purposes of tenant improvements, leasing commissions, real estate taxes and insurance premiums

●

cash generated from operations during the remaining nine months ending December 31, 2022, if any

●

Potential proceeds from issuances of common stock under our shelf registration or under the Standby Equity Purchase Agreement (see note 7 of the notes to the condensed consolidated financial statements), although there is no guarantee that any such issuances will be successful in raising additional funds.

●

Sale of the Clemson Best Western Hotel Property, although there is no guarantee that we will be successful in selling the property. (See note 3 and note 11 of the notes to the condensed consolidated financial statements).

Our success in refinancing the debt, and executing on our strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability to grow and to continue to pay dividends may be limited without additional capital.

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Results of Operations

Three months ended March 31, 2022

Revenues

Total revenue was $2,903,964 for the three months ended March 31, 2022, consisting of $1,525,085 in revenues from retail center properties, $765,489 from hotel properties and $613,390 from flex center properties. Total revenues for the three months ended March 31, 2022 increased by $232,111 over the three months ended March 31, 2021, resulting primarily from increased revenues from our company’s acquisition of the Lancer Center, Parkway and Greenbrier Business Center properties in 2021, which were not owned during the three months ending March 31, 2021, offset by a reduction in hotel property revenues due to the sale of the Hampton Inn Property.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Revenues
Retail center properties	$	1,525,085	$	1,193,641	$	331,444
Hotel properties		765,489		1,295,385		(529,896)
Flex center property		613,390		182,827		430,563
	$	2,903,964	$	2,671,853	$	232,111

Revenues from retail center properties were $1,525,085 for the three months ended March 31, 2022, an increase of $331,444 over retail center property revenues for the three months ended March 31, 2021. New revenues from the Lancer Center Property of $309,801, increased revenues from the Ashley Plaza Property of $15,386 and the Hanover Square Property of $18,874, were offset by decreased revenues from the Franklin Square Property of $12,617 due to COVID lease concessions.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Retail Center Properties
Franklin Square Property	$	456,205	$	468,822	$	(12,617)
Hanover Square Property		323,359		304,485		18,874
Ashley Plaza Property		435,720		420,334		15,386
Lancer Center Property		309,801		—		309,801
	$	1,525,085	$	1,193,641	$	331,444

Revenues from hotel properties were $765,489 for the three months ended March 31, 2022, a decrease of $529,896 from revenues from hotel properties for the three months ended March 31, 2021, due to the sale of the Hampton Inn property on August 31, 2021 and a slight decrease of $4,096 in revenues from the Clemson Best Western Property.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Hotel Properties
Hampton Inn Property	$	—	$	525,800	$	(525,800)
Clemson Best Western Property		765,489		769,585		(4,096)
	$	765,489	$	1,295,385	$	(529,896)

Revenues from the flex center properties were $613,390 for the three months ended March 31, 2022, an increase of $430,563 over revenues from flex center properties for the three months ended March 31, 2021 due to new revenues from the Greenbrier Business

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Center of $199,501 and Parkway of $215,912, and increased revenues from the Brookfield Center Property of $15,150 due to reduced common area maintenance reimbursement revenues.


	For the three months ended
	March 31,				Increase /
Flex Center Properties	2022		2021		(Decrease)
Brookfield Center Property	$	197,977	$	182,827	$	15,150
Greenbrier Business Center Property		199,501		—		199,501
Parkway Center Property		215,912		—		215,912
	$	613,390	$	182,827	$	430,563

Operating Expenses

Total operating expenses were $3,138,362 for the three months ended March 31, 2022, consisting of $457,916 in expenses from retail center properties, $372,860 in expenses from hotel properties, $166,373 in expenses from the flex center properties, $233,100 in share-based compensation expenses, $459,869 in legal, accounting and other professional fees, $80,706 in corporate general and administrative expenses, $36,670 in loss on impairment, $175,671 in impairment of assets held for sale, and $1,155,197 in depreciation and amortization.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Operating Expenses
Retail center properties (1)	$	457,916	$	331,126	$	126,790
Hotel properties		372,860		797,395		(424,535)
Flex center property (2)		166,373		54,088		112,285
Total Investment Property Operating Expenses		997,149		1,182,609		(185,460)
Share based compensation expenses		233,100		149,981		83,119
Legal, accounting and other professional fees		459,869		491,855		(31,986)
Corporate general and administrative expenses		80,706		69,137		11,569
Loss on impairment		36,670		—		36,670
Impairment of assets held for sale		175,671		—		175,671
Depreciation and amortization		1,155,197		653,233		501,964
Total Operating Expenses	$	3,138,362	$	2,546,815	$	591,547

(1)

Includes $7,791 and $3,196 of bad debt expense for the three months ended March 31, 2022 and 2021, respectively.

(2)

Includes $4,992 and $0 of bad debt expense for the three months ended March 31, 2022 and 2021, respectively.

Operating expenses for retail center properties were $457,916 for the three months ended March 31, 2022, an increase of $126,790 over retail center property operating expenses for the three months ended March 31, 2021. Increased operating expenses from the acquisition of the Lancer Center Property of $118,138 and from the Franklin Square Property of $17,166 were offset by reduced expenses from the Hanover Square Property of $7,927 and from the Ashley Plaza Property of $587.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Retail Center Properties
Franklin Square Property	$	175,052	$	157,886	$	17,166
Hanover Square Property		80,484		88,411		(7,927)
Ashley Plaza Property (1)		84,242		84,829		(587)
Lancer Center Property (2)		118,138		—		118,138
Total	$	457,916	$	331,126	$	126,790

(1)

Includes bad debt expense of $0 and $3,196 for the three months ending March 31, 2022 and 2021, respectively.

(2)

Includes bad debt expense of $7,791 and $0 for the three months ending March 31, 2022 and 2021, respectively.

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Operating expenses for hotel properties were $372,860 for the three months ended March 31, 2022, a decrease of $424,535 from operating expenses from hotel properties for the three months ended March 31, 2021. Decreased hotel operating expenses of $458,141 resulting from the sale of the Hampton Inn Property were offset by increased operating expenses of $33,606 from the Clemson Best Western Property.


	For the three months ended
	March 31,				Increase /
	2022		2021		(Decrease)
Hotel Properties
Hampton Inn Property	$	—	$	458,141	$	(458,141)
Clemson Best Western Property		372,860		339,254		33,606
	$	372,860	$	797,395	$	(424,535)

Operating expenses from the flex center properties were $166,373 for the three months ended March 31, 2022, an increase of $112,285 over flex center property operating expenses for the three months ended March 31, 2021 due to new operating expenses from the Greenbrier Business Center and Parkway Property acquisitions and slightly increased operating expenses from the Brookfield Center Property.


	For the three months ended
	March 31,				Increase /
Flex Center Properties	2022		2021		(Decrease)
Brookfield Center Property	$	59,813	$	54,088	$	5,725
Greenbrier Business Center Property		43,776		—		43,776
Parkway Center Property (1)		62,784		—		62,784
	$	166,373	$	54,088	$	112,285

(1)

Includes $4,992 and $0 of bad debt expense for the three months ended March 31, 2022 and 2021, respectively.

Operating (Loss) Income

Operating loss for the three months ended March 31, 2022 was $234,398, a decrease of $359,436 over the operating income of $125,038 for the three months ended March 31, 2021. This increase was a result of (i) increased depreciation and amortization expenses from the addition of the three properties (Lancer Center, Parkway and Greenbrier Business Center) acquired in 2021 of $501,964, (ii) increased impairment of assets held for sale of $175,671 related to the Clemson Best Western Property, (iii) increased loss on impairment of $36,670, (iv) increased corporate general and administrative expenses of $11,569, and (v) increased share based compensation expenses of $83,119, offset by increased operating income of $417,571 and decreased legal, accounting and other professional fees of $31,986.

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Interest Expense

Interest expense was $841,424 and $2,434,132 for the three months ended March 31, 2022 and 2021, respectively, as follows:


	For the three months ended
	March 31,				Increase/
	2022		2021		(Decrease)
Franklin Square	$	133,233	$	170,053	$	(36,820)
Hanover Square		108,077		114,066		(5,989)
Hampton Inn		—		182,378		(182,378)
Ashley Plaza		108,505		110,445		(1,940)
Clemson Best Western		138,917		162,544		(23,627)
Brookfield Center		49,092		49,922		(830)
Lancer Center		70,902		—		70,902
Greenbrier Business Center		45,643		—		45,643
Parkway Center		33,132		—		33,132
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		153,923		149,449		4,474
Amortization and interest on convertible debentures		—		1,491,543		(1,491,543)
Other interest		—		3,732		(3,732)
Total interest expense	$	841,424	$	2,434,132	$	(1,592,708)

Total interest expense for the three months ended March 31, 2022 decreased by $1,592,708 over the three months ended March 31, 2021. This decrease was a result of (i) decreased mortgage interest expense from our Franklin Square, Hanover Square, Ashley Plaza, Clemson Best Wesern and Brookfield properties of $69,206, decreased interest expense of $182,378 resulting from the sale of the Hampton Inn Property, decreased amortization and interest on convertible debentures of $1,491,543, decreased other interest of $3,732, offset by increased interest expense of $149,677 from the three properties (Lancer Center, Parkway and Greenbrier Business Center) acquired in 2021. Interest expense above includes non-cash amortization of discounts and capitalized issuance costs related to the mandatorily redeemable preferred stock and the convertible debentures. See Note 5 of the accompanying notes to the condensed consolidated financial statements.

Other Income

During the three months ended March 31, 2022, other income was $95,439, an increase of $94,087 over other income of $1,352 for the three months ended March 31, 2021. Other income for the three months ended March 31, 2022 consisted of $91,042 in income related to the fair value change of the interest rate caps, interest income of $484 and miscellaneous income of $3,913. Other income of $1,352 for the three months ended March 31, 2021 consisted of $160 in income related to the fair value change of the interest rate caps and interest income of $1,192.

Net Loss

Net loss was $980,383 for the three months ended March 31, 2022, before adjustments for net (loss) income attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to our common shareholders was $989,284. Net loss was $2,307,742 for the three months ended March 31, 2021, before adjustments for net loss attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to Medalist common shareholders was $2,277,524 for the three months ended March 31, 2021.

Net loss for the three months ended March 31, 2022 decreased by $1,327,359 over the three months ended March 31, 2021, before adjustments for net loss attributable to noncontrolling interests. This decrease was due to increased investment property operating income of $471,571, decreased legal, accounting and other professional fees of $31,986, decreased interest expense of $1,592,708, offset by increased share based compensation expenses of $83,119, increased corporate general and administrative expenses of $11,569, increased loss on impairment of $36,670, increased impairment of assets held for sale of $175,671, and increased depreciation and amortization of $501,964.

After adjusting for noncontrolling interests, the net loss attributable to Medalist common shareholders for the three months ended March 31, 2022 decreased by $1,288,240 over the three months ended March 31, 2021.

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Funds from Operations

We use Funds from operations (“FFO”), a non-GAAP measure, as an alternative measure of our operating performance, specifically as it relates to results of operations and liquidity. We compute FFO in accordance with standards established by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in its March 1995 White Paper (as amended in November 1999, April 2002 and December 2018). As defined by NAREIT, FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs and above and below market leases) and after adjustments for unconsolidated partnerships and joint ventures. Most industry analysts and equity REITs, including us, consider FFO to be an appropriate supplemental measure of operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO is a helpful tool that can assist in the comparison of the operating performance of a company’s real estate between periods, or as compared to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, while historically real estate values have risen or fallen with market conditions. Accordingly, we believe FFO provides a valuable alternative measurement tool to GAAP when presenting our operating results.

NAREIT’s December 2018 White Paper states, “FFO of a REIT includes the FFO of all consolidated properties, including consolidated, partially owned affiliates”. Additionally, since the adjustments to GAAP net income, such as depreciation and amortization, used in the reconciliation of net income (loss) to determine FFO are not allocated between shareholders and noncontrolling interests (i.e. 100 percent of depreciation and amortization are “added back” without reduction to reflect the noncontrolling owners’ interest in such items), our company believes that the appropriate starting point for the calculation is the net income (loss) before allocation to noncontrolling interests. This allows our company to use FFO as a tool to measure the overall performance of its investment properties, as a whole, not just the portion of the investment properties controlled by our company’s shareholders.

Below is our company’s FFO, which is a non-GAAP measurement, for the three months ended March 31, 2022:


Net income (loss)	$	(980,383)
Depreciation of tangible real property assets (1)		602,845
Depreciation of tenant improvements (2)		148,924
Amortization of leasing commissions (3)		19,791
Amortization of intangible assets (4)		383,637
Loss on impairment (5)		36,670
Impairment of assets held for sale (5)		175,671
Funds from operations	$	387,155

(1)

Depreciation expense for buildings, site improvements and furniture and fixtures.

(2)

Depreciation of tenant improvements, including those (i) acquired as part of the purchase of the retail center and flex center properties and (ii) those constructed by our company for the retail center properties and flex center property subsequent to their acquisition.

(3)

Amortization of leasing commissions paid for the retail center properties and flex center property subsequent to the acquisition of the properties.

(4)

Amortization of (i) intangible assets acquired as part of the purchase of the retail center properties and flex center property, including leasing commissions, leases in place and legal and marketing costs during the three months ended March 31, 2022.

(5)

NAREIT’s December 2018 White Paper provides guidance for the treatment of impairment write-downs. Specifically, “To the extent there is an impairment write-down of depreciable real estate … related to a REIT’s main business, the write-down is excluded from FFO (i.e., adjusted from net income in calculating FFO).” Additionally, NAREIT’s December 2018 White Paper provides guidance on gains or losses on the sale of assets, stating “the REIT has the option to include or exclude such gains and losses in the calculation of FFO.”

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NAREIT’s December 2018 White Paper encourages companies reporting FFO to “make supplemental disclosure of all material non-cash revenues and expenses affecting their results for each period.” We believe that the computation of FFO in accordance with NAREIT’s definition includes certain items that are not indicative of the results provided by our operating portfolio and affect the comparability of our period-over-period performance. These items include non-cash items such as amortization of loans and above and below market leases, unbilled rent arising from applying straight line rent revenue recognition and share-based compensation expenses. Additionally, the impact of capital expenditures, including tenant improvement and leasing commissions, net of reimbursements of such expenditures by property escrow funds, is included in our calculation of AFFO. Therefore, in addition to FFO, management uses Adjusted FFO (“AFFO”), which we define to exclude such items. Management believes that these adjustments are appropriate in determining AFFO as their exclusion is not indicative of the operating performance of our assets. In addition, we believe that AFFO is a useful supplemental measure for the investing community to use in comparing us to other REITs as many REITs provide some form of adjusted or modified FFO. However, there can be no assurance that AFFO presented by us is comparable to the adjusted or modified FFO of other REITs.

Total AFFO for the three months ended March 31, 2022 was as follows:


Funds from operations	$	387,155
Amortization of above market leases (1)		69,583
Amortization of below market leases (2)		(95,617)
Straight line rent (3)		(14,921)
Capital expenditures (4)		(366,059)
Increase in fair value of interest rate cap (5)		(91,042)
Amortization of loan issuance costs (6)		28,118
Amortization of preferred stock discount and offering costs (7)		53,923
Share-based compensation (9)		233,100
Bad debt expense (10)		12,783
Adjusted funds from operations (AFFO)	$	217,023

(1)

Adjustment to FFO resulting from non-cash amortization of intangible assets for the three months ended March 31, 2022.

(2)

Adjustment to FFO resulting from non-cash amortization of intangible liabilities for the three months ended March 31, 2022.

(3)

Adjustment to FFO resulting from non-cash revenues recognized as a result of applying straight line revenue recognition for the retail center properties and flex center property during the three months ended March 31, 2022.

(4)

Adjustment to FFO for capital expenditures, including capitalized leasing commissions, tenant improvements, building and site improvements and purchases of furniture, fixtures and equipment that have not been reimbursed by property escrow accounts. See Investing Activities, above, for detail of capital expenditures during the three months ended March 31, 2022.

(5)

Adjustment to FFO resulting from non-cash expenses recognized as a result of decreases in the fair value of the interest rate caps for the Hampton Inn Property and the Clemson Best Western Property during the three months ended March 31, 2022.

(6)

Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing loan issuance costs over the terms of the respective mortgages during the three months ended March 31, 2022.

(7)

Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing the preferred stock discount over its five year term during the three months ended March 31, 2022.

(8)

Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing the preferred stock offering costs over its five year term during the three months ended March 31, 2022.

(9)

Adjustment to FFO resulting from non-cash expenses recorded for share-based compensation.

(10)

NAREIT’s December 2018 White Paper provides guidance on non-cash revenues and expenses, stating, “To provide an opportunity for consistent analysis of operating results among REITs, NAREIT encourages those reporting FFO to make supplemental disclosure of all material non-cash revenues and expenses affecting their results for each period. Our company

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has elected to include non-cash revenues (debt forgiveness) and non-cash expenses (bad debt expense) in its calculation of AFFO.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We have omitted a discussion of quantitative and qualitative disclosures about market risk because, as a smaller reporting company, we are not required to provide such information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on the most recent evaluation, the Company’s principal executive officer and principal financial officer have determined that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) were effective as of March 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

There have been no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of their business. Our management does not believe that any such litigation will materially affect our financial position or operations.

Item 1A. Risk Factors

We have omitted a discussion of risk factors because, as a smaller reporting company, we are not required to provide such information.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

On December 21, 2021, the Company’s Board of Directors authorized a share repurchase program whereby the Company may repurchase up to 500,000 shares of its common stock.

Share repurchase activity under our share repurchase plan, on a trade date basis, for the three months ended March 31, 2021, was as follows:


Purchase (Trade) Date	Shares Purchased	Price Per Share		Total Cost
January 4, 2022	400	$	1.060	$	424
January 5, 2022	48,205		1.060		51,093
January 6, 2022	100,000		1.046		104,556
January 7, 2022	30,000		1.050		31,500
January 10, 2022	50,000		1.020		51,000
January 14, 2022	100		1.010		101
January 21, 2022	39,365		1.006		39,603
Total	268,070	$	1.038	$	278,277

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number		Description
3.1		Articles of Incorporation of Medalist Diversified REIT, Inc.*
3.2		Articles Supplementary to the Articles of Incorporation of Medalist Diversified REIT, Inc. designating the Company’s Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A filed on February 13, 2020).
3.3		Bylaws of Medalist Diversified REIT, Inc. *
4.1		Form of Certificate of Common Stock *
4.2		Form of Certificate of Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on February 13, 2020)
10.1		Purchase and Sale Agreement, dated as of April 8, 2022, by and between RCC Salisbury Marketplace, LLC and Medalist Diversified Holdings, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 13, 2022)

31.1		Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †

31.2		Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

101.INS		INSTANCE DOCUMENT

101.SCH		SCHEMA DOCUMENT

101.CAL		CALCULATION LINKBASE DOCUMENT

101.LAB		LABELS LINKBASE DOCUMENT

101.PRE		PRESENTATION LINKBASE DOCUMENT

101.DEF		DEFINITION LINKBASE DOCUMENT

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

†	Filed herewith.

*	Previously filed with the Amendment to the Registrant’s Registration Statement on Form S-11 filed by the Registrant with the Securities and Exchange Commission on October 5, 2018.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEDALIST DIVERSIFIED REIT, INC.

Date: May 9, 2022

	By:	/s/ Thomas E. Messier
		Thomas E. Messier

		Chief Executive Officer and Chairman of the Board
		(principal executive officer))

	By:	/s/ C. Brent Winn
		C. Brent Winn

		Chief Financial Officer
		(principal accounting officer and principal financial officer)