Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated ~~Balance Sheets~~Statements of Operations

March 31, 2019 December 31, 2018
(Unaudited)
ASSETS
Investment properties, net $ 45,837,106 $ 45,323,497
Cash 1,269,765 1,327,424
Restricted cash 1,970,018 2,793,372
Rent and other receivables, net of allowance of $4,191 and $15,194, as of March 31, 2019 and December 31, 2018, respectively 96,604 108,478
Unbilled rent 344,542 259,216
Advance deposits 281,148 423,747
Intangible assets, net 2,368,067 2,585,834
Interest rate cap, at fair value 76,394 126,797
Prepaid expenses 153,595 158,687
Total Assets $ 52,397,239 $ 53,107,052

LIABILITIES
Accounts payable and accrued liabilities $ 1,125,045 $ 826,336
Intangible liabilities, net 416,214 439,726
Mortgages payable, net 33,246,700 33,236,397
Total Liabilities $ 34,787,959 $ 34,502,459

EQUITY
Preferred stock, $.01 par value, 250,000,000 shares authorized, none issued and outstanding $ - $ -
Common stock, $.01 par value, 750,000,000 shares authorized, 2,321,582 shares issued and outstanding at Common stock March 31, 2019 and December 31, 2018 23,216 23,216
Additional paid-in capital 22,077,827 22,077,827
Offering costs (1,974,118 ) (1,835,291 )
Accumulated deficit (5,916,399 ) (5,229,760 )
Total Shareholders' Equity 14,210,526 15,035,992
Noncontrolling interests - Hampton Inn Property 1,876,152 2,009,031
Noncontrolling interests - Hanover Square Property 588,238 608,943
Noncontrolling interests - Operating Partnership 934,364 950,627
Total Equity $ 17,609,280 $ 18,604,593
Total Liabilities and Equity $ 52,397,239 $ 53,107,052

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022

REVENUE
Retail center property revenues	$	1,891,679	$	1,525,085
Flex center property revenues		569,297		613,390
Hotel property room revenues		—		762,200
Hotel property other revenues		—		3,289
Total Revenue	$	2,460,976	$	2,903,964

OPERATING EXPENSES
Retail center property operating expenses	$	520,615	$	450,125
Flex center property operating expenses		176,737		161,381
Hotel property operating expenses		—		372,860
Bad debt expense		27,122		12,783
Share based compensation expenses		—		233,100
Legal, accounting and other professional fees		767,078		459,869
Corporate general and administrative expenses		117,049		80,706
Loss on impairment		36,743		36,670
Impairment of assets held for sale		—		175,671
Depreciation and amortization		1,156,348		1,155,197
Total Operating Expenses		2,801,692		3,138,362
Operating loss		(340,716)		(234,398)
Interest expense		864,052		841,424
Net Loss from Operations		(1,204,768)		(1,075,822)
Other (loss) income		(29,038)		95,439
Net Loss		(1,233,806)		(980,383)
Less: Net loss attributable to Hanover Square Property noncontrolling interests		(1,241)		(319)
Less: Net (loss) income attributable to Parkway Property noncontrolling interests		(8,367)		10,193
Less: Net loss attributable to Operating Partnership noncontrolling interests		(2,903)		(973)
Net Loss Attributable to Medalist Common Shareholders	$	(1,221,295)	$	(989,284)

Loss per share from operations - basic and diluted	$	(0.07)	$	(0.06)

Weighted-average number of shares - basic and diluted		17,758,421		16,037,073

Dividends paid per common share	$	0.01	$	0.02

See notes to condensed consolidated financial ~~statements.~~statements

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Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Statements of ~~Operations~~Stockholders’ Equity

~~(Unaudited)~~For the three months ended March 31, 2023 and 2022

Three Months Ended
March 31,
2019 2018

REVENUE
Retail center property revenues $ 750,820 $ 384,502
Retail center property tenant reimbursements 143,174 72,369
Hotel property room revenues 630,035 733,566
Hotel property other revenues 14,453 12,413
Total Revenue $ 1,538,482 $ 1,202,850

OPERATING EXPENSES
Retail center property operating expenses $ 269,275 $ 192,681
Hotel property operating expenses 581,975 563,054
Legal, accounting and other professional fees 353,747 212,179
Corporate general and administrative expenses 55,705 2,305
Depreciation and amortization 566,163 393,964
Total Operating Expenses 1,826,865 1,364,183
Operating Loss (288,383 ) (161,333 )
Interest expense 506,074 424,281
Net Loss from Operations (794,457 ) (585,614 )
Other income 4,374 -
Decrease (increase) in fair value - interest rate cap 50,403 (74,289 )
Net Loss (840,486 ) (511,325 )
Less: Net loss attributable to Hampton Inn Property noncontrolling interests (132,879 ) (40,767 )
Less: Net loss attributable to Hanover Square Property noncontrolling interests (4,705 ) -
Less: Net loss attributable to Operating Partnership noncontrolling interests (16,263 ) (19,683 )
Net Loss Attributable to Medalist Common Shareholders $ (686,639 ) $ (450,875 )

Loss per share from operations - basic and diluted $ (0.30 ) $ (0.27 )

Weighted-average number of shares - basic and diluted 2,321,582 1,687,516

Dividends declared per common share $ - $ -

(Unaudited)


	For the three months ended March 31, 2023
	Common Stock											Noncontrolling Interests
				Additional			Offering	Accumulated			Shareholders’		Hanover Square		Parkway		Operating
	Shares	Par Value		Paid in Capital			Costs	Deficit			Equity		Property		Property		Partnership		Total Equity
Balance, January 1, 2023	17,758,421	$	177,584	$	51,363,812	$	(3,350,946)	$	(30,939,020)	$	17,251,430	$	127,426	$	470,685	$	842,898	$	18,692,439

Net loss	—	$	—	$	—	$	—	$	(1,221,295)	$	(1,221,295)	$	(1,241)	$	(8,367)	$	(2,903)	$	(1,233,806)
Dividends and distributions	—		—		—		—		(176,810)		(176,810)		—		—		(2,135)		(178,945)

Balance, March 31, 2023	17,758,421	$	177,584	$	51,363,812	$	(3,350,946)	$	(32,337,125)	$	15,853,325	$	126,185	$	462,318	$	837,860	$	17,279,688


	For the three months ended March 31, 2022
	Common Stock											Noncontrolling Interests
				Additional			Offering	Accumulated			Shareholders’		Hanover Square		Parkway		Operating
	Shares	Par Value		Paid in Capital			Costs	Deficit			Equity		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

See notes to condensed consolidated financial statements

Table of ContentsM~~EDALIST~~D~~IVERSIFIEDREIT~~,I~~NC. AND~~S~~UBSIDIARIES~~

C~~ondensed~~C~~ONSOLIDATED~~S~~TATEMENTs OF~~E~~QUITY~~

~~(Unaudited)~~

Common Stock Noncontrolling Interests
Shares Par Value Additional
Paid in
Capital Offering
Costs Accumulated
Deficit Total
Shareholders'
Equity Hampton Inn
Property Hanover
Square
Property Operating
Partnership Total Equity

Balance, January 1, 2018 1,148,002 $ 11,480 $ 11,086,897 $ (912,060 ) $ (1,398,222 ) $ 8,788,095 $ 2,211,345 $ - $ 1,082,591 $ 12,082,031

Common stock issuances 839,080 $ 8,391 $ 7,885,045 $ - $ - $ 7,893,436 $ - $ - $ - $ 7,893,436
Offering costs - - - (265,612 ) - (265,612 ) - - - (265,612 )
Net loss - - - - (450,875 ) (450,875 ) (40,767 ) - (19,683 ) (511,325 )

Balance, March 31, 2018 1,987,082 $ 19,871 $ 18,971,942 $ (1,177,672 ) $ (1,849,097 ) $ 15,965,044 $ 2,170,578 $ - $ 1,062,908 $ 19,198,530

Common Stock Noncontrolling Interests
Shares Par Value Additional
Paid in
Capital Offering
Costs Accumulated
Deficit Total
Shareholders'
Equity Hampton Inn
Property Hanover
Square
Property Operating
Partnership Total Equity

Balance, January 1, 2019 2,321,582 $ 23,216 $ 22,077,827 $ (1,835,291 ) $ (5,229,760 ) $ 15,035,992 $ 2,009,031 $ 608,943 $ 950,627 $ 18,604,593

Offering costs - $ - $ - $ (138,827 ) $ - $ (138,827 ) $ - $ - $ - $ (138,827 )
Net loss - - - - (686,639 ) (686,639 ) (132,879 ) (4,705 ) (16,263 ) (840,486 )
Dividends and distributions - - - - - - - (16,000 ) - (16,000 )

Balance, March 31, 2019 2,321,582 $ 23,216 $ 22,077,827 $ (1,974,118 ) $ (5,916,399 ) $ 14,210,526 $ 1,876,152 $ 588,238 $ 934,364 $ 17,609,280

~~See notes to consolidated financial statements~~

Medalist Diversified REIT, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

For the Three Months Ended
March 31,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss $ (840,486 ) $ (511,325 )

Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities
Depreciation 403,330 302,304
Amortization 162,833 91,660
Loan cost amortization 42,711 39,528
Amortization of tenant inducements 4,260 -
Decrease (increase) in fair value - interest rate cap 50,403 (74,289 )
Above (below) market lease amortization, net 31,422 36,386

Changes in assets and liabilities
Rent and other receivables, net 11,874 13,775
Unbilled rent (85,326 ) (18,575 )
Prepaid expenses 5,092 20,748
Other assets - (50,000 )
Accounts payable and accrued liabilities 298,709 (73,143 )
Net cash provided by (used in) operating activities 84,822 (222,931 )

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures (405,769 ) (46,568 )
Advance deposits (372,831 ) -
Net cash used in investing activities (778,600 ) (46,568 )

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends and distributions paid (16,000 ) -
Repayment of notes payable and related party notes payable - (2,177,538 )
Repayment of mortgages payable (32,408 ) -
Proceeds from sales of common stock, net of offering costs (138,827 ) 7,590,356
Net cash (used in) provided by investing activities (187,235 ) 5,412,818

(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (881,013 ) 5,143,319
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period 4,120,796 3,294,847
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period $ 3,239,783 $ 8,438,166
- -
CASH AND CASH EQUIVALENTS, end of period shown in consolidated balance sheets 1,269,765 5,290,371
RESTRICTED CASH including assets restricted for capital and operating reserves and tenant deposits 1,970,018 3,147,795
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period shown in the statement of cash flows $ 3,239,783 $ 8,438,166

Supplemental Disclosures and Non-Cash Activities:

Interest paid, net of interest rate cap offsetting receipts 427,674 409,702
Transfer advance deposits to investment properties 515,430 -
Short term receivable in lieu of proceeds from sale of common stock - 37,468


	Three months ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss	$	(1,233,806)	$	(980,383)

Adjustments to reconcile consolidated net loss to net cash flows from operating activities
Depreciation		911,481		771,560
Amortization		244,867		383,637
Loan cost amortization		26,990		28,118
Mandatorily redeemable preferred stock issuance cost and discount amortization		58,804		53,923
Above (below) market lease amortization, net		(73,018)		(26,034)
Bad debt expense		27,122		12,783
Share-based compensation		—		233,100
Impairment of assets held for sale		—		175,671
Loss on impairment		36,743		36,670

Changes in assets and liabilities
Rent and other receivables, net		84,476		109,000
Unbilled rent		(48,899)		(14,846)
Other assets		66,796		(128,599)
Accounts payable and accrued liabilities		349,168		38,263
Net cash flows from operating activities		450,724		692,863

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures		(647,690)		(366,059)
Net cash flows from investing activities		(647,690)		(366,059)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends and distributions paid		(178,945)		(341,521)
Repayment of mortgages payable		(301,577)		(192,257)
Proceeds from sales of common stock, net of capitalized offering costs		—		1,188,574
Repurchases of common stock, including costs and fees		—		(286,543)
Net cash flows from financing activities		(480,522)		368,253

(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(677,488)		695,057
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period		5,662,853		7,383,977
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	4,985,365	$	8,079,034

CASH AND CASH EQUIVALENTS, end of period, shown in condensed consolidated balance sheets		3,048,100		4,629,945
RESTRICTED CASH including assets restricted for capital and operating reserves and tenant deposits, end of period, shown in condensed consolidated balance sheets		1,937,265		3,449,089
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period shown in the condensed consolidated statements of cash flows	$	4,985,365	$	8,079,034

Supplemental Disclosures and Non-Cash Activities:

Other cash transactions:
Interest paid	$	796,268	$	682,456

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, ~~2019,~~2023, the REIT, through the Operating Partnership, owned and operated ~~three~~eight properties, including the Shops at Franklin Square, a 134,239 square foot retail property located in Gastonia, North Carolina (the “Franklin Square Property”), the ~~Greensboro Airport Hampton Inn, a hotel with 125 rooms on 2.162 acres in Greensboro, North Carolina (the “Hampton Inn Property”), and the~~ Shops at Hanover Square North, ~~(the “Hanover Square Property”),~~ a 73,440 square foot retail property located in Mechanicsville, ~~Virginia.~~Virginia (the “Hanover Square Property”), the Ashley Plaza Shopping Center, a 164,012 square foot retail property located in Goldsboro, North Carolina (the “Ashley Plaza Property”), 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 181,590 square foot retail property located in Lancaster, South Carolina (the “Lancer Center Property”), the Greenbrier Business Center, an 89,280 square foot mixed-use industrial/office property located in Chesapeake, Virginia (the “Greenbrier Business Center Property "), the Parkway Property, a 64,109 square foot mixed-use industrial office property located in Virginia Beach, Virginia (the "Parkway Property") and the Salisbury Marketplace Shopping Center, a 79,732 square foot retail property located in Salisbury, North Carolina (the “Salisbury Marketplace Property”). The Company owns ~~64 percent of the Hampton Inn Property as a tenant in common with a noncontrolling owner which owns the remaining 36 percent interest. The Company owns 84 percent~~84% of the Hanover Square Property as a tenant in common with a noncontrolling owner which owns the remaining ~~16 percent~~16% interest and 82% of the Parkway Property as a tenant in common with a noncontrolling owner which owns the remaining 18% interest.

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The use of the word “Company” refers to the REIT and its consolidated subsidiaries, except where the context otherwise requires. The Company includes the REIT, the Operating Partnership, wholly owned limited liability ~~corporations~~companies which own or operate the properties and, for the periods presented prior to September 30, 2022, the taxable REIT subsidiary which ~~operates~~formerly operated the ~~Hampton~~Clemson Best Western University Inn, ~~Property.~~a hotel with 148 rooms on 5.92 acres in Clemson, South Carolina (“the Clemson Best Western Property”), which the Company sold on September 29, 2022. 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 ~~and the tenant in common (“TIC”) noncontrolling owner, lease~~leased its consolidated hotel property to a taxable REIT subsidiary (“TRS”) for federal income tax purposes. The Company’s TRS iswas subject to income tax and iswas not limited as to the amount of nonqualifying income it ~~can~~could generate, but ~~it is~~the Company’s TRS was limited in terms of its value as a percentage of the total value of the Company’s assets. The Company’s TRS ~~enters~~entered into an agreement 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 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~~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 discretion of Medalist Fund Manager, Inc. (the “Manager”).

The Company is externally managed by ~~Medalist Fund Manager, Inc. (the ‘‘Manager’’).~~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-today~~day-to-day affairs.

~~Summary of Significant Accounting Policies~~

2. Summary of Significant Accounting Policies

Investment Properties

~~As of January 1, 2017, the~~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 ~~that occurred in 2017 and 2018~~to date qualified as asset acquisitions and ~~most of~~ the ~~Company’s~~Company expects future acquisitions of operating properties ~~will~~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 ~~the~~ tangible and intangible assets associated with income producing real estate. Tangible assets include land, buildings, site improvements, tenant improvements and furniture, fixtures and ~~fixtures,~~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)~~market leases), among others.

The Company uses independent, ~~third party~~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.

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The Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of the asset, generally 54 to 4042 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~~Capitalized leasing commissions and tenant improvements incurred and paid by the Company subsequent to the acquisition of the investment property 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.

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. ~~The~~

Other than the tenant-specific losses on impairment and the impairment of assets held for sale 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, ~~2019~~2023 and 2022, that would result in the projected value being below the carrying value of the Company’s properties.

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. Delays in the time required to complete a sale do not preclude a long-lived asset from continuing to be classified as held for sale beyond the initial one-year period if the delay is caused by events or circumstances beyond an entity’s control and there is sufficient evidence that the entity remains committed to a qualifying plan to sell the long-lived asset.

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 included the land, site improvements, building, building improvements and furniture, fixtures and equipment. As of March 31, ~~2018.~~2021, the Company recorded this asset group, and the associated mortgage payable, as held for sale. As of March 31, 2021, the date the Company originally recorded this asset group as held for sale, 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 was initially classified as held for sale, the Company 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.

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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.
As of March 31, 2022, the Company determined that the carrying value of the asset group associated with the Clemson Best Western Hotel Property exceeded 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, 2023.
On September 29, 2022, the Company closed on the sale of the Clemson Best Western Hotel Property to an unaffiliated purchaser. See Note 3 for additional details.

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, ~~2019~~2023, a tenant defaulted on its lease and ~~2018, respectively,~~abandoned its premises. The Company determined that the carrying value of the intangible assets and liabilities, net, associated with this lease of $35,551 that were recorded as part of the purchase of this property 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, 2023. During the three months ended March 31, 2022, two tenants defaulted on their leases and abandoned their premises. The Company ~~did not record any~~determined that the carrying 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 ~~adjustments to its intangible assets.~~

reported on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2022.

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

March 31, 2019 December 31, 2018
(unaudited)
Intangible Assets
Leasing commissions $ 282,409 $ 305,646
Legal and marketing costs 87,440 95,950
Above market leases 593,475 648,409
Leases in place 1,404,743 1,535,829
$ 2,368,067 $ 2,585,834

Intangible Liabilities
Below market leases, net $ (416,214 ) $ (439,726 )


		March 31, 2023
	(unaudited)		December 31, 2022
Intangible Assets, net
Leasing commissions	$	1,074,551	$	1,135,421
Legal and marketing costs		150,957		169,437
Above market leases		175,839		209,860
Net leasehold asset		2,048,253		2,233,988
	$	3,449,600	$	3,748,706

Intangible Liabilities, net
Below market leases	$	(2,133,752)	$	(2,234,113)

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, ~~2019~~2023 and ~~2018,~~2022, respectively, were as follows:

Three months ended March 31,
2019 2018
(unaudited) (unaudited)
Amortization of above market leases $ 54,934 $ 47,898
Amortization of below market leases (23,512 ) (11,512 )
$ 31,422 $ 36,386

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	For the three months ended
	March 31,
		2023		2022
	(unaudited)		(unaudited)
Amortization of above market leases	$	(27,343)	$	(69,583)
Amortization of below market leases		100,361		95,617
	$	73,018	$	26,034

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, ~~2019~~2023 and ~~2018,~~2022, respectively, were as follows:

	Three months ended March 31,
	2019			2018
	(unaudited)			(unaudited)

							For the three months ended
							March 31,
								2023		2022
							(unaudited)		(unaudited)
Leasing commissions	$	(23,237	)	$	(15,602	)	$	(56,618)	$	(63,032)
Legal and marketing costs		(8,510	)		(7,031	)		(16,205)		(14,559)
Leases in place		(131,086	)		(69,027	)
	$	(162,833	)	$	(91,660	)
Net leasehold asset								(172,044)		(306,046)
							$	(244,867)	$	(383,637)

As of March 31, ~~2019~~2023 and December 31, ~~2018,~~2022, the Company’s accumulated amortization of lease origination costs, leases in place and legal and marketing costs totaled ~~$983,847~~$2,148,257 and ~~$821,014,~~$2,198,049, respectively.

During the three months ended March 31, 2023 and 2022, the Company wrote off $273,252 and $486,785, respectively, in accumulated amortization related to fully amortized intangible assets and $21,407 and $5,108, respectively, in accumulated amortization related to the write off of intangible 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, 2019			2020			2021			2022			2023			2024- 2027			Total


																							For the
																							remaining nine
																							months ending
																							December 31,
																						2023		2024		2025		2026		2027		2028-2042		Total
Intangible Assets
Leasing commissions	$	65,094		$	75,332		$	67,721		$	36,661		$	17,855		$	19,746		$	282,409		$	160,102	$	171,601	$	145,550	$	107,312	$	88,394	$	401,592	$	1,074,551
Legal and marketing costs		21,544			20,736			16,127			11,739			8,126			9,168			87,440			43,963		38,900		24,004		13,160		7,917		23,013		150,957
Above market leases, net		157,930			180,650			173,712			81,183			-			-			593,745
Leases in place		359,098			404,455			365,252			157,418			54,354			64,166			1,404,743
	$	603,666		$	681,173		$	622,812		$	287,001		$	80,335		$	93,080		$	2,368,067

Above market leases																							66,689		42,858		21,526		15,629		14,543		14,594		175,839
Net leasehold asset																							443,833		394,874		295,851		199,466		153,142		561,087		2,048,253
																						$	714,587	$	648,233	$	486,931	$	335,567	$	263,996	$	1,000,286	$	3,449,600

Intangible Liabilities
Below market leases, net	$	(70,533	)	$	(88,558	)	$	(85,321	)	$	(63,749	)	$	(48,840	)	$	(59,213	)	$	(416,214	)	$	(268,441)	$	(285,892)	$	(213,348)	$	(178,776)	$	(161,866)	$	(1,025,429)	$	(2,133,752)

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 ~~with~~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, ~~2019~~2023 and ~~2018,~~2022, respectively.

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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 ~~cash~~ equivalents and its trade accounts receivable.

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 and (iii) capital reserves held by lenders for investment property capital improvements.

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, ~~2019,~~2023, the Company held aone cash account at a financial institution with a balance that exceeded the FDIC limit by ~~$255,042.~~$1,404,374. As of December 31, ~~2018,~~2022, the Company held two cash accounts at a ~~cash account~~single financial institution with ~~a balance~~combined balances that exceeded the FDIC limit by ~~$650,699.~~$2,613,789.

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, ~~2019~~2023 and December 31, ~~2018,~~2022, the Company reported ~~$77,351~~$283,646 and ~~$71,022,~~$267,854, respectively, in security ~~deposits.~~

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, ~~2019~~2023 and December 31, ~~2018,~~2022, the Company reported ~~$456,663~~$736,865 and ~~$719,588,~~$579,785, 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, ~~2019~~2023 and December 31, ~~2018,~~2022, the Company reported ~~$1,436,004~~$916,754 and ~~$2,002,762,~~$893,078, respectively, in capital property reserves. ~~These funds are being held in reserve~~


	March 31, 2023		December 31,
Property and Purpose of Reserve	(unaudited)		2022

Franklin Square Property - leasing costs	$	858,509	$	845,765
Brookfield Center Property - maintenance and leasing cost reserve		58,245		47,313
Total	$	916,754	$	893,078

Share Retirement

ASC 505-30-30-8 provides guidance on accounting for ~~improvements to the Hampton Inn Property ($1,034,626~~share retirement and ~~$1,601,809 as of March 31, 2019 and December 31, 2018 respectively) and tenant improvements and leasing commissions~~establishes two alternative methods for accounting for the ~~Franklin Square Property ($401,378 and $400,953 as~~repurchase price paid in excess of ~~March 31, 2019 and December 31, 2018 respectively).~~

~~Revenue Recognition~~

par value. The Company ~~adoptedASU No. 2014-09,~~~~Revenue~~~~from Contracts with Customers (Topic 606)~~ ~~effective on January 1, 2019 (see Recent Accounting Pronouncements, below). This adoption did not have a material impact~~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 ~~recognition~~condensed consolidated balance sheets. During the three months ended March 31, 2022, the Company repurchased 268,070 shares of ~~revenues from either~~ its ~~retail properties or its hotel property.~~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, 2023.

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Revenue Recognition

Retail and Flex Center Property Revenues

The Company recognizes minimum rents from its retail center properties ~~(the Franklin Square~~ and ~~Hanover Square properties)~~flex center properties 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 condensed consolidated balance ~~sheet.~~ sheets. As of March 31, 2023 and December 31, 2022, the Company reported $1,069,860 and $1,022,153, respectively, in unbilled rent. During the three months ended March 31, 2023, the Company recorded a loss on impairment of $1,192 related to previously recognized straight-line rent related to a defaulting tenant’s lease. No such loss on impairment related to straight-line rent was recorded during the three months ended March 31, 2022.

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, ~~under~~on the condensed consolidated statements of operations ~~caption~~under the captions "Retail center property ~~tenant reimbursements."~~revenues” and “Flex center property 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 ~~escrow~~ 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 become final. Since these differences are determined annually under the leases and accrued as of December 31 in the ~~impact on~~year earned, no such revenues were recognized ~~for~~during the three months ended March 31, ~~2019 is not known.~~

2023 and 2022.

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, ~~2019~~2023 and ~~2018,~~2022, respectively, no such termination costs were recognized.

Hotel Property Revenues

Hotel revenues ~~(from~~from the ~~Hampton Inn Property) are~~Clemson Best Western Property were 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 were recognized as earned, which is as rooms are occupied or otherwise reserved for use by the University. The Clemson University occupancy agreement ended on May 15, 2022 and the Company sold the Clemson Best Western Property on September 29, 2022.

The Clemson Best Western Property was 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 had a legal obligation to act as a collection agent. The Clemson Best Western Property did not retain these taxes and fees; therefore, they were not included in revenues. The Clemson Best Western Property recorded a liability when the amounts were collected and relieved the liability when payments were made to the applicable taxing authority or other appropriate governmental agency.

~~Tenant~~Hotel Property Operating Expenses

All personnel of the Clemson Best Western Property were 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 Clemson Best Western Property reimbursed Marshall for all employee related service costs, including payroll salaries and wages, payroll taxes and other employee benefits paid by Marshall on its behalf. The total amounts incurred for payroll salaries and wages, payroll taxes and other employee benefits for the three months ended March 31, 2023 and 2022 were $0 and $131,939, respectively.

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Rent and other receivables

Rent and ~~unbilled rent~~

~~Tenant~~other receivables include tenant receivables related to base rents and tenant ~~reimbursements~~reimbursements. Rent and other receivables do not include receivables attributable to recording rents on a straight-line ~~basis.~~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~~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. ~~The~~As of March 31, 2023 and December 31, 2022, the Company’s allowance for uncollectible ~~accounts~~rent totaled $62,960 and $47,109, 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, 2023 and December 31, 2022, respectively.

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. The Company believed that the net operating loss carry forward from prior years would 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, 2023, the Company no longer owned the Clemson Best Western Hotel 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.

~~During the three months ended March 31, 2019 and 2018, respectively, the Company’s Hampton Inn TRS entity generated a tax loss, so no income tax expense was recorded.~~

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

The ownership interests not held by the REIT are considered noncontrolling interests. There are three elements of noncontrolling interests in the capital structure of the Company. ~~The ownership interests not held by the REIT are considered noncontrolling interests. Accordingly,~~These 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 consolidated amount, including both the amount attributable to the Company and noncontrolling interests. ~~Consolidated~~The Company’s condensed consolidated statements of changes in stockholders’ equity ~~include~~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 in which the Company owns a 64 percent tenancy in common interest through its subsidiaries and an outside party owns a 36 percent tenancy in common interest. In 2017, the noncontrolling owner of the Hampton Inn Property provided $2.3 million as part of the acquisition of the Hampton Inn Property. The Hampton Inn Property’s net loss is allocated to the noncontrolling ownership interest based on its 36 percent ownership. During the three months ended March 31, 2019, 36 percent of the Hampton Inn’s net loss of $369,109, or $132,879 was allocated to the noncontrolling partnership interest. During the three months ended March 31, 2018, 36 percent of the Hampton Inn’s net loss of $113,241, or $40,767, was allocated to the noncontrolling ownership interest.

~~The second~~ noncontrolling interest is in the Hanover Square Property in which the Company owns an ~~84 percent~~84% tenancy in common interest through its subsidiary and an outside party owns a ~~16 percent~~16% tenancy in common interest. The Hanover Square Property’s net loss is allocated to the noncontrolling ownership interest based on its ~~16 percent~~16% ownership. During the three months ended March 31, ~~2019, 16 percent~~2023, 16% of the Hanover Square Property’s net loss of ~~$29,409,~~$7,755, or ~~$4,705,~~ $1,241, was allocated to the noncontrolling ownership interest. ~~The Company did not own the Hanover Square Property during~~During the three months ended March 31, ~~2018.~~2022, 16% of the Hanover Square Property’s net loss of $1,992, or $319, was allocated to the noncontrolling ownership interest.

The second noncontrolling interest is in the Parkway Property in which the Company owns an 82% tenancy in common interest through its subsidiary and an outside party owns an 18% tenancy in common interest. The Parkway Property's net (loss) income is

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allocated to the noncontrolling ownership interest based on its 18% ownership. During the three months ended March 31, 2023, 18% of the Parkway Property's net loss of $46,482, or $8,367, was allocated to the noncontrolling ownership interest. During the three months ended March 31, 2022, 18% of the Parkway Property’s net income of $56,624, or $10,193, was allocated to the noncontrolling ownership interest.

The third 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~~limited liability company 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~~limited liability company 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% 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, 2023 and December 31, 2022, there were 213,531 Operating Partnership units outstanding.

The Operating Partnership units not held by the REIT represent ~~5.11 percent~~1.19% of the outstanding Operating Partnership units as of March 31, ~~2019~~2023 and December 31, ~~2018.~~2022. 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, ~~2019,~~2023, a weighted average of ~~5.11 percent~~1.19% of the Operating Partnership’s net loss of ~~$318,258,~~ $243,989, or ~~$16,263,~~ $2,903,was allocated to the noncontrolling unit holders. During the three months ended March 31, ~~2018,~~2022, a weighted average of ~~7.25 percent~~1.28% of the Operating Partnership’s net loss of ~~$271,478,~~ $75,882, or ~~$19,683,~~ $973, was allocated to the noncontrolling unit holders.

Recent Accounting Pronouncements

~~For each of the accounting pronouncements that affect the Company,~~Since its initial public offering, the Company has elected ~~or plans~~ to ~~elect to follow the rule that allows companies engaging in an initial public offering~~be classified as an ~~Emerging Growth Company~~emerging growth company in its periodic reporting to ~~follow~~the U.S. Securities and Exchange Commission (the “SEC”), and accordingly has followed the private company implementation ~~dates.~~dates for new accounting pronouncements. Effective for the three months ending March 31, 2023, the Company will no longer be classified as an emerging growth company, but will retain its classification as a smaller reporting company and therefore follow implementation dates applicable to smaller reporting companies with respect to new accounting pronouncements. In addition, the Company has elected to follow scaled disclosure requirements applicable to smaller reporting companies.

Recently Adopted Accounting Pronouncements

~~Revenue Recognition~~

Accounting for Leases

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ASU ~~2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~~~, which supersedes the revenue recognition requirements of Accounting Standards Codification (“ASC”) Topic 605,~~~~Revenue Recognition~~ and most industry-specific guidance on revenue recognition throughout the ASC. The new standard is principles based and provides a five step model to determine when and how revenue is recognized. The core principle of the new standard is that revenue should be recognized when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard also requires disclosure of qualitative and quantitative information surrounding the amount, nature, timing and uncertainty of revenues and cash flows arising from contracts with customers. In March 2016, the FASB issued ASU No. 2016-08,~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~~~, which clarifies the implementation guidance on principal versus agent considerations. In June 2016, the FASB issued ASU 2016-12,~~~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients~~, which relates to assessing collectability, presentation of sales taxes, noncash consideration and completed contracts and contract modifications in transition. In December 2016, the FASB issued 2016-20,~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~, which clarifies or corrects unintended application of the standard. Companies are permitted to adopt the ASUs as early as fiscal years beginning after December 15, 2016, but the adoption is required for private companies for fiscal years beginning after December 15, 2018. In September 2017, the FASB issued ASU 2017-13,~~Revenue Recognition (Topic 605)," "Revenue from Contracts with Customers (Topic 606)~~,~~Leases (Topic 840)~~~~," and~~2016-02, Leases (Topic 842). ~~These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~~~. The Company adopted Topic 606 effective on January 1, 2019.~~

A majority of the Company’s tenant-related revenue from its Franklin Square Property and Hanover Square Property is recognized pursuant to lease agreements and will be governed by the leasing guidance discussed below. The Company has evaluated its hotel revenues and concluded that the adoption of this standard did not impact the amount or timing of revenue recognition in its consolidated financial statements. The Company completed its assessment of ASU No. 2014-09 and has concluded that the guidance does not have a material impact on the Company’s method of revenue recognition or on the consolidated financial statements.

~~Accounting for Leases~~

~~In February 2016, the FASB issued ASU No. 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, ~~would~~must be recognized as assets and liabilities, respectively, on the balance ~~sheet.~~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 ~~sheet~~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 iswas 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 became effective for private companies for fiscal years beginning after December 15, 2021, and for

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interim periods within fiscal years beginning after December 15, 2022. The Company ~~plans to adopt~~adopted the standard effective on January 1, ~~2020. Management does~~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 ~~believe~~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. 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 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. With the adoption of ASC No. 842, the Company determined that its retail center and flex center operating leases qualify for the non-separation practical expedient based on the guidance. 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.

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, 2022. Early adoption of the guidance is permitted, but no earlier than fiscal years beginning after December 15, 2020. The updated guidance in ASU 2020-06 was adopted effective January 1, 2023, which did not have a material impact on the Company’s condensed consolidated financial statements.

Credit Losses on Financial Instruments

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~~applies to most financial assets measured at amortized cost and certain other instruments, such as accounts receivable and ~~loans. The guidance will require~~loans; however, it does not apply to receivables arising from operating leases accounted for in accordance with ASC Topic 842. ASU 2016-13 requires that the Company estimate the lifetime expected credit loss with respect to ~~these~~applicable receivables and record allowances that, when deducted from the balance of the receivables, represent the net amounts expected to be collected. The Company ~~will~~is 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. ~~For public companies,~~The Company’s credit losses primarily arise from tenant defaults on amounts due under operating leases. As noted, these losses are not subject to the guidance ~~will be effective for interim~~in ASU 2016-13, and ~~annual reporting periods beginning after December 15, 2019 and for private companies, periods after December 15, 2020.~~historically have not been significant. The Company ~~is currently in~~adopted the ~~process~~update on the required effective date of ~~evaluating~~January 1, 2023, which did not have a material impact on the ~~impact the adoption of the guidance will have on its~~Company’s condensed consolidated financial statements.

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~~Cash Flows~~Upcoming Accounting Pronouncements

Effects of Reference Rate Reform

In ~~November 2016,~~March 2020, the FASB issued ASU ~~2016-18,~~~~Statement of Cash Flows~~2020-04, Reference Rate Reform (Topic ~~230)~~848): ~~Restricted Cash (a consensus~~Facilitation of the ~~FASB Emerging Issues Task Force)~~Effects ofReference 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 ~~provides~~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. Under ASU 2020-04, companies may generally elect to make use of the expedients and exceptions provided therein for any reference rate contract modifications that occur in reporting periods that encompass the timeline from March 12, 2020 to December 31, 2022. The FASB subsequently issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset of Topic 848, to extend that timeline from December 31, 2022 to December 31, 2024. 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.

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

Under the accounting guidance related to the presentation of ~~restricted cash~~financial statements, the Company is required to evaluate, on a quarterly basis, whether or ~~restricted cash equivalents~~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 ~~statement~~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, ~~in an effort to reduce diversity in practice. The standard requires a reconciliation of total cash, cash equivalents and restricted cash, such~~the Company’s obligations due over the next twelve months as ~~escrows and~~well as the Company’s recurring business operating property reserves and property capital reserves, in the cash flow statement or in the notes to the financial statements. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all periods presented.

expenses.

The Company ~~adopted~~concludes that it is probable that the ~~standard as~~Company will be able to meet its obligations arising within one year of ~~January 1, 2019 and applied retrospectively. For~~ the ~~three months ended March 31, 2018,~~date of issuance of these condensed consolidated financial statements within the ~~adoption resulted~~parameters set forth in ~~a reduction~~the accounting guidance.

Table of ~~$90,975 in net cash used in operating activities and a reduction of $24,975 in net cash used in investing activities on the consolidated statements of cash flows.~~Contents

3. Investment Properties

Investment properties consist of the following:

March 31, 2019
(unaudited) December 31, 2018
Land $ 7,462,946 $ 7,462,946
Site improvements 2,341,547 2,341,547
Buildings and improvements (a) 36,330,755 35,753,467
Furniture and fixtures (b) 2,077,184 1.733,273
Investment properties at cost (c) 48,212,432 47,291,233
Less accumulated depreciation 2,375,326 1,967,736
Investment properties, net $ 45,837,106 $ 45,323,497


		March 31, 2023		December 31,
		(unaudited)		2022
Land	$	16,526,436	$	16,526,436
Site improvements		4,731,249		4,719,926
Buildings and improvements (1)		65,209,769		64,669,498
Investment properties at cost (2)		86,467,454		85,915,860
Less accumulated depreciation		10,224,948		9,400,908
Investment properties, net	$	76,242,506	$	76,514,952

~~(a)~~(1)

Includes tenant improvements (both those acquired atas part of the acquisition of the properties and those constructed after the properties’ acquisition), ~~tenant inducements,~~ capitalized leasing commissions and other capital costs incurred post-acquisition.

~~(b)~~(2)

As of March 31, 2019 and December 31, 2018, excludes $281,148 and $423,747, respectively, in pre-payments recorded as advance deposits for furniture and fixtures not yet received as part of the renovations of the Hampton Inn Property. The Company reclassifies the amounts recorded as advance deposits to a furniture and fixtures account when the assets are placed in service.

~~(c)~~

Excludes intangible assets and liabilities (see ~~note, below)~~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 ~~$403,330~~ $911,481 and ~~$302,304~~$771,560 for the three months ended March 31, ~~2019~~2023 and ~~2018, respectively.~~2022, 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:


	March 31,
	2023		December 31,
	(unaudited)		2022
Capitalized tenant improvements – acquisition cost allocation, net	$	2,996,990	$	3,178,534
Capitalized tenant improvements incurred subsequent to acquisition, net		683,836		338,836

Depreciation of capitalized tenant improvements arising from the acquisition cost allocation was $172,888 and ~~amortization~~$127,276 for the three months ended March 31, 2023 and 2022, respectively. Additionally, the Company wrote off capitalized tenant improvements of $8,656 associated with the tenant that abandoned its premises during the three months ended March 31, 2023. No such write offs were recorded during the three months ended March 31, 2022.

During the three months ended March 31, 2023 and 2022, the Company recorded $377,265 and $56,281, respectively, in capitalized tenant improvements. Depreciation of capitalized tenant improvements incurred subsequent to acquisition was $32,265 and $21,648 for the three months ended March 31, 2023 and 2022, respectively.

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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 ~~and amortization as of March 31, 2019 and December 31, 2018, respectively,~~ are as follows:

	March 31, 2019 (unaudited)		December 31, 2018
Capitalized tenant improvements, net	$	197,370	$	175,580

					March 31, 2023		December 31,
					(unaudited)		2022
Capitalized leasing commissions, net		314,529		322,861	$	614,663	$	555,956

During the three months ended March 31, 2023 and 2022, the Company recorded $90,637 and $78,921, respectively, in capitalized leasing commissions. Depreciation on capitalized ~~tenant improvements~~leasing commissions was ~~$9,494~~$31,930 and ~~$3,851~~$19,791 for the three months ended March 31, ~~2019~~2023 and ~~2018, respectively. Amortization of capitalized leasing commissions was $9,678 and $1,711 for the three months ended March 31, 2019 and 2018,~~2022, respectively.

Sale of investment properties

~~In May 2018, the~~The Company ~~paid $125,000 to induce a tenant~~reports properties that have been either previously disposed or that are currently held for sale in continuing operations in the ~~Franklin Square~~Company's condensed consolidated statements of operations if the disposition, or anticipated disposition, of the assets does not represent a shift in the Company's investment strategy. The Company's sale of the Clemson Best Western Hotel Property does not constitute a change in the Company's investment strategy, which continues to ~~release a restriction in its lease that prohibited the Company from leasing space to a similar user. Capitalized tenant inducements are amortized~~include limited-service hotels as a ~~reduction of rental income over the term~~targeted asset class.

Operating results of the ~~respective lease. Details of these deferred costs, net of depreciation~~Clemson Best Western Hotel Property, which was sold on September 29, 2022 and ~~amortization as of March 31, 2019 and December 31, 2018, respectively,~~which are included in continuing operations, are as follows:


	For the three months ended
	March 31,
		2023		2022
	(unaudited)		(unaudited)
Hotel property room revenues	$	—	$	762,200
Hotel property other revenues		—		3,289
Total Revenue		—		765,489
Hotel property operating expenses		—		372,860
Impairment of assets held for sale		—		175,671
Total Operating Expenses		—		548,531
Operating Income		—		216,958
Interest expense		—		138,917
Net Income from Operations		—		78,041
Other income		—		263
Net Income		—		78,304
Net income attributable to Operating Partnership noncontrolling interests		—		1,002
Net Income Attributable to Medalist Common Shareholders	$	—	$	77,302

March 31, 2019
(unaudited) December 31, 2018
Capitalized tenant inducements, net $ 109,380 $ 113,640

~~Amortization of the tenant inducement was $4,260 and $0 for the three months ended March 31, 2019 and 2018, respectively.~~

A significant portion of the Company’s land, buildings and improvements serve as collateral for its mortgage loans payable portfolio. Accordingly, restrictions exist as to each property’s transferability, use and other common rights typically associated with property ownership.

2022 Property Acquisitions

~~2018 Acquisition~~

~~The Hanover Square Property~~

On ~~May 8, 2018,~~June 13, 2022, the Company completed its acquisition of ~~an 84 percent interest~~the Salisbury Marketplace Property, a 79,732 square foot retail property located in ~~the Hanover Square Property~~Salisbury, North Carolina, through a wholly owned subsidiary. The Salisbury Marketplace Property, built in 1986, was 91.2% leased as of March 31, 2023, and is anchored by Food Lion, Citi Trends and Family Dollar. The purchase price for the ~~Hanover Square~~Salisbury Marketplace Property was ~~$12,173,000~~$10,025,000 paid through a combination of cash provided by the Company ~~assumed secured debt which amount was increased by additional debt~~ and ~~cash provided by~~ the ~~16 percent noncontrolling investor.~~incurrence of

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new mortgage debt. The Company’s total investment ~~including~~was $10,279,714. The Company incurred $254,714 of acquisition and closing costs ~~escrows~~which were capitalized and lease reserves was $12,961,557, including $122,033 of loan issuance costs and $648,120 in cash provided by a non-controlling investor. The Hanover Square Property, built in 2007, was 97 percent leased as of March 31, 2019 and is anchored by Marshalls and an Old Navy store.added to the tangible assets acquired.

The following summarizes the consideration paid and the fair values of assets acquired and liabilities assumed in conjunction with the acquisition described above, along with a description of the methods used to determine fair value. Asset values presented include allocated acquisition and closing costs.

Hanover Square
Fair value of assets acquired
Investment property (a) $ 11,493,360
Lease intangibles and other assets (b) 1,093,057
Escrows and property reserves created or acquired (c) 300,000
Above market leases (b) 170,154
Below market leases (b) (217,047 )
Fair value of net assets acquired (d) $ 12,839,524

Purchase consideration
Consideration paid with cash (e) $ 3,291,404
Consideration paid with assumed mortgage debt (f) 8,527,315
Consideration paid with new mortgage debt (g) 372,685
Consideration paid by noncontrolling interest (h) 648,120
Total consideration (i) $ 12,839,524


		Salisbury
		Marketplace
		Property
Fair value of assets acquired:
Investment property (a)	$	9,963,258
Lease intangibles and other assets (b)		1,045,189
Above market leases (b)		40,392
Below market leases (b)		(769,125)
Fair value of net assets acquired (c)	$	10,279,714

Purchase consideration:
Consideration paid with cash (d)	$	3,746,561
Consideration paid with new mortgage debt, net (e)		6,533,153
Total consideration (f)	$	10,279,714

Represents the fair value of the investment property acquired which includes land, buildings, site improvements, tenant improvements and furniture, fixtures and ~~fixtures.~~equipment. The fair value was determined using the market approach, the cost approach, the income approach or a combination thereof. Closing and acquisition costs were allocated and added to the fair value of the tangible assets acquired.

Represents the fair value of lease intangibles and other assets. Lease intangibles include leasing commissions, leases in place, above market leases, below market leases and legal and marketing costs associated with replacing existing leases.

Escrow deposits are restricted cash balances held by lenders for real estate taxes, insurance and reserves for capital improvements. These are generally created at closing. For the Hanover Square Property, $200,000 in existing reserves were purchased at closing from the Seller as part of the loan assumption (see (f) below) and the Company funded $100,000 in additional escrows at closing.

Represents the total fair value of assets and liabilities acquired at closing.

e.d.

Represents cash paid at closing and cash paid for acquisition (including intangible assets), ~~escrows~~ and closing costs paid ~~outside of~~at closing or directly by the ~~Company.~~Company outside of closing.

f.e.

~~Assumption of mortgage debt related to the purchase~~Represents allocation of the ~~Hanover Square Property.~~

~~Issuance of new mortgage debt (an increase in the amount of the assumed mortgage)~~Wells Fargo Mortgage Facility proceeds used to fund the purchase of the ~~Hanover Square Property.~~Salisbury Marketplace Property, net of $18,847 in capitalized loan issuance costs. See ~~mortgages payable.~~Note 5, below.

h.f.

~~Represents investment of noncontrolling interest paid at closing for the Hanover Square Property.~~

Represents the consideration paid for the fair value of the assets and liabilities acquired.

~~2017 Acquisitions~~

~~The Franklin Square Property~~

4. Mandatorily Redeemable Preferred Stock

On ~~April 28, 2017,~~February 19, 2020, the Company ~~completed its acquisition~~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 ~~Franklin Square Property through~~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 ~~wholly owned subsidiary.~~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 ~~purchase price~~holders of the mandatorily redeemable preferred stock may also require the Company to redeem

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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 ~~Franklin Square Property was $20,500,000 paid through a combination~~election of ~~cash and assumed, secured debt.~~two additional directors to serve on the Company’s Board of Directors (the “Board”) until the Company pays all dividends owed on the mandatorily redeemable preferred stock. The ~~Company’s total investment, including acquisition and closing costs, escrows and lease reserves was $22,054,071. The Franklin Square Property, built in 2006 and 2007, was 68 percent leased as~~affirmative vote of the ~~acquisition date~~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 ~~anchored by Ashley Furniture.~~ 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.

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% per annum, paid quarterly, as follows:


		Amount
Payment Date	Record Date	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
July 21, 2022	July 18, 2022		0.50	April 21, 2022 - July 20, 2022
October 20, 2022	October 17, 2022		0.50	July 21, 2022 - October 19, 2022
January 27, 2023	January 24, 2023		0.50	October 20, 2022 - January 19, 2023
April 28, 2023	April 25, 2023		0.50	January 20, 2023 - April 20, 2023

As of March 31, ~~2019,~~2023 and December 31, 2022, the ~~Franklin Square Property was 92.4 percent occupied.~~

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 ~~Hampton Inn Property~~

~~On November 3, 2017~~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 ~~completed its acquisition~~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 ~~a 64 percent~~the mandatorily redeemable preferred stock liability and are being amortized using the effective interest method over the term of the agreement.

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Amortization of the discount and deferred financing costs related to the mandatorily redeemable preferred stock totaling $58,804 and $53,923 were included in interest expense for the three months ended March 31, 2023 and 2022, respectively, in the ~~Hampton Inn Property through a wholly owned subsidiary. The total purchase price for~~accompanying condensed consolidated statements of operations. Accumulated amortization of the ~~Hampton Inn Property~~discount and deferred financing costs was ~~$15.1 million paid through a combination~~$648,443 and $589,639 as of ~~cash provided by the Company, operating partnership units (“OP Units”), the incurrence of new mortgage debt~~March 31, 2023 and cash provided by the 36 percent non-controlling investor. The total investment, including acquisition, closing costs, escrow deposits and a reserve for property improvements required under the Hampton Inn Property’s franchise agreement, was $18,004,621. The hotel has 125 rooms and was built in 1996.December 31, 2022, respectively.

5. Loans Payable

~~Mortgages Payable~~

Mortgages Payable

The Company’s mortgages payables, ~~were $33,246,700 and $33,236,397 as~~net consists of ~~March 31, 2019 and December 31, 2018, respectively.~~the following:


							March 31,
	Monthly		Interest				2023		December 31,
Property	Payment		Rate		Maturity	(unaudited)		2022
Franklin Square (a)		Interest only	3.808	%	December 2031	$	13,250,000	$	13,250,000
Hanover Square (b)	$	78,098	6.94	%	December 2027		9,813,679		9,877,867
Ashley Plaza (c)	$	52,795	3.75	%	September 2029		10,856,618		10,930,370
Brookfield Center (d)	$	22,876	3.90	%	November 2029		4,639,969		4,663,206
Parkway Center (e)	$	28,161	Variable		October 2026		4,956,301		4,992,427
Wells Fargo Facility (f)	$	103,438	4.50	%	June 2027		18,247,707		18,351,981
Unamortized issuance costs, net							(698,602)		(725,592)
Total mortgages payable, net						$	61,065,672	$	61,340,259

Balance
December 31,
Property Monthly
Payment Interest
Rate Maturity March 31, 2019
(unaudited) December 31, 2018

Franklin Square Interest only 4.7 % October 2021 $ 14,275,000 $ 14,275,000
Hampton Inn (a) Interest only Variable (b) November 2020 10,600,000 10,600,000
Hanover Square (c) $ 51,993 4.9 % December 2027 8,740,154 8,772,562

Unamortized issuance costs, net (368,454 ) (411,165 )
Total mortgages payable, net $ 33,246,700 $ 33,236,397

(a)

~~Certain of the Company’s obligation under the~~The original mortgage loan for the ~~Hampton Inn~~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 ~~complete~~extend the maturity date for an additional thirty days. On November 8, 2021, the Company closed on a ~~property improvement plan (PIP) are guaranteed by individual members~~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 ~~Manager~~original mortgage loan. The Company has guaranteed the payment and ~~by an individual member~~performance of the ~~noncontrolling owner. This guarantee is irrevocable and unconditional and requires~~obligations of the ~~PIP work to be completed on schedule and free of all liens.~~

~~(b)~~

new mortgage loan. The new mortgage loan ~~for the Hampton Inn Property~~ bears interest at a ~~variable~~fixed rate of 3.808% 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 ~~LIBOR~~a thirty-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 ~~minimum rate~~net worth of ~~6.1 percent. The interest rate payable is~~$13,250,000, excluding the ~~USD LIBOR one-month rate plus 5 percent.~~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, ~~2019~~2023 and December 31, ~~2018,~~2022, respectively, the ~~rate in effect for the Hampton Inn Property mortgage was 7.50 percent.~~ Company believes that it is compliant with these covenants.

~~(c)~~(b)

The mortgage loan for the Hanover Square ~~property bears~~Property bore interest at a fixed rate of ~~4.9%~~4.25% until January 1, 2023, when the interest rate ~~adjusts~~adjusted to a ~~new~~ fixed rate of 6.94%, which ~~will be~~was determined by adding ~~3.10 percentage points~~3.00% 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 ~~4.9%~~4.25%. ~~The~~As a result of the interest rate change, as of February 1, 2023, the fixed monthly payment of $56,882 increased to $78,098 which includes interest at the fixed rate, and principal, ~~and interest.~~based on a twenty-five-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 ~~to 1.00~~ and (ii) maintain a loan-to-value of real estate ratio of 75%. As of March 31, ~~2019,~~2023 and December 31, 2022, respectively, the Company believes that it is ~~complaint~~compliant with these covenants.

(c)

The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75% 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% and was 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.

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(e)

The mortgage loan for the Parkway Property bears interest at a variable rate based on LIBOR with a minimum rate of 2.25%. The interest rate payable is the ICE LIBOR rate plus 225 basis points. Under the terms of the mortgage, the interest rate payable each month shall not change by greater than 1% during any six-month period and 2% during any 12-month period. As of March 31, 2023 and December 31, 2022 the rate in effect for the Parkway Property mortgage was 4.4806% and 4.3117%, 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 thirty-year amortization schedule. On October 28, 2021, the Company entered into an interest rate protection transaction to limit its exposure to increases in interest rates on the variable rate mortgage loan on the Parkway Property (the “Interest Rate Protection Transaction”). Under this agreement, the Company’s interest rate exposure is capped at 5.25% if USD 1-Month ICE LIBOR exceeds 3%. For the period from September 1, 2022 through March 31, 2023, LIBOR exceeded the 3% cap, and payments from the Interest Rate Protection Transaction reduced the Company’s net interest expense. Payments to the Company from the Interest Rate Protection Transaction are recorded as an offset to interest expense on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2023. No such payments were received during the three months ended March 31, 2022 because the LIBOR rate in effect did not exceed the LIBOR cap. The mortgage loan for the Parkway Property includes a covenant to maintain a debt service coverage ratio of not less than 1.60 to 1.00 on an annual basis. As of March 31, 2023 and December 31, 2022, respectively, the Company believes that it is compliant with this covenant.

(f)

On June 13, 2022, the Company entered into a mortgage loan facility with Wells Fargo Bank (the “Wells Fargo Mortgage Facility”) in the principal amount of $18,609,500. The proceeds of this mortgage were used to finance the acquisition of the Salisbury Marketplace Property and to refinance the mortgages payable on the Lancer Center Property and the Greenbrier Business Center Property. The Wells Fargo Mortgage Facility bears interest at a fixed rate of 4.50% for a five-year term. The monthly payment, which includes interest at the fixed rate, and principal, based on a twenty-five-year amortization schedule, is $103,438. The Company has provided an unconditional guaranty of the payment of and performance under the terms of the Wells Fargo Mortgage Facility. The Wells Fargo Mortgage Facility credit agreement includes covenants to maintain a debt service coverage ratio of not less than 1.50 to 1.00 on an annual basis, a minimum debt yield of 9.5% on the Salisbury Marketplace, Lancer Center and Greenbrier Business Center properties, and the maintenance of liquid assets of not less than $1,500,000. As of March 31, 2023 and December 31, 2022, respectively, the Company believes that it is compliant with these covenants.

The Company refinanced the ~~Franklin Square Property~~ mortgage ~~payable, interest expense was $167,731 and $167,731~~loan for the ~~three months ended March 31, 2019~~Lancer Center Property using proceeds from the Wells Fargo Facility. The Company accounted for this refinancing transaction under debt extinguishment accounting in accordance with ASC 470, and ~~2018, respectively. Amortization of capitalized issuance costs was $4,638 and $4,638~~ for the ~~three months~~year ended ~~March 31, 2019 and 2018, respectively. Interest accrued as of March 31, 2019 and~~ December 31, ~~2018~~2022, recorded a loss on extinguishment of debt of $113,282. The original mortgage loan for the Lancer Center Property bore interest at a fixed rate of 4.00%. The monthly payment was ~~$57,774~~$34,667 which included interest at the fixed rate and ~~$57,774, respectively. As of March 31, 2019~~principal, based on a twenty-five-year amortization schedule.

The Company refinanced the mortgage loan for the Greenbrier Business Center Property using proceeds from the Wells Fargo Facility. The Company accounted for this refinancing transaction under debt extinguishment accounting in accordance with ASC 470, and for the year ended December 31, ~~2018, accumulated amortization~~2022, recorded a loss on extinguishment of ~~capitalized issuance costs was $35,559 and $30,921, respectively.~~

~~For~~debt of $56,393. The Company assumed the ~~Hampton Inn Property~~original mortgage ~~payable, interest expense was $199,891 and $177,844~~loan for the ~~three months ended March 31, 2019 and 2018, respectively. Payments received~~Greenbrier Business Center Property from the seller. The original mortgage loan bore interest at a fixed rate ~~protection transaction (see note below) were recorded as~~of 4.00% and would have been interest only until August 1, 2022, at which time the monthly payment would have become $23,873, which would have included interest at the fixed rate, and principal, based on a reduction of interest expense and were $14,391 and $0 for the three months ended March 31, 2019 and 2018, respectively. Amortization of capitalized issuance costs was $34,890 and $34,890 for the three months ended March 31, 2019 and 2018, respectively. Interest accrued as of March 31, 2019 and December 31, 2018 was $0 and $0, respectively. As of March 31, 2019 and December 31, 2018 accumulatedtwenty-five-year amortization ~~of capitalized issuance costs was $197,711 and $162,821, respectively.~~schedule.

For the Hanover Square Property mortgage payable, interest expense was $107,265 and $0 for the three months ended March 31, 2019 and 2018, respectively. Amortization of capitalized issuance costs was $3,183 and $0 for the three months ended March 31, 2019 and 2018, respectively. Interest accrued as of March 31, 2019 and December 31, 2018 was $35,689 and $0, respectively. As of March 31, 2019 and December 31, 2018 accumulated amortization of capitalized issuance costs was $11,671 and $8,488, respectively.

~~For the three months ended March 31, 2019 and 2018, respectively, other interest expense was $2,867 and $2,493.~~

Interest rate protection transaction

On ~~November 3, 2017,~~October 28, 2021, the Company entered into anthe Interest Rate Protection ~~Transaction to limit the Company’s exposure to increases in interest rates on the variable rate mortgage loan on the Hampton Inn Property.~~Transaction. Under this agreement, the Company’s interest rate exposure is capped at ~~7 percent~~5.25% if USD 1-Month ICE LIBOR ~~BBA~~ exceeds ~~2 percent.~~3%. USD 1-Month ICE LIBOR was ~~2.4945 percent~~4.86% and ~~2.51988 percent~~4.39% as of March 31, ~~2019~~2023 and December 31, ~~2018,~~2022, respectively. In accordance with the guidance on derivatives and hedging, the Company records all derivatives on the condensed balance sheet at fair ~~value. As of March 31, 2019~~value under other assets. 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 ~~December 31, 2018, respectively,~~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 ~~interest~~assets or liabilities. The fair value of the Interest Rate Protection Transaction is valued by an independent, third-party consultant which uses observable inputs such as yield curves, volatilities and other current market data, all of which are considered Level 2 inputs. As of March 31, 2023 and December 31, 2022, the fair value of the

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Interest Rate Protection Transaction was ~~$76,394~~$218,411 and ~~$126,797.~~$258,279, respectively and is recorded under other assets on the Company’s condensed balance sheets. The Company reports changes in the fair value of the derivative ~~as a decrease (increase)~~ in ~~fair value-interest rate cap~~other (loss) income on its condensed consolidated statements of operations.

~~Beginning in July 2018, the USD 1-Month LIBOR BBA rate exceeded two percent and remained in excess~~Wells Fargo Line of ~~two percent on each subsequent monthly valuation date from July 2018 through March 31, 2019. For the three months ended March 31, 2019 and 2018,~~Credit

On June 13, 2022, the Company, ~~received $14,391 and $0 in payments under the Interest Rate Protection Transaction, all~~through its wholly owned subsidiaries, entered into a loan agreement with Wells Fargo Bank for a $1,500,000 line of ~~which were recorded as a reduction to interest expense.~~

~~Notes payable, short term and related party notes payable, short term~~

Ascredit (the “Wells Fargo Line of ~~March 31, 2019 and 2018, the Company had no notes payable, short term or related party notes payable, short term outstanding.~~Credit”). During the three months ended March 31, ~~2018,~~2023, the Company ~~repaid a short term note payable in~~did not make any draws or repayments on the ~~principal amount~~Wells Fargo Line of ~~$1,500,000. In addition, during the three months ended~~Credit. As of March 31, ~~2018,~~2023 and December 31, 2022, respectively, the Wells Fargo Line of Credit had an outstanding balance of $0. Outstanding balances on the Wells Fargo Line of Credit will bear interest at a floating rate of 2.25% above the daily secured overnight financing rate (“SOFR”). As of March 31, 2023 and December 31, 2022, SOFR was 4.87% and 4.30%, respectively. The Wells Fargo Line of Credit has a one-year, renewable term, is unconditionally guaranteed by the Company, ~~repaid related party notes payable, short term,~~and any outstanding balances are secured by the Lancer Center Property, the Greenbrier Business Center Property and the Salisbury Marketplace Property. On May 2, 2023, the Company and Wells Fargo Bank entered into the First Amendment to ~~five related parties totaling $677,538.~~Revolving Line of Credit Note which extended the maturity date of the Wells Fargo Line of Credit to June 9, 2024.

Interest expense

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

For the three months ended March 31, 2023 (unaudited)


Amortization

Interest rate




Mortgage

of discounts and

protection

Other

Interest

capitalized

transaction

interest

Expense

issuance costs

payments

expense

Total
Franklin Square mortgage

$
126,140

$
7,093

$
—

$
—

$
133,233
Hanover Square mortgage

170,640

3,223

—

—

173,863
Ashley Plaza mortgage

102,133

4,357

—

—

106,490
Brookfield Center mortgage

45,391

2,838

—

—

48,229
Parkway Center mortgage

47,257

2,757

(19,342)

—

30,672
Wells Fargo Mortgage Facility

206,039

6,722

—

—

212,761
Amortization and preferred stock dividends on mandatorily redeemable preferred stock

—

58,804

—

100,000

158,804
Total interest expense

$
697,600

$
85,794

$
(19,342)

$
100,000

$
864,052

For the three months ended March 31, 2022 (unaudited)


Amortization




Mortgage

of discounts and

Other

Interest

capitalized

interest

Expense

issuance costs

expense

Total
Franklin Square mortgage

$
126,140

$
7,093

$
—

$
133,233
Hanover Square mortgage

104,854

3,223

—

108,077
Ashley Plaza mortgage

104,147

4,358

—

108,505
Clemson Best Western mortgage

138,531

—

386

138,917
Brookfield Center mortgage

46,254

2,838

—

49,092
Lancer Center mortgage

63,746

7,156

��

70,902
Greenbrier Business Center mortgage

44,950

693

—

45,643
Parkway Center mortgage

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

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

As of March 31, 2023 (unaudited)

As of December 31, 2022




Accumulated



Accumulated

amortization of

amortization

Accrued

capitalized

Accrued

of capitalized

interest

issuance costs

interest

issuance costs
Franklin Square mortgage

$
43,448

$
37,829

$
43,448

$
30,736
Hanover Square mortgage

60,539

63,103

38,792

59,880
Ashley Plaza mortgage

—

62,466

35,296

58,109
Brookfield Center mortgage

—

39,731

—

36,893
Parkway Center mortgage

22,041

15,621

26,502

12,864
Wells Fargo Mortgage Facility

—

20,166

—

13,444
Amortization and accrued preferred stock dividends on mandatorily redeemable preferred stock (1)

70,004

648,443

70,004

589,639
Total

$
196,032

$
887,359

$
214,042

$
801,565
(1)
Recorded as accrued interest under accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of March 31, ~~2019~~2023 are as follows:

For the remaining nine months ending December 31, 2019 $ 153,937
2020 10,814,895
2021 14,501,658
2022 237,791
2023 249,471
Thereafter 7,657,402
Total Maturities $ 33,615,154
Less unamortized issuance costs (368,454 )
Mortgages payable, net $ 33,246,700


For the remaining nine months ending December 31, 2023	$	780,584
2024		1,092,879
2025		1,391,025
2026		1,460,923
2027		25,990,390
Thereafter		31,048,473
Total principal payments and debt maturities		61,764,274
Less unamortized issuance costs		(698,602)
Net principal payments and debt maturities	$	61,065,672

6. Rentals under Operating Leases

Future minimum ~~rentals~~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~~common area maintenance and other expense pass-throughs, as of March 31, ~~2019~~2023 are as follows:

For the remaining nine months ending December 31, 2019 $ 2,279,803
2020 2,736,315
2021 2,529,467
2022 1,566,444
2023 909,842
Thereafter 2,275,291
Total minimum rents $ 12,297,162


For the remaining nine months ending December 31, 2023	$	5,967,624
2024		6,702,872
2025		5,814,765
2026		4,048,868
2027		3,053,369
Thereafter		7,608,664
Total minimum rents	$	33,196,162

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 ~~94.89%~~98.81% interest in the Operating Partnership as of March 31, ~~2019~~2023 and December 31, ~~2018.~~2022. 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,

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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.

Shelf Registration

On June 21, 2021, the Company filed a shelf registration statement on Form S-3 with the 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 sheets as of March 31, 2023 and December 31, 2022, 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, 2023, the Company has generated net proceeds of $1,538,887 from the issuance of 1,445,400 shares at an average price of $1.065 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
April 1, 2022	325,732		1.075		350,313
Total	1,445,400	$	1.065	$	1,538,887

Common Stock Repurchase Plan

In December 2021, the Board 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, 2023, the Company had 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. 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.

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~~In January 2018, the Company issued~~Common shares and sold 775,460 Common Shares and in February, 2018 the Company issued and sold 63,620 Common Shares at an offering price of $10.00 per share. Net proceeds from the issuances totaled $7,684,167, which includes the impact of discounts and offering costs, including the underwriters' selling commissions and legal, accounting and other professional fees.

On June 6, 2018 the Company issued and sold 8,500 Common Shares at an offering price of $10.00 per share. Net proceeds from the issuance totaled $65,825, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and legal, accounting and other professional fees.

On November 30, 2018, the Company issued and sold 240,000 Common Shares at an offering price of $10.00 per share. Net proceeds from the issuance totaled $1,838,727, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and legal, accounting and other professional fees. The Company also incurred $299,624 in other issuance costs during the year ended December 31, 2018.

operating partnership units outstanding

As of March 31, ~~2019~~2023 and December 31, ~~2018~~2022, there were ~~2,446,582~~17,971,952 common units of the Operating Partnership outstanding with the REIT owning ~~2,321,582~~17,758,421 of these common units. The remaining 213,531 common units are held by noncontrolling, limited partners. As of March 31, ~~2019~~2023 and December 31, ~~2018,~~2022, there were ~~2,321,582~~17,758,421 Common Shares of the REIT outstanding. As of March 31, ~~2019~~2023 and December 31, ~~2018,~~2022, there were ~~125,000~~213,531 common units of the Operating Partnership held by noncontrolling, limited partners that were eligible for conversion to the Company’s Common Shares.

~~Warrants to purchase shares of common stock~~

On October 4, 2018, the Company issued a warrant to Moloney Securities Co. Inc. (the “Holder), the lead underwriter of the issuances of the Company’s Common Shares in 2017 and the first six months of 2018, which grants the Holder the right to purchase 49,890 shares of the Company’s Common Shares, in whole or in part, at an exercise price of $12.50 per share, subject to certain conditions. The warrant was valued at $49,890 in the consolidated financial statements, its fair value as of the date of issuance using the Black-Scholes Model.

2018 Equity Incentive Plan

The Company’s 2018 Equity Incentive Plan (the ~~“Plan”~~“Equity Incentive 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 Equity Incentive 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 Equity Incentive Plan) of the Company and for up to the greater of (i) 240,000 ~~shares of common stock~~Common Shares and (ii) eight percent ~~(8%)~~(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 ~~August 31, 2018,~~March 2, 2022, the ~~Company’s~~Compensation Committee of the Board ~~of Directors~~(the “Compensation Committee”) approved a grant of ~~80,000 shares of~~60,000 Common Shares to two employees of the Manager who also serve as directors of the Company, ~~and~~ a grant of ~~6,000~~90,000 Common Shares to the Company’s three independent ~~directors.~~directors, and a grant of 60,000 Common Shares to the chief financial officer of the Company, under the Equity Incentive Plan. The effective date of the grants was ~~December 4, 2018, the date on which the registration of the Plan shares was effective.~~March 2, 2022. The Common Shares granted ~~vest~~vested immediately ~~but will be restricted for six months by a lock-up agreement associated with~~and are unrestricted. However, the ~~Company’s sale of its Common Shares on November 27, 2018. In addition, the~~Equity Incentive Plan includes other restrictions on the sale of shares issued under the Equity Incentive Plan. Because the Common Shares ~~vest~~vested immediately, the fair value of the grants, or ~~$790,340,~~$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 November 22, 2022, the Compensation Committee approved a grant of 76,434 Common Shares to two employees of the Manager who also serve as directors of the Company, a grant of 114,651 Common Shares to the Company’s three independent directors, a grant of 76,433 Common Shares to the chief financial officer of the Company, and a grant of 50,956 Common Shares to two consultants of the Company, under the Equity Incentive Plan. The effective date of the grants was November 22, 2022. The Common Shares granted vested immediately and are unrestricted. However, the Equity Incentive Plan includes other restrictions on the sale of shares issued under the Equity Incentive Plan. Because the Common Shares vested immediately, the fair value of the grants, or $250,000, 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 Equity Incentive Plan, the maximum number of shares of common stock that may be issued under the Equity Incentive 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 ~~March 31, 2019, there are 154,000~~January 1, 2023, the shares available for issuance under the ~~Plan.~~Equity Incentive Plan was adjusted to 491,304 shares.

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 ~~loss~~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, ~~2019~~2023 and ~~December 31, 2018, all~~2022, 213,531 of the Operating Partnership’s ~~125,000~~213,531 common units ~~outstanding~~held by noncontrolling, limited partners 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.

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

	Three months ended March 31,
	2019			2018
	(unaudited)			(unaudited)

							Three months ended March 31,
							2023		2022
							(unaudited)		(unaudited)
Basic and diluted shares outstanding
Weighted average Common Shares – basic		2,321,582			1,687,516			17,758,421		16,037,073
Effect of conversion of operating partnership units		125,000			-			213,531		213,531
Weighted average common shares – diluted		2,446,582			1,687,516

Weighted average Common Shares – diluted								17,971,952		16,250,604

Calculation of earnings per share – basic and diluted
Net loss attributable to common shareholders	$	(686,639	)	$	(450,875	)	$	(1,221,295)	$	(989,284)
Weighted average Common Shares – basic and diluted		2,321,582			1,687,516			17,758,421		16,037,073
Earnings per share – basic and diluted	$	(0.30	)	$	(0.27	)
Loss per share – basic and diluted							$	(0.07)	$	(0.06)

Dividends and Distributions

During the three months ended March 31, ~~2019, no~~2023, dividends in the amount of $0.01 per share were ~~declared or paid. During the year ended December 31, 2018, dividends were declared~~paid on ~~March 28, 2018 payable~~January 27, 2023, to ~~common shareholders~~stockholders of record on ~~April 2, 2018, July 12, 2018 payable~~January 24, 2023. During the three months ended March 31, 2022, dividends in the amount of $0.02 per share were paid on January 20, 2022, to ~~common shareholders~~stockholders of record on ~~July 12, 2018, and November 30, 2018 payable to common shareholders of record on December 12, 2018. Dividends~~January 13, 2022. Total dividends and distributions to noncontrolling interests paid during the three months ended March 31, ~~2019~~2023 and ~~2018,~~2022, respectively, are as follows:

	Three months ended March 31,
	2019		2018
	(unaudited)		(unaudited)

					Three months ended March 31,
					2023		2022
					(unaudited)		(unaudited)
Common shareholders (dividends)	$	-	$	-	$	176,810	$	316,450
Hampton Inn Property noncontrolling interest (distribution)		-		-
Hanover Square Property noncontrolling interest (distribution)		16,000		-
Hanover Square Property noncontrolling interest (distributions)						—		10,000
Parkway Property noncontrolling interest (distributions)						—		10,800
Operating Partnership unit holders (distributions)		-		-		2,135		4,271
Total dividends and distributions	$	16,000	$	-	$	178,945	$	341,521

~~Commitments and Contingencies~~

~~Hampton Inn Property – Property Improvement Plan~~Nasdaq Compliance

~~The~~On July 11, 2022, the Company received a deficiency letter (the “Deficiency Letter”) from the Nasdaq Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market LLC notifying the Company that, for the last thirty (30) consecutive business days, the closing bid price for the Company’s common stock had been below the minimum $1.00 per share required for continued listing on the Nasdaq Capital Market (“Nasdaq”) pursuant to Nasdaq Listing Rule 5550 (a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was given one hundred and eighty (180) calendar days, or until January 9, 2023, to regain compliance with the Minimum Bid Price Requirement.

On January 10, 2023, the Company received a letter (the “Second Notification”) from the Nasdaq Stock Market LLC notifying the Company that, while the Company had not regained compliance with the Minimum Bid Price Requirement, the Staff determined that the Company is ~~obligated~~eligible for an additional 180 calendar day period, or until July 10, 2023 (the “Second Compliance Period”), to regain compliance. The Staff’s determination was based on (i) the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on Nasdaq, with the exception of the Minimum Bid Price Requirement, and (ii) the Company’s written notice to the Nasdaq Stock Market LLC of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

If at any time during the Second Compliance Period, the closing bid price of the Company’s common stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Staff will provide the Company with written confirmation of compliance. If compliance with the Minimum Bid Price Requirement cannot be demonstrated by July 10, 2023, the Staff will provide written notification that the Company’s common stock will be delisted. At that time, the Company may appeal the Staff’s determination to a Hearings Panel.

Neither the Deficiency Letter or the Second Notification had any effect on the listing of the Company’s common stock, and its common stock continues to trade on Nasdaq under the ~~mortgage loan~~symbol “MDRR”.

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Reverse Stock Split

See Note 11, Subsequent Events, for ~~the Hampton Inn Property to complete~~ a property improvement plan which includes exterior and interior renovations and replacement of furniture and fixtures. This obligation is irrevocably and unconditionally guaranteed by individual membersdiscussion of the ~~Manager~~reverse stock split that was completed on May 3, 2023.

8. Commitments and by an individual member of the noncontrolling owner. The Company has entered into a series of contracts for this work with a total estimated cost of $2,648,548 and work commenced in July, 2018. These costs will be partially funded by $2,206,099 of funds held in escrow by the mortgage holder (see “Cash and Cash Equivalents and Restricted Cash”, above), with the remainder being funded by the Company and the noncontrolling owner.Contingencies

During the three months ended March 31, 2019, the Company incurred and paid $735,350 in costs associated with the property improvement plan. Escrows held by the mortgage holder funded $567,183 of these costs and the remainder was funded by the Company. During the year ended December 31, 2018, the Company incurred and paid $1,009,452 in costs associated with the property improvement plan. Escrows held by the mortgage holder funded $604,290 of these costs and the remainder was funded by the Company. As of March 31, 2019, the Company estimates that the remaining costs to be incurred associated with this work is $903,746, all of which will be funded by the escrow balance of $1,034,626 as of March 31, 2019.

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.

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~~100% of the total annualized base revenues of the properties in its portfolio as of March 31, ~~2019.~~2023. 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 ~~property depends~~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.

Interest Rate Risk

The value of the Company’s real estate is subject to fluctuations based on changes in interest rates, which may affect the Company’s ability to refinance property-level mortgage debt when balloon payments are scheduled. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the value of the Company’s assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.

The Company is exposed to the impact of interest rate changes primarily through its borrowing activities. To limit this exposure, the Company attempts to obtain mortgage financing on a long-term, fixed-rate basis. However, from time to time, the Company may obtain variable-rate mortgage loans and, as a result, may enter into interest rate cap agreements that limit the effective borrowing rate of variable-rate debt obligations while allowing participants to share in downward shifts in interest rates. These interest rate caps are derivative instruments designated as cash flow hedges on the forecasted interest payments on the debt obligation. Our objective in using interest rate caps is to limit our exposure to interest rate movements.

As of March 31, 2023 and December 31, 2022, all of the Company’s long-term debt either bore interest at fixed rates or was capped to a fixed rate. The Company’s debt obligations are more fully described in Note 5, Loans Payable, above.

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

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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 could continue to be significant in future periods.

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. Occupancy rates and hotel revenues for the Company’s Hampton Inn Property are highest in October, due to a local event that generates significant demand, and generally greater in the second and third quarters than in the first quarter and in November and December. 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.

~~Related Party Transactions~~

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, ~~2019~~2023 and ~~2018, respectively,~~2022, the Company incurred ~~$93,925~~$224,380 and ~~$67,174~~$210,148, in asset management ~~fees.~~fees, respectively. Asset management fees are recorded on the Company’s condensed consolidated statements of operations as ~~either~~ (i) retail center property operating expenses ($84,282 and $70,257 for the three months ended March 31, 2023 and 2022, respectively), (ii) hotel property operating expenses or($0 and $6,825 for the three months ended March 31, 2023 and 2022, respectively), (iii) flex center property operating expenses ($27,675 and $26,075 for the three months ended March 31, 2023 and 2022, respectively) and (iv) legal, accounting and other professional fees ~~depending on~~($112,423 and $106,991 for the ~~basis on which the asset management fee is determined.~~

three months ended March 31, 2023 and 2022, 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. Repayment of funds advanced are~~acquired and recorded as part of investment properties, net, on the Company’s condensed consolidated balance sheets.

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On March 19, 2021, pursuant to a Letter Agreement, dated March 19, 2021, by and among the Company, the Operating Partnership and the Manager (the “2021 Manager Letter Agreement”), which amended that certain Management Agreement, dated as of March 15, 2016, among the Company, the Operating Partnership and the Manager (the “Management Agreement”), the Manager agreed to defer payment of one-half of any acquisition fee payable to the Manager from that date until the earlier of: (i) the date that the public trading price of our common stock, as reported on the Nasdaq Capital Market, reaches a ~~reduction~~closing trading price of at least $5.00 per share (as the same may be proportionately adjusted to reflect a stock split or reverse stock split); (ii) the effective date of the termination of the Management Agreement as the result of an election by the Company to terminate the Management Agreement (other than on account of any of the events specified in ~~outstanding~~clauses (i) through (vi) of Section 11(a) of the Management Agreement); and (iii) a Change in Control (the “Deferral Agreement”).

On March 10, 2023, the Company announced that the Board established a Special Committee of the Board (the “Special Committee”) to explore potential strategic alternatives focusing on maximizing stockholder value. In light of the exploration of potential strategic alternatives by the Special Committee, the Company entered into a Letter Agreement, dated as of March 10, 2023, by and among the Company, the Operating Partnership and the Manager (the “2023 Manager Letter Agreement”).

Pursuant to the terms of the 2023 Manager Letter Agreement, the Company further amended the Management Agreement, which provides for the deferral of the acquisition fee payable to the Manager in certain circumstances, to clarify that the Deferred Acquisition Fee Amount (as defined in the 2021 Manager Letter Agreement) will be deferred until the earlier of (i) the date that the public trading price of the Company’s common stock, as reported on the Nasdaq Capital Market, reaches a closing trading price of at least $5.00 per share (as the same may be proportionately adjusted to reflect a stock split or reverse stock split); (ii) the effective date of the termination of the Management Agreement as the result of an election by the Company to terminate the Management Agreement (other than on account of any of the events specified in clauses (i) through (vi) of Section 11(a) of the Management Agreement); and (iii) a Change in Control.

For the year ended December 31, 2022, the Company incurred $201,524 in acquisition fees associated with the Salisbury Marketplace Property acquisition, which were allocated and added to the fair value of the Salisbury Marketplace Property tangible assets. One half of the acquisition fee, or $100,762 was paid in cash and one half of the acquisition fee was accrued in connection with the Deferral Agreement. For the year ended December 31, 2021, the Company incurred $503,910 in acquisition fees associated with the Lancer Center Property, Greenbrier Business Center Property and Parkway Property, which were allocated and added to the fair value of the Lancer Center Property, Greenbrier Business Center Property and Parkway Property tangible assets. One half of the acquisition fees, or $251,955 was paid in cash and one half of the acquisition fees was accrued in connection with the Deferral Agreement. The accrued portion of the acquisition fee is recorded under accounts payable and accrued ~~liabilities. No~~liabilities on the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022. As of March 31, 2023 and December 31, 2022, the Company had accrued a total of $352,717 in acquisition fees ~~were earned or paid during~~in connection with the ~~three months ended March 31, 2019 or 2018.~~Deferral Agreement.

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, ~~2019~~2023 or ~~2018.~~2022.

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Colin Elliott

Effective as of March 1, 2020, the Company entered into a consulting agreement (the “Consulting Agreement”), with Gunston Consulting, LLC (the “Consultant”), pursuant to which the Consultant agreed to provide certain financial and accounting consulting services to the Company, and the Company agreed to pay the Consultant an annual fee and annual stock grants awarded by the Compensation Committee and agreed to reimburse the Consultant for certain expenses to be authorized by the Company. Pursuant to the terms of the Consulting Agreement, the Company authorized the Consultant to retain the services of Mr. C. Elliott as vice president of the Company and authorized the Consultant to incur certain costs related to Mr. C. Elliott’s employment as vice president and agreed to reimburse the Consultant for such costs, including Mr. C. Elliott’s $150,000 annual salary, payroll taxes and certain benefits, and an annual bonus to be determined in consultation with the Company.

In addition, on March 10, 2023, the Company entered into a change in control agreement with the Consultant and Mr. C. Elliott (the “Change in Control Agreement”), in order to authorize the Consultant to pay Mr. C. Elliott, our Vice President, and to reimburse the Consultant for, the payment of the Elliott Retention Amount (as defined below), in the event that (i) a Change in Control (as defined therein) occurs at a time when Mr. C. Elliott remains employed by the Consultant and no Cause Event (as defined therein) has then occurred and the Consultant thereafter terminates, at the request of the Company (or any successor), the employment of Mr. C. Elliott (other than on account of a Cause Event) within twelve (12) months after the date of the Change in Control; (ii) a Change in Control occurs at a time when Mr. C. Elliott remains employed by the Consultant and no Cause Event has then occurred and within twelve (12) months after the date of the Change in Control Mr. C. Elliott elects to terminate his engagement with the Consultant to provide services to the ~~asset management fees paid~~Company (or any successor) because either (a) the Company (or any successor) requires Mr. C. Elliott to relocate his primary work location by more than fifty (50) miles from the location as of the effective date of the Change in Control Agreement; (b) the Company (or any successor) directs the Consultant to reduce the annual compensation ($150,000) of Mr. C. Elliott; (c) the Company (or any successor) directs the Consultant to materially diminish Mr. C. Elliott’s position, authority, duties or responsibilities with respect to services to the ~~Manager, during~~Company (or any successor); or (d) the Company (or any successor) commits a material breach of the Consulting Agreement and fails to cure such material breach within thirty (30) days after receiving written notice of such material breach; or (iii) the Consultant terminates, at the Company’s (or any successor’s) request, Mr. C. Elliott’s employment (other than on account of a Cause Event) ninety (90) or fewer days prior to the Change in Control. In each such case, a “Triggering Event” shall be deemed to have occurred, and pursuant to the Change in Control Agreement, the Company authorizes the Consultant to pay, and agrees to reimburse the Consultant for, and the Consultant agrees to pay to Mr. C. Elliott, within thirty-seven (37) days after such Triggering Event, an amount equal to the sum of (i) Mr. C. Elliott’s current annual compensation (i.e., $150,000) payable by the Consultant to Mr. C. Elliott and reimbursable by the Company, plus (ii) the amount of Mr. C. Elliott’s last annual bonus (i.e., $50,000) payable by the Consultant to Mr. C. Elliott and reimbursable by the Company, plus (iii) a cash payment equivalent to the value of the last stock grant from the Company to Mr. C. Elliott (i.e., $30,000) (collectively, the “Elliott Retention Amount”).

Mr. C. Elliott is the son of Mr. William R. Elliott, Vice Chairman of the Board and President and Chief Operating Officer of the Company. During the three months ended March 31, ~~2019~~2023 and ~~2018, respectively,~~2022, the Company ~~repaid~~paid the ~~Manager~~Consultant $44,872 and $0, ~~and $196,483~~respectively, for ~~funds advanced~~services provided by ~~the Manager on behalf of the Company.~~

~~Hampton Inn Property~~

The tenants in common owners of the Hampton Inn Property have entered into lease with the Hampton Inn TRS for the Hampton Inn Property. Under the lease, the TRS, under a hotel management agreement with Marshall Properties, operates the property and pays rent to the tenants in common owners. Base rent and percentage rent are payableMr. C. Elliott under the ~~lease, as follows:~~Consulting Agreement.

Period Annual Rent Percentage Rent
Years 1 – 3 November, 2017 – October, 2020 $ 866,834 6% of Gross Revenue
Years 4 – 5 November, 2020 – October, 2022 $ 946,834 10% of Gross Revenue

During the three months ending March 31, 2019 and the TRS incurred $281,157 and $261,467 in rent to the tenants in common owners. As of March 31, 2019 and March 31, 2018, accrued but unpaid rent was $120,289 and $33,257, respectively. All material balances and transactions between the two entities have been eliminated in the consolidated financial statements.

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~~6.32% interest, an annual property management fee of up to ~~3 percent~~3% of the monthly gross revenues of the Franklin Square, ~~Property and the~~ Hanover Square, ~~Properties.~~Ashley Plaza, Brookfield, Lancer Center, Greenbrier Business Center, Parkway and Salisbury properties. These fees are paid in arrears on a monthly basis. During the three months ended March 31, ~~2019~~2023 and ~~2018,~~2022, the ~~company~~Company paid Shockoe Properties, LLC property management fees of ~~$27,134~~$70,519 and ~~$13,459,~~$62,072, respectively.

~~Segment Information~~

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~~For the three months ended March 31, ~~2019, The~~2023, the Company had the following reportable segments: retail center properties and flex center properties. For the three months ended 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.

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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"~~(“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:

	Hotel property (unaudited)				Retail center properties (unaudited)				Total (unaudited)
	Three months ending,				Three months ending,				Three months ending,
	March 31, 2019		March 31, 2018		March 31, 2019		March 31, 2018		March 31, 2019		March 31, 2018

													For the three months ended March 31,
													Hotel properties				Retail center properties					Flex center property			Total
													2023		2022		2023		2022		2023		2022		2023		2022
													(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues	$	644,488	$	745,979	$	893,994	$	456,871	$	1,538,482	$	1,202,850	$	—	$	765,489	$	1,891,679	$	1,525,085	$	569,297	$	613,390	$	2,460,976	$	2,903,964
Operating expenses		581,975		563,054		269,275		192,681		851,250		755,735		—		372,860		520,615		450,125		176,737		161,381		697,352		984,366
Bad debt expense														—		—		125		7,791		26,997		4,992		27,122		12,783
Net operating income	$	62,513	$	182,295	$	624,719	$	264,190	$	687,232	$	447,115	$	—	$	392,629	$	1,370,939	$	1,067,169	$	365,563	$	447,017	$	1,736,502	$	1,906,815

~~10.~~

11. Subsequent Events

As of May ~~15, 2019,~~11, 2023, the following events have occurred subsequent to the March 31, ~~2019~~2023 effective date of the condensed consolidated financial statements:

Common Stock Dividend

On April 28, 2023, a dividend in the amount of $0.01 per share was paid to common stockholders and operating partnership unit holders of record on April 25, 2023.

Mandatorily Redeemable Preferred Stock Dividend

On April 28, 2023, a dividend in the amount of $0.50 per share was paid to mandatorily redeemable preferred stockholders of record on April 25, 2023 for the period from January 20, 2023 through April 20, 2023.

Completion of 1-for-8 Reverse Stock Split

On May ~~13, 2019,~~3, 2023, the Company ~~issued and sold 1,666,667~~completed the previously announced reverse stock split of its Common Shares, and a corresponding adjustment to the outstanding common units of the Operating Partnership, at a ratio of 1-for-8 (the “Reverse Stock Split”). The Reverse Stock Split took effect at 5:00 p.m. Eastern Time on May 3, 2023 (the “Effective Time”) and automatically converted every eight Common Shares outstanding at that time into one Common Share.

The Reverse Stock Split affected all common stockholders uniformly and did not affect any common stockholder’s percentage ownership interest in the Company, except for de minimis changes as a result of the elimination of fractional shares, as described below. As a result of the Reverse Stock Split, the number of Common Shares outstanding was reduced from 17,758,421 to 2,219,779 shares as of the Effective Time.

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No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that otherwise would have received fractional shares received, in lieu of such fractional shares, cash in an ~~offering~~amount equal to the applicable fraction multiplied by the closing price of ~~$4.80~~the Common Shares on Nasdaq on May 3, 2023 (as adjusted for the Reverse Stock Split).

At the Effective Time, the aggregate number of shares of Common Stock available for awards under the Company’s 2018 Equity Incentive Plan and the terms of outstanding awards were ratably adjusted to reflect the Reverse Stock Split.

Trading of the Common Shares on Nasdaq commenced on a split-adjusted basis on May 4, 2023 under the existing trading symbol “MDRR.” The new CUSIP number for the Common Shares following the Reverse Stock Split is 58403P303.

The Reverse Stock Split is intended to help the Company regain compliance with the Minimum Bid Price Requirement. If at any time before July 10, 2023, the closing bid price of the Common Stock is at least $1.00 per ~~share. Net proceeds from~~share for a minimum of 10 consecutive business days, the ~~issuance are estimated~~Staff will provide the Company with written confirmation of compliance. If compliance with the Minimum Bid Price Requirement cannot be demonstrated by July 10, 2023, the Staff will provide written notification that the Common Stock will be delisted. At that time, the Company may appeal the Staff’s determination to a Hearings Panel. Accordingly, there can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement or maintain its listing on Nasdaq.

Charter Amendments

In connection with the Reverse Stock Split, on April 19, 2023, the Company filed two Articles of Amendment to its charter with the State Department of Assessments and Taxation of Maryland that provided for:

(i)a 1-for-8 Reverse Stock Split of the Common Stock, effective at 5:00 p.m. Eastern Time on May 3, 2023 (the “First Amendment”); and

(ii)the par value of the Common Stock to be ~~$6,755,000,~~decreased from $0.08 per share (as a result of the 1-for-8 Reverse Stock Split) back to $0.01 per share, effective at 5:01 p.m. Eastern Time on May 3, 2023 (the “Second Amendment”).

The foregoing descriptions of the First Amendment and the Second Amendment do not purport to be complete and are qualified in their entirety by reference to each amendment, copies of which ~~includes~~are filed as Exhibit 3.3 and Exhibit 3.4, respectively, to this Quarterly Report on Form 10-Q (this “Quarterly Report”) and are incorporated herein by reference.

Wells Fargo Line of Credit

On May 2, 2023, the ~~impact~~Company and Wells Fargo Bank entered into the First Amendment to Revolving Line of ~~discounts~~Credit Note which extended the maturity date of the Wells Fargo Line of Credit to June 9, 2024 (see Note 5, above).

Update on Special Committee and ~~offering costs,~~Exploration of Strategic Alternatives

On March 10, 2023, the Board announced that it established a Special Committee (the “Special Committee”) to explore potential strategic alternatives focusing on maximizing stockholder value. The Special Committee is comprised solely of independent directors and is charged with exploring potential strategic alternatives including, ~~the underwriter’s selling commissions and legal, accounting and other professional fees. As~~without limitation, a business combination involving our company, a sale of all or part of ~~this offering,~~our company’s assets, joint venture arrangements and/or restructurings, and determining whether a strategic transaction is in the best interest of our company.

On April 18, 2023, the Company ~~granted~~provided an update on the ~~underwriters a 45-day option to purchase up to 250,000 additional Common Shares at the public offering price, less the underwriting discount and commissions, to cover over-allotments, if any.~~

~~On May 14, 2019,~~Special Committee’s efforts. Specifically, the Company ~~declared~~announced that the Special Committee is in active discussions with potential parties in pursuit of those alternatives and the Company will provide further disclosures as appropriate or required by law or regulation. While the review is underway, the Company remains fully focused on its ~~first quarter dividend~~operations and on the continued execution of ~~$0.175 per share of common stock payable on or about May 28, 2019~~its strategies to ~~holders~~create stockholder value. There is no assurance that the review will result in any transaction, including a sale of the ~~Company’s common stock on May 24, 2019.~~Company, its assets, or entry into a business combination, among other alternatives being reviewed.

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~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

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.~~Report.

~~As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,”~~This following discussion 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 partnershipanalysis of ~~which we are the sole general partner, except where it is clear from the context~~financial condition and results of operations contains forward-looking statements that ~~the term only means Medalist Diversified REIT, Inc..~~

~~Cautionary~~involve risks, uncertainties and assumptions. See “Cautionary Statement Regarding Forward-Looking ~~Statements~~Statements” for a discussion of the risks, uncertainties and assumptions associated with those statements. Our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report ~~on Form 10-Q~~ contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other 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.~~Report.

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;

·●

failure of our recently announced exploration of strategic alternatives to maximize stockholder value or to result in a transaction that yields value to our stockholders, and the potential that our exploration of strategic alternatives could adversely impact us;

●

local, regional, national ~~international, regional~~ and ~~local~~international economic conditions;

·●

capital expenditures;

·●

the availability, terms and deployment of capital;

·●

financing risks;

·●

inflation;

●

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;

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·●

decreased rental rates or increased vacancy rates;

·●

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

·●

difficulties in identifying properties to acquire and completing acquisitions;

·●

our ability to operate as a public company;

·●

potential natural disasters such as hurricanes;

·●

the impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as COVID-19 and its variants);

●

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

·●

our ability to maintain an active trading market for our common stock on The Nasdaq Capital Market (“Nasdaq”) and maintain continued listing on Nasdaq and the likelihood that a delisting of our common stock from Nasdaq could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common stock;

●

the reverse stock split may decrease the liquidity of the shares of our common stock and could lead to a decrease in our overall market capitalization;

●

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.~~Report. 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 ~~REIT,~~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 ~~limited service hotels,~~ and retail properties, ~~and~~ (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.

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Our company is externally managed by ~~Medalist Fund Manager, Inc. (the “Manager”).~~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.

As of March 31, ~~2019,~~2023, our company owned and operated ~~three~~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 ~~Greensboro Hampton Inn (the “Hampton Inn Property”) a hotel with 125 rooms on 2.162 acres in Greensboro, North Carolina and the~~ Hanover North Shopping Center (the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville, ~~Virginia.~~Virginia, the Ashley Plaza Shopping Center (the “Ashley Plaza Property”), a 164,012 square foot retail property located in Goldsboro, North 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 181,590 square foot retail property located in Lancaster, South Carolina (the “Lancer Center Property”), the Greenbrier Business Center (the “Greenbrier Business Center Property”), an 89,280 square foot mixed-use industrial/office property located in Chesapeake, Virginia, Parkway 3 & 4 (the “Parkway Property”), a 64,109 square foot mixed-use industrial office property located in Virginia Beach, Virginia, and the Salisbury Marketplace Shopping Center, a 79,732 square foot retail property located in Salisbury, North Carolina (the “Salisbury Marketplace Property”). As of March 31, 2019, we owned 64% of the Hampton Inn Property as a tenant in common with a noncontrolling owner which owned the remaining 36% interest. The tenants in common lease the Hampton Inn Property to a taxable REIT subsidiary that is also owned 64% by us and 36% by the noncontrolling owner. As of March 31, 2019,2023, we owned 84% of the Hanover Square Property as a tenant in common with a noncontrolling owner which owned the remaining 16% interest and 82% of the Parkway Property as a tenant in common with a noncontrolling owner which owns the remaining 18% 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. For the three months ended March 31, 2023, our reportable segments were retail center properties and flex center properties. Although we sold our interest in the Clemson Best Western Hotel Property on September 29, 2022, we include hotel properties as a third reportable segment for the three months ended March 31, 2022.

Recent Trends and Activities

1:8 Reverse Stock Split

~~There have been several significant events during 2018~~

On May 3, 2023, our company completed a reverse stock split of its Common Shares, and a corresponding adjustment to the outstanding common units of the Operating Partnership, at a ratio of 1-for-8 (the “Reverse Stock Split”). The Reverse Stock Split took effect at 5:00 p.m. Eastern Time on May 3, 2023 (the “Effective Time”) and automatically converted every eight Common Shares outstanding at that time into one Common Share. The Reverse Stock Split is intended to help our company regain compliance with Nasdaq’s Minimum Bid Price Requirement. If at any time before July 10, 2023, the closing bid price of the Common Stock is at least $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide our company with written confirmation of compliance. If compliance with the Minimum Bid Price Requirement cannot be demonstrated by July 10, 2023, the Staff will provide written notification that the Common Stock will be delisted. At that time, our company may appeal the Staff’s determination to a Hearings Panel. Accordingly, there can be no assurance that our company will be able to regain compliance with the Minimum Bid Price Requirement or maintain its listing on Nasdaq.

Establishment of a Special Committee of the Board and Exploration of Strategic Alternatives

On March 10, 2023, the Board announced that it established a Special Committee (the “Special Committee”) to explore potential strategic alternatives focusing on maximizing stockholder value. The Special Committee is comprised solely of independent directors and is charged with exploring potential strategic alternatives including, without limitation, a business combination involving our company, a sale of all or part of our company’s assets, joint venture arrangements and/or restructurings, and determining whether a strategic transaction is in the best interest of our company.

On April 18, 2023, the Company provided an update on the Special Committee’s efforts. Specifically, the Company announced that the Special Committee is in active discussions with potential parties in pursuit of those alternatives and the ~~first quarter~~Company will provide further disclosures as appropriate or required by law or regulation. While the review is underway, the Company remains fully focused on its operations and on the continued execution of ~~2019~~its strategies to create stockholder value. There is no assurance that ~~have impacted our company. These events are summarized below.~~the review will result in any transaction, including a sale of the Company, its assets, or entry into a business combination, among other alternatives being reviewed.

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Sale of the Clemson Best Western Property

~~Equity Issuances~~

~~Between January and June 2018,~~On September 29, 2022, our company ~~issued~~sold its interest in the Clemson Best Western Property, a 148 room hotel on 5.92 acres in Clemson, South Carolina, to an unrelated purchaser for $10,015,000. During the three months ended March 31, 2021, our company reclassified the Clemson Best Western Property as assets held for sale. As part of our continuing evaluation of the amounts previously used for the estimated fair value of the Clemson Best Western asset group that had been reclassified as assets held for sale, during the three months ended March 31, 2022, our company recorded an impairment charge of $175,671 associated with this reclassification. As a result of the closing of the sale of the Clemson Best Western Property on September 29, 2022, our company recognized a loss on sale of investment properties of $421,096 for the year ended December 31, 2022.

Salisbury Marketplace Property Acquisition

On June 13, 2022, we completed our acquisition of the Salisbury Marketplace Property, a 79,732 square foot retail property located in Salisbury, North Carolina, through a wholly owned subsidiary. The Salisbury Marketplace Property, built in 1986, was 91.2% leased as of March 31, 2023, and ~~sold 847,580~~is anchored by Food Lion, Citi Trends and Family Dollar. The purchase price for the Salisbury Marketplace Property was $10,025,000 paid through a combination of cash provided by our company and the incurrence of new mortgage debt. Our company’s total investment was $10,279,714 and we incurred $254,714 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.

Wells Fargo Mortgage Facility

On June 13, 2022, our company, through its wholly owned subsidiaries, entered into a mortgage loan facility with Wells Fargo Bank (the “Wells Fargo Mortgage Facility”) in the principal amount of $18,609,500. The proceeds of the Wells Fargo Mortgage Facility were used to finance the acquisition of the Salisbury Marketplace Property and to refinance the mortgages payable on the Lancer Center Property and the Greenbrier Business Center Property. The Wells Fargo Mortgage Facility bears interest at a fixed rate of 4.50% for a five-year term. The monthly payment, which includes interest at the fixed rate, and principal, based on a 25-year amortization schedule, is $103,438. Our company has provided an unconditional guaranty of the payment of and performance under the terms of the Wells Fargo Mortgage Facility. The Wells Fargo Mortgage Facility credit agreement includes covenants to maintain a debt service coverage ratio of not less than 1.50 to 1.00 on an annual basis and a minimum debt yield of 9.5% on the Salisbury Marketplace, Lancer Center and Greenbrier Business Center properties, and to maintain liquid assets of not less than $1,500,000 on deposit with Wells Fargo Bank. As of March 31, 2023, our company believes that it is compliant with these covenants.

Wells Fargo Line of Credit

On June 13, 2022, our company, through its wholly owned subsidiaries, entered into a loan agreement with Wells Fargo Bank for a $1,500,000 line of credit (the “Wells Fargo Line of Credit”). As of March 31, 2023, the Wells Fargo Line of Credit had an outstanding balance of $0. Outstanding balances on the Wells Fargo Line of Credit will bear interest at a floating rate of 2.25% above the daily secured overnight financing rate (“SOFR”). The Wells Fargo Line of Credit has a one-year, renewable term, is unconditionally guaranteed by our company, and any outstanding balances are secured by the Lancer Center Property, the Greenbrier Business Center Property and the Salisbury Marketplace Property. On May 2, 2023, our company and Wells Fargo Bank entered into the First Amendment to Revolving Line of Credit Note which extended the maturity date of the Wells Fargo Line of Credit to June 9, 2024. We plan to use the Wells Fargo Line of Credit to help fund future acquisitions.

Shelf Registration

On June 21, 2021, our company filed a shelf registration statement on Form S-3 with the SEC. The shelf 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 the SEPA, our company may sell up to $6,665,299 of our shares of common stock at ~~an offering~~our request any time during the 36 months

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following the execution of the SEPA. Any shares purchased pursuant to the SEPA would be purchased at 96.5% of the market price (as defined in the SEPA), 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 ~~$10.00 per share. Net~~our company’s outstanding common stock. As of March 31, 2023, our company has generated net proceeds of $1,538,887 from the ~~issuances totaled $7,749,992, which includes the impact~~issuance of discounts and offering costs, including the underwriters' selling commissions and legal, accounting and other professional fees. The net funds after issuance costs were used to (i) retire the short-term notes payable used to finance the purchase of the Hampton Inn Property and (ii) fund our company’s acquisition of the Hanover Square Property, which closed on May 8, 2018.

~~On November 30, 2018, we completed our initial registered public offering, or our IPO, pursuant to which we issued an aggregate of 240,000~~1,445,400 shares of our common stock at an ~~offering~~average price of ~~$10.00~~$1.065 per 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
April 1, 2022	325,732		1.075		350,313
Total	1,445,400	$	1.065	$	1,538,887

Common Stock Repurchase Plan

In December 2021, the Board approved a program to purchase up to 500,000 shares of our common stock in the open market, up to a maximum price of $4.80 per share (the “Common Stock Repurchase Plan”). The Common Stock Repurchase Plan does not obligate our company to acquire any particular amount of shares, and ~~received approximately $1,838,727 in net proceeds.~~the Common Stock Repurchase Plan may be suspended or discontinued at any time at our discretion. As of March 31, 2023, we have repurchased a total of 268,070 shares of our 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 ~~August 31, 2018, our company’s Board of Directors~~March 2, 2022, the Compensation Committee approved a grant of ~~80,000 shares of~~60,000 Common Shares to two employees of ~~the~~our Manager who also serve as directors of our company, ~~and~~ a grant of ~~6,000~~90,000 Common Shares to our company’s three independent ~~directors.~~directors, and a grant of 60,000 Common Shares to the chief financial officer of our company under the Equity Incentive Plan. The effective date of the grants was ~~December 4, 2018, the date on which the registration of the Plan shares was effective.~~March 2, 2022. The Common Shares granted ~~vest~~vested immediately ~~but will be restricted for six months by a lock-up agreement associated with our company’s sale of its Common Shares on November 27, 2018. In addition,~~and are unrestricted. However, the Equity Incentive Plan includes other restrictions on the sale of shares issued under the Equity Incentive Plan. Because the Common Shares ~~vest~~vested immediately, the fair value of the grants, or ~~$790,340,~~$233,100, was recorded to share based compensation expense on our 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.

~~2017 Acquisitions~~

~~The Shops at Franklin Square~~

On April 28, 2017, we completed our acquisition of the Franklin Square Property through a wholly owned subsidiary. The purchase price for the Franklin Square Property was $20,500,000 paid through a combination of cash and assumed, secured debt. Our total investment, including acquisition and closing costs, escrows and lease reserves was approximately $22,054,071. The Franklin Square Property, built in 2006 and 2007, was 68 percent leased as of the acquisition date, was anchored by Ashley Furniture and Monkey Joe’s as of the acquisition date, and is located in Gastonia, North Carolina.

On May 10, 2018, we entered into a lease with Altitude Trampoline Park, or Altitude, a national tenant, for 30,000 square feet of rentable space. Altitude’s occupancy commenced in November 2018 and rent will commence on August 1, 2019. On October 18, 2018, we entered into a lease with Allen Tate, Inc. for 4,156 square feet. Allen Tate’s occupancy commenced on December 1, 2018, and rent commenced on March 1, 2019. Allen Tate’s and Altitude’s occupancy brought the Franklin Square Property’s occupancy rate to 92.4 percent as of March 31, 2019.

~~Greensboro Airport Hampton Inn~~

On November ~~3, 2017 we completed~~22, 2022, the Compensation Committee approved a grant of 76,434 Common Shares to two employees of our ~~acquisition~~Manager who also serve as directors of an undivided 64 percent tenant-in-common interest in the Hampton Inn Property through a wholly owned subsidiary. The total purchase price for the Hampton Inn Property was $15,100,000, paid through a combination of cash provided by our company, a grant of 114,651 Common Shares to our company’s three independent directors, a grant of 76,433 Common Shares to the ~~issuance~~chief financial officer of 125,000 OP Units, the incurrence of new mortgage debt in the original principal amount of $10,600,000 and approximately $2,300,000 in cash provided by the unaffiliated, tenant-in-common noncontrolling owner. The total investment, including acquisition, closing costs, escrow deposits and an escrow for property improvements required under the Hampton Inn Property’s franchise agreement, was $18,004,621. The hotel has 125 rooms and was built in 1996.

Our company is obligated under the mortgage loan for the Hampton Inn Property to complete a property improvement plan (the “Property Improvement Plan”) which includes exterior and interior renovations and replacement of furniture and fixtures. Our company has entered into a series of contracts for this work with a total estimated cost of $2,648,548 and work commenced in July, 2018. These costs have been and will be partially funded by $2,206,099 of funds held in escrow by the mortgage holder, with the remainder being funded by our company, and a grant of 50,956 Common Shares to the ~~noncontrolling owner.~~

~~2018 Acquisition~~

~~Hanover North Shopping Center~~

~~On May 8, 2018 we completed~~vice president and senior accountant of our ~~acquisition~~company under the Equity Incentive Plan. The effective date of ~~an undivided 84 percent tenant-in-common interest in~~ the ~~Hanover Square Property through a wholly owned subsidiary.~~grants was November 22, 2022. The ~~contract purchase~~Common Shares granted vested immediately and are unrestricted. However, the Equity Incentive Plan includes other restrictions on the sale of shares issued under the Equity Incentive Plan. Because the Common Shares vested immediately, the fair value of the grants, or $250,000, was recorded to share based compensation expense on our condensed consolidated statements of operations on the effective date of the grant. The fair value of the grants was determined by the market price ~~for~~of our Common Shares on the ~~Hanover Square Property was $12,173,000. We acquired~~effective date of the ~~Hanover Square Property with $3,291,404 in cash, $648,120 in cash from an unaffiliated tenant-in-common noncontrolling owner, and the assumption~~grant.

Table of a secured loan of approximately $8,527,315 from Langley Federal Credit Union, which amount was increased by an additional $372,685 (the “Hanover Square Property Loan”). The Hanover Square Property is located in Mechanicsville, Virginia and consists of approximately 73,440 square feet of improvements located on an 8.766 acre parcel of land (the “Developed Parcel”) and a contiguous, undeveloped parcel of land totaling 0.864 acres. As of March 31, 2019, the Hanover Square Property was approximately 96.7% occupied.Contents

Financing Activities

Mortgages payable

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


							Balance
							March 31,
	Monthly		Interest				2023			December 31,
Property	Payment		Rate			Maturity	(unaudited)		2022
Franklin Square (a)		Interest only		3.808	%	December 2031	$	13,250,000	$	13,250,000
Hanover Square (b)	$	78,098		6.94	%	December 2027		9,813,679		9,877,867
Ashley Plaza (c)	$	52,795		3.75	%	September 2029		10,856,618		10,930,370
Brookfield Center (d)	$	22,876		3.90	%	November 2029		4,639,969		4,663,206
Parkway Center (e)	$	28,161		Variable		October 2026		4,956,301		4,992,427
Wells Fargo Facility (f)	$	103,438		4.50	%	June 2027		18,247,707		18,351,981
Total mortgages payable							$	61,764,274	$	62,065,851

Balance
Monthly Interest Balance - March 31,
Property Payment Rate Maturity 2019 2018
Franklin Square Interest only 4.7 % October 2021 $ 14,275,000 $ 14,275,000
Hampton Inn (a) Interest only Variable November 2020 10,600,000 10,600,000
Hanover Square (b) $ 51,993 4.9 % December 2027 8,740,154 -

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%, has a ten-year term, and matures on December 6, 2031. In 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% 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 thirty-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, 2023 and December 31, 2022, respectively, our company believes that we are compliant with these covenants.

(b)

The mortgage loan for the ~~Hampton Inn~~Hanover Square Property bore interest at a fixed rate of 4.25% until January 1, 2023, when the interest rate adjusted to a fixed rate of 6.94%, which was determined by adding 3.00% 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%. As a result of the interest rate change, as of February 1, 2023, the fixed monthly payment of $56,882 increased to $78,098 which includes interest at the fixed rate, and principal, based on a twenty-five -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%. As of March 31, 2023 and December 31, 2022, respectively, our company believes that we are compliant with these covenants.

(c)

(d)

The mortgage loan for the Brookfield Property bears interest at a fixed rate of 3.90% 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 Parkway Property bears interest at a variable rate based on LIBOR with a minimum rate of ~~6.1%~~2.25%. The interest rate payable is the ~~USD~~ICE LIBOR ~~one-month~~ rate plus ~~5%.~~225 basis points. Under the terms of the mortgage, the interest rate payable each month shall not change by greater than 1% during any six-month period and 2% during any 12-month period. As of March 31, ~~2019~~2023 and ~~2018, respectively,~~December 31, 2022, the ~~rates~~rate in effect for the ~~Hampton Inn~~Parkway Property mortgage ~~loan were 7.5 percent~~was 4.4806% and ~~6.875 percent.~~

~~(b)~~

As part of its acquisition of the Hanover Square Property, our company assumed a secured loan of $8,527,315 from Langley Federal Credit Union and incurred additional mortgage debt of $372,685, also from Langley Federal Credit Union (the “Hanover Square Property Loan”).4.3117%, respectively. The ~~Hanover Square Property Loan matures~~monthly payment, which varies based on December 1, 2027 and requires monthly payments of principal, on a 25-year amortization schedule, and interest during the term. The Hanover Square Property Loan will bear interest at 4.90% through January 1, 2023, at which time the interest rate ~~will be adjusted to~~in effect each month, includes interest at the daily average yield on US Treasury securities adjusted to a constant maturity of five years, plus 3.10% with an interest rate floor of 4.90%. The fixed monthly payment includes principal and interest. The Hanover Square Property Loan is secured by the Developed Parcel of the Hanover Square Property.

variable

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rate, and principal based on a thirty-year amortization schedule. On ~~November 3, 2017,~~October 28, 2021, our company entered into anthe Interest Rate Protection Transaction to limit our ~~company’s~~ exposure to increases in interest rates on the variable rate mortgage loan on the ~~Hampton Inn~~Parkway Property. Under this agreement, our ~~company’s~~ interest rate exposure is capped at ~~7 percent~~5.25% if USD 1-Month ICE LIBOR ~~BBA~~ exceeds ~~2 percent. As of March 31, 2019 and 2018, USD 1-Month LIBOR was 2.4945 percent and 1.88313 percent, respectively. In accordance with~~3%. For the ~~guidance on derivatives and hedging, our company records all derivatives on the balance sheet at fair value. Our company reports the changes in the fair value of the derivative in other income.~~

~~Beginning in July 2018, the USD 1-Month LIBOR BBA rate exceeded two percent and remained in excess of two percent on each subsequent monthly valuation date~~period from ~~July 2018~~September 1, 2022 through March 31, ~~2019. For~~2023, LIBOR exceeded the 3%, and payments from the Interest Rate Protection Transaction reduced our company’s net interest expense. Payments to our company from the Interest Rate Protection Transaction are recorded as an offset to interest expense on our company’s condensed consolidated statements of operations for the three months ended March 31, ~~2019 and 2018, our company~~2023. No such payments were received ~~$14,391 and $0 in payments under the Interest Rate Protection Transaction, all of which were recorded as a reduction to interest expense.~~

As of March 31, 2019 and 2018, our company had no notes payable, short term or related party notes payable, short term outstanding. During the three months ended March 31, 2018, our company repaid a short term note payable in the principal amount of $1,500,000. In addition, during the three months ended March 31, ~~2018,~~2022 because the LIBOR rate in effect did not exceed the LIBOR cap. The mortgage loan for the Parkway Property includes a covenant to maintain a debt service coverage ratio of not less than 1.60 to 1.00 on an annual basis. As of March 31, 2023 and December 31, 2022, respectively, our company ~~repaid related party notes payable, short term,~~believes that it is compliant with this covenant.

(f)

On June 13, 2022, our company entered into a mortgage loan facility with Wells Fargo Bank (the “Wells Fargo Mortgage Facility”) in the principal amount of $18,609,500. The proceeds of this mortgage were used to finance the acquisition of the Salisbury Marketplace Property and to refinance the mortgages payable on the Lancer Center Property and the Greenbrier Business Center Property (see notes (g) and (h), below). The Wells Fargo Mortgage Facility bears interest at a fixed rate of 4.50% for a five-year term. The monthly payment, which includes interest at the fixed rate, and principal, based on a twenty-five -year amortization schedule, is $103,438. Our company has provided an unconditional guaranty of the payment of and performance under the terms of the Wells Fargo Mortgage Facility. The Wells Fargo Mortgage Facility credit agreement includes covenants to maintain a debt service coverage ratio of not less than 1.50 to 1.00 on an annual basis and a minimum debt yield of 9.5% on the Salisbury Marketplace, Lancer Center and Greenbrier Business Center properties, and to maintain liquid assets of not less than $1,500,000. As of March 31, 2023 and December 31, 2022, our company believes that we are compliant with these covenants.

Our company refinanced the mortgage loan for the Lancer Center Property using proceeds from the Wells Fargo Mortgage Facility discussed above. Our company accounted for this refinancing transaction under debt extinguishment accounting in accordance with ASC 470, and for the year ended December 31, 2022, recorded a loss on extinguishment of debt of $113,282. The original mortgage loan for the Lancer Center Property bore interest at a fixed rate of 4.00%. The monthly payment was $34,667 which includes interest at the fixed rate and principal, based on a twenty-five-year amortization schedule.

Our company refinanced the mortgage loan for the Greenbrier Business Center Property, using proceeds from the Wells Fargo Mortgage Facility discussed above. Our company accounted for this refinancing transaction under debt extinguishment accounting in accordance with ASC 470, and for the year ended December 31, 2022, recorded a loss on extinguishment of debt of $56,393. Our company assumed the original mortgage loan for the Greenbrier Business Center Property from the seller. The original mortgage loan bore interest at a fixed rate of 4.00% and would have been interest only until August 1, 2022, at which time the monthly payment would have become $23,873, which would have included interest at the fixed rate, and principal, based on a twenty-five-year amortization schedule.

COVID-19 Impact

Since March 2020, our company’s investment properties have been significantly impacted by (i) measures taken by local, state and federal authorities to ~~five related parties totaling $677,538. These short term notes were issued~~mitigate the impact of COVID-19, such as mandatory business closures, quarantines, restrictions on ~~November 3, 2017 to finance the purchase~~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 ~~Hampton Inn Property.~~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 will continue and consumer demand for the goods and services of our retail tenants within our portfolio could continue to be significant in future periods. These factors, 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, ~~2019,~~2023 and December 31, 2022, we have no off-balance sheet arrangements.

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Summary of Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with ~~GAAP~~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 the periods during which our company owned its hotel properties, revenues were 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 were recognized as earned, which is as rooms were 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.

Accounting for Leases

~~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.~~

~~The Company~~Our company adopted ~~ASU No. 2014-09,~~Accounting Standards Update (“ASU”) 2016-02, ~~Revenue from Contracts with Customers~~Leases (Topic ~~606)~~842) ~~effective~~ on January 1, ~~2019 (see Recent Accounting Pronouncements~~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 ~~Note 2, “Summary of Significant Accounting Polices,” of our Consolidated Financial Statements). This adoption~~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 ~~a material impact on~~any arrangements requiring the ~~Company’s~~ recognition of lease assets or liabilities on its balance sheet. As a “lessor”, our company has active lease agreements with over 100 tenants across our 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 ~~either its retail properties or its hotel property.~~these leases, including tenant reimbursements, as a single line item on our condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022.

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Acquisition of Investments in Real Estate

The adoption of ASU 2017-01, as discussed in Note 2, “Summary of Significant Accounting Policies” of the ~~Consolidated Financial Statements~~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% 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% 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.

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.

We have concluded that it is probable that we will be able to meet our 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.

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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 growth and success. ~~We expect to continue to issue equity in our company through our offering with proceeds being used to acquire additional target properties.~~

Our primary liquidity needs are ~~primarily to fund (i)~~funding for (1) operations, including operating expenses, corporate and ~~cash dividends; (ii) property acquisitions; (iii) deposits~~administrative costs, payment of principal of, and ~~fees~~interest on, outstanding indebtedness, and escrow and reserve payments associated with long-term debt financing for our properties; ~~(iv)~~(2) investing needs, including property acquisitions and recurring capital expenditures; ~~(v)~~and (3) financing needs, including cash dividends and debt ~~repayments; (vi) payment of principal of, and interest on, outstanding indebtedness; and (vii) corporate and administrative costs.~~

repayments.

Internal liquidity ~~will~~to fund operating needs are expected to be provided ~~solely~~primarily by the rental receipts from our ~~real~~retail and flex center properties. ~~The only external liquidity source we have currently identified is our ongoing efforts to raise capital by the issuance of shares of common stock.~~

On May 13, 2019, we issued and sold 1,666,667 Common Shares at an offering price of $4.80 per share. Net proceeds from the issuance are estimated to be $6,755,000, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and legal, accounting and other professional fees. As part of this offering, we granted the underwriters a 45-day option to purchase up to 250,000 additional Common Shares at the public offering price, less the underwriting discount and commissions, to cover over-allotments, if any.

Cash Flows

At March 31, ~~2019,~~2023, our consolidated cash and restricted cash on hand totaled ~~$1,269,765~~$4,985,365 compared to consolidated cash on hand of ~~$5,290,371~~$8,079,034 at March 31, ~~2018.~~2022. Cash ~~flows~~ from operating activities, investing activities and financing activities for the three months ended March 31, ~~2019 and 2018~~2023 are as follows:

Operating Activities

During the three months ended March 31, ~~2018,~~2023 our ~~company owned and operated~~cash provided by operating activities was $450,724 compared to cash provided by operating activities of $692,863 for the three months ended March 31, 2022, a decrease in cash provided by operating activities of $242,139.

Cash flows from operating activities has two ~~properties, the Franklin Square Property and the Hampton Inn Property.~~components. The first component consists of net operating loss adjusted for non-cash operating activities. During the three months ended March 31, ~~2019,~~2023, operating activities adjusted for non-cash items resulted in net cash used by operating activities of $817. During the three months ended March 31, 2022, operating activities adjusted for non-cash items resulted in net cash provided in operating activities of $689,045. The decrease of $689,862 in cash flows from operating activities for the three months ended March 31, 2023 was primarily a result of increased legal, accounting and other professional fees resulting from the exploration of strategic alternatives announced by our ~~financial~~Board of Directors on March 10, 2023, of $307,209, and a decrease in operating income of $392,629 resulting from the sale of the Clemson Best Western Hotel on September 29, 2022. For the three months ended March 31, 2022, the Clemson Best Western Hotel generated $392,629 in operating income. Since our company sold the Clemson Best Western Hotel on September 29, 2022, no operating income was generated during the three months ended March 31, 2023.

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, 2023, net changes in asset and liability accounts resulted in $451,541 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. This increase of $447,723 in cash provided by operations resulting from changes in assets and liabilities is a result of increased changes in accounts payable and accrued liabilities of $310,905, and increased changes in other assets of $195,395, offset by decreased changes in unbilled rent of $34,053, and other receivables, net, of $24,524.

The net of (i) the $689,862 decrease in cash provided by operations from the first category and (ii) the $447,723 increase in cash provided by operations from the second category results ~~also include our third property,~~in a total decrease in cash provided in operations of $242,139 for the ~~Hanover Square Property, which was acquired in May 2018.~~three months ended March 31, 2023.

Investing Activities

During the three months ended March 31, ~~2019,~~2023, our cash ~~flows provided by operating~~used in investing activities ~~were $84,822~~was $647,690, compared to cash ~~flows~~ used in ~~operating~~investing activities of ~~$222,931 for~~$366,059 during the three months ended March 31, ~~2018, an increase of $307,753. This increase was largely driven by~~2022, an increase in ~~accounts payable and accrued liabilities~~cash used in investing activities of ~~$298,709 which reduced our use of cash. While our net loss increased from $511,325 for~~$281,631. During the three months ended March 31, ~~2018 to $840,486 for~~2023, cash used in investing activities consisted of $647,690 in capitalized expenditures, including $168,464 in building improvements, $11,323 in site improvements, $90,638 in capitalized leasing commissions, and $377,265 in capitalized tenant improvements. During the three months ended March 31, ~~2019, this was a result~~2022, cash used in investing activities consisted of ~~increases~~$366,059 in ~~non-cash expenses,~~capitalized expenditures, including ~~depreciation~~$230,857 in building improvements, $78,921 in capitalized leasing commissions, and ~~amortization and the decrease~~$56,281 in ~~the fair value~~capitalized tenant improvements.

Table of ~~the interest rate cap.~~Contents

Financing Activities

~~Investing Activities~~

During the three months ended March 31, ~~2019,~~2023, our cash ~~flows~~ used in ~~investing~~financing activities ~~were $778,600~~was $480,522 compared to cash ~~flows used in investing~~provided by financing activities of ~~$46,568~~$368,253 during the three months ended March 31, ~~2018.~~2022, an increase in cash used in financing activities of $848,775. During the three months ended March 31, ~~2019,~~2023, cash used in ~~investing~~financing activities ~~included $372,831 in advance deposits~~consisted of $301,577 for ~~furniture~~mortgage debt principal payments and ~~fixtures related to the Property Improvement Plan~~$178,945 for ~~the Hampton Inn Property~~dividends and $405,769 in capital expenditures consisting $362,519 in interior and exterior construction costs for the Property Improvement Plan for the Hampton Inn Property, $32,630 in tenant improvements and leasing commissions for Franklin Square and $10,620 in equipment for the Hampton Inn Property.

distributions. During the three months ended March 31, ~~2018, investing~~2022, financing activities ~~were related to the payment of leasing commissions for the Franklin Square Property and initial expenditures for the Hampton Inn Property’s Property Improvement Plan.~~

~~Financing Activities~~

~~During the three months ended March 31, 2019,~~generated $1,188,574 in net proceeds, after issuance costs, from common stock issuances under our SEPA, offset by cash ~~flows~~ used in financing activities, ~~were $187,325 compared to cash flows provided by financing activities~~including dividends and distributions of ~~$5,412,818 during the three months ended March 31, 2018. During the three months ended March 31, 2019, our company made $32,408 in~~$341,521, mortgage debt principal payments ~~on the Hanover Square North mortgage payable~~of $192,257 and ~~$16,000 in distributions to noncontrolling owner~~repurchases of ~~the Hanover Square Property. Additionally, during the three months ended March 31, 2019,~~ our ~~company paid $138,827 in offering costs associated with our public offering of Common Shares which closed on May 13, 2019.~~

~~During the three months ended March 31, 2018, our company generated net proceeds, after offering costs, from our~~company’s common stock ~~issuances~~ of ~~$7,590,356~~$286,543, including costs and ~~repaid notes payables and related party payables of $2,177,538.~~fees.

Non-cash financing activities that did not materially affect our cash flows provided by financing activities and were $0 for the three months ending March 31, 2019 and $37,468, representing a short-term receivable in lieu of proceeds from the sale of common stock, for the three months ended March 31, 2018.

Future Liquidity Needs

Liquidity for general operating needs and our company’s investment properties is generally provided ~~solely~~ by the rental receipts from ~~those properties. Liquidity~~our retail properties and flex center property, and revenues from our hotel properties, if any. We expect to provide any liquidity for growth (acquisition of new investment properties) ~~will be provided~~ by raising additional ~~equity issuances, net~~investment capital. In addition, our company continually reviews and evaluates its outstanding mortgages payable for refinancing opportunities. While some of ~~issuance costs.~~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 $179,719 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 12, 2023 and payable April 28, 2023 to holders of record on April 25, 2023, and $780,584 in principal payments due on its mortgages payable during the remaining nine months ending December 31, 2023. 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.

As discussed above, the ~~funding~~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 ~~ongoing operations,~~company’s tenants’ businesses, financial condition and liquidity and may cause certain tenants to be unable to meet their obligations to our ~~primary~~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, atwe have the following resources:

$3,048,100 in unrestricted cash as of March 31, 2023;

$1,937,265 held in lender reserves for the purposes of tenant improvements, leasing commissions, real estate taxes and insurance premiums;

Our $1,500,000 line of credit with Wells Fargo Bank, which, as of March 31, 2023, had a $0 balance;

●

Cash generated from operations during the nine months ending December 31, 2023, if any; and

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.

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Results of Operations

Three months ended March 31, 2019 were to provide funding for the ongoing costs associated with our company’s continuing efforts to raise capital through the issuance of additional shares of common stock. We anticipate that these costs will be funded by proceeds from the future issuances of common stock.2023

~~Results of Operations~~

~~Total Revenue~~

Revenues

Total revenue was ~~$1,538,482~~$2,460,976 for the three months ended March 31, ~~2019,~~2023, consisting of ~~$567,561~~$1,891,679 in revenues from ~~the Franklin Square Property, $326,433 in revenues~~retail center properties, and $569,297 from ~~the Hanover Square Property and $644,488 in revenues from the Hampton Inn Property.Total revenue was $1,202,850 for the three months ended March 31, 2018, consisting of $456,871 in revenues from the Franklin Square Property and $745,979 in revenues from the Hampton Inn Property.~~

flex center properties. Total revenues for the three months ended March 31, ~~2019 increased~~2023 decreased by ~~$335,632~~$442,988 over the three months ended March 31, ~~2018. While~~2022, resulting from decreased hotel property revenues from the ~~Hampton Inn~~sale of our company’s Clemson Best Western Hotel Property ~~declined~~on September 29, 2022, decreased flex center revenues from tenant turnovers in our Parkway Center and Greenbrier Business Center properties, offset by ~~$101,491 due to~~increased retail center revenues from new leasing activity at our Franklin Square property, and our company’s acquisition of the ~~ongoing construction related to~~Salisbury Marketplace Property.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)

Revenues







Retail center properties

$
1,891,679

$
1,525,085

$
366,594

Hotel property

—

765,489

(765,489)

Flex center properties

569,297

613,390

(44,093)

Total Revenues

$
2,460,976

$
2,903,964

$
(442,988)

Revenues from retail center properties were $1,891,679 for the three months ended March 31, 2023, an increase of $366,594 over retail center property revenues for the three months ended March 31, 2022. Increased revenues of $239,734 from the acquisition of the Salisbury Marketplace Property, ~~Improvement Plan~~$127,669 from new leasing activity at our Franklin Square Property, and ~~increased competition, the overall increase is a result of $326,433 in new revenues~~$8,078 from the Hanover Square Property, were offset by slightly decreased revenues of $5,016 from the Lancer Center Property and ~~$110,690~~$3,871 from the Ashley Plaza Property.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Retail Center Properties






Franklin Square Property

$
583,874

$
456,205

$
127,669
Hanover Square Property

331,437

323,359

8,078
Ashley Plaza Property

431,849

435,720

(3,871)
Lancer Center Property

304,785

309,801

(5,016)
Salisbury Property

239,734

—

239,734

$
1,891,679

$
1,525,085

$
366,594

Revenues from hotel properties were $0 for the three months ended March 31, 2023, a decrease of $765,489 from revenues from hotel properties for the three months ended March 31, 2022, due to the sale of Clemson Best Western Property on September 29, 2022.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Hotel Property


��




Clemson Best Western Property

$
—

$
765,489

$
(765,489)

$
—

$
765,489

$
(765,489)

Revenues from the flex center properties were $569,297 for the three months ended March 31, 2023, a decrease of $44,093 over revenues from flex center properties for three months ended March 31, 2022 due to decreased revenues from the Greenbrier Business Center Property of $19,255 and the Parkway Property of $33,972, resulting from tenant turnovers in both properties, offset by increased revenues from ~~Franklin Square resulting from new leases and contractual increases in existing leases.~~the Brookfield Center Property of $9,134.

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For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Flex Center Properties

Brookfield Center Property

$
207,111

$
197,977

$
9,134
Greenbrier Business Center Property

180,246

199,501

(19,255)
Parkway Center Property

181,940

215,912

(33,972)

$
569,297

$
613,390

$
(44,093)

Operating Expenses
Total operating expenses were $2,801,692 for the three months ended March 31, 2023, consisting of $520,740 in expenses from retail center properties, $203,734 in expenses from the flex center properties, $767,078 in legal, accounting and other professional fees, $117,049 in corporate general and administrative expenses, a loss on impairment of $36,743, and $1,156,348 in depreciation and amortization.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Operating Expenses






Retail center properties (1)

$
520,740

$
457,916

$
62,824
Hotel property

—

372,860

(372,860)
Flex center properties (2)

203,734

166,373

37,361
Total Investment Property Operating Expenses

724,474

997,149

(272,675)
Share based compensation expenses

—

233,100

(233,100)
Legal, accounting and other professional fees (3)

767,078

459,869

307,209
Corporate general and administrative expenses

117,049

80,706

36,343
Loss on impairment

36,743

36,670

73
Impairment of assets held for sale

—

175,671

(175,671)
Depreciation and amortization

1,156,348

1,155,197

1,151
Total Operating Expenses

$
2,801,692

$
3,138,362

$
(336,670)
(1)
Includes $125 and $7,791 of bad debt expense for the three months ended March 31, 2023 and 2022, respectively.
(2)
Includes $26,997 and $4,992 of bad debt expense for the three months ended March 31, 2023 and 2022, respectively.
(3)
Includes $144,734 and $99,531 in expenses paid to the Consultant pursuant to the Consulting Agreement for the three months ended March 31, 2023 and 2022, respectively.
Operating ~~Expenses~~
~~Total~~expenses for retail center properties were $520,740 for the three months ended March 31, 2023, an increase of $62,824 over retail center property operating expenses for the three months ended March 31, ~~2019 were $1,826,865, consisting~~2022. Increased operating expenses from the acquisition of ~~$183,214 in expenses for~~the Salisbury Marketplace Property of $60,893, and from three of our existing properties, the Franklin Square Property, ~~$86,061 for~~which increased by $3,440, the Ashley Plaza Property, which increased by $3,696, and the Hanover Square Property, ~~$581,975~~which increased by $8,669, were offset by decreased operating expenses from the Lancer Center Property of $13,874.

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For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Retail Center Properties






Franklin Square Property

$
178,492

$
175,052

$
3,440
Hanover Square Property

89,153

80,484

8,669
Ashley Plaza Property

87,938

84,242

3,696
Lancer Center Property (1)

104,264

118,138

(13,874)
Salisbury Property

60,893

—

60,893

$
520,740

$
457,916

$
62,824
(1)
Includes bad debt expense of $125 and $7,791 for the March 31, 2023 and 2022, respectively.
Operating expenses for hotel properties were $0 for the ~~Hampton Inn~~three months ended March 31, 2023, a decrease of $372,860 from operating expenses from hotel properties for the three months ended March 31, 2022 resulting from the sale of the Clemson Best Western Property ~~$353,747~~on September 29, 2022.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Hotel Property






Clemson Best Western Property

$
—

$
372,860

$
(372,860)

$
—

$
372,860

$
(372,860)

Operating expenses from the flex center properties were $203,734 for the three months ended March 31, 2023, an increase of ~~legal, accounting and other professional fees, $55,705 in corporate general and administrative expenses and $566,163 in depreciation and amortization expenses.~~
~~Total~~$37,361 over flex center property operating expenses for the three months ended March 31, ~~2018 were $1,364,183, consisting~~2022 due to increased operating expenses from the Greenbrier Business Center of ~~$192,681 in~~$41,416 and the Brookfield Center Property of $1,038, offset by decreased operating expenses ~~for~~from the ~~Franklin Square~~Parkway Property ~~$563,054 for the Hampton Inn Property, $212,179~~ of ~~legal, accounting and other professional fees, $2,305 of corporate general and administrative expenses, and $393,964 in depreciation and amortization expenses.~~$5,093.

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Flex Center Properties

Brookfield Center Property

$
60,851

$
59,813

$
1,038
Greenbrier Business Center Property (1)

85,192

43,776

41,416
Parkway Center Property (2)

57,691

62,784

(5,093)

$
203,734

$
166,373

$
37,361

29
(1)
Includes $24,463 and $0 of bad debt expense for the March 31, 2023 and 2022, respectively.
(2)
Includes $2,534 and $4,992 of bad debt expense for the March 31, 2023 and 2022, respectively.
Operating (Loss) Income
~~Total operating expenses~~Operating loss for the three months ended March 31, ~~2019 increased by $462,682~~2023 was $340,716, an increase of $106,318 over the ~~three months ended March 31, 2018.This increase was a result~~operating loss of ~~owning the Hanover Square Property~~$234,398 for the three months ended March 31, ~~2019,~~2022. This decrease was a result of (i) decreased investment property operating income of $170,313 primarily resulting from the sale of the Clemson Best Western Hotel on September 29, 2022, (ii) a slight increase in depreciation and ~~an increase in~~amortization expenses of $1,151, (ii) slightly increased loss on impairment of $73, (iii) increased legal, accounting and other professional fees ~~resulting from the compliance requirements for a public company. During the three months ended March 31, 2019, operating~~of $307,209, and (iv) increased corporate general and administrative expenses ~~for the Hampton Inn Property were $18,921 less than for the three months ended March 31, 2018 due to lower variable costs resulting from lower occupancy.~~of $36,343.

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Interest Expense

Interest expense was $864,052 and $841,424 for the ~~three months ended~~ March 31, ~~2019 was $506,074. This consisted of (i) $167,731 in mortgage interest~~2023 and ~~$4,638 in amortization of loan issuance costs for the Franklin Square Property, (ii) $199,891 in mortgage interest, $34,890 in amortization of loan issuance costs and $14,391 in payments (recorded~~2022, respectively, as a reduction in interest expense) from the interest rate cap transaction for the Hampton Inn Property, (iii) $107,265 in mortgage interest and $3,183 in amortization of loan issuance costs for the Hanover Square Property and (iv) other interest of $2,867.follows:

For the three months ended

March 31,

2023

2022

Increase /


(unaudited)

(unaudited)

(Decrease)
Franklin Square

$
133,233

$
133,233

$
—
Hanover Square

173,863

108,077

65,786
Ashley Plaza

106,490

108,505

(2,015)
Clemson Best Western

—

138,917

(138,917)
Brookfield Center

48,229

49,092

(863)
Lancer Center

—

70,902

(70,902)
Greenbrier Business Center

—

45,643

(45,643)
Parkway Center

30,672

33,132

(2,460)
Wells Fargo Mortgage Facility

212,761

—

212,761
Amortization and preferred stock dividends on mandatorily redeemable preferred stock

158,804

153,923

4,881
Total interest expense

$
864,052

$
841,424

$
22,628
Interest expense for the three months ended March 31, 2018 was $424,281. This consisted of (i) $167,731 in mortgage interest and $4,638 in amortization of loan issuance costs for the Franklin Square Property (ii) $177,844 in mortgage interest and $34,890 in amortization of loan issuance costs for the Hampton Inn Property, (iii) $36,685 in interest and fees on a short-term note payable that was repaid during the three months ended March 31, 2018, and (iv) other interest of $2,493.

Total interest expense for the three months ended March 31, ~~2019~~2023 increased by ~~$81,793~~$22,628 over the three months ended March 31, ~~2018.~~2022. This ~~increase~~decrease was a result of ~~owning~~(i) increased interest expense from the ~~Hanover Square~~Wells Fargo Mortgage Facility, which refinanced the Lancer Center and Greenbrier Business Center mortgages payable, and financed the acquisition of the Salisbury Marketplace Property (net increase in interest expense of $96,216 for the four properties, combined), and (ii) increased amortization of preferred stock issuance costs of $4,881, offset by (i) decreased interest expense of $138,917 from the sale of the Clemson Best Western Property, (ii) slight decreases in interest expense for the Ashley Plaza mortgage of $2,015, and the Brookfield Center mortgage of $863.
Other (Loss) Income
During the three months ended March 31, 2023, other loss was $29,038, a decrease of $124,477 from other income of $95,439 for the three months ended March 31, ~~2019.~~
2022. Other ~~Income and Expense~~
On November 3, 2017, our company entered into an Interest Rate Protection Transaction to limit our company’s exposure to increases in interest rates on the variable rate mortgage loan on the Hampton Inn Property. Under this agreement, our company’s interest rate exposure is capped at 7 percent if USD 1-Month LIBOR BBA exceeds 2%. As of March 31, 2019 and December 31, 2018, USD 1-Month LIBOR was 2.4945 percent and 2.51988 percent, respectively. In accordance with the guidance on derivatives and hedging, our company records all derivatives on the balance sheet at fair value. As of March 31, 2019, the fair value of the Interest Rate Protection Transaction was $76,394, a decrease of $50,403 over the December 31, 2018 fair value. This decrease in fair value was recorded as a “decrease (increase) in fair value-interest rate cap” during the three months ended March 31, 2019. As of March 31, 2018, the fair value of the Interest Rate Protection Transaction was $157,725, an increase decrease of $74,289 over the December 31, 2017 fair value. This increase in fair value was recorded as a “decrease (increase) in fair value-interest rate cap” during the three months ended March 31, 2018.
Beginning in July 2018, the USD 1-Month LIBOR BBA rate exceeded two percent and remained in excess of two percent on each subsequent monthly valuation date from July 2018 through March 31, 2019. For the three months ended March 31, 2019 and 2018, our company received $14,391 and $0 in payments under the Interest Rate Protection Transaction, all of which were recorded as a reduction to interest expense.
~~Our company also recognized $4,374 and $0 in interest income on cash balances held in a money market account~~loss for the three months ended March 31, ~~2019 and 2018, respectively.~~
~~Net Loss~~
~~Total net~~2023 consisted of $39,868 in loss ~~was $840,486~~related to the fair value change of the interest rate caps, offset by interest income of $10,830. Other income of $95,439 for the three months ended March 31, ~~2019,~~2022 consisted of $91,042 related to the fair value change of the interest rate cap, $3,913 of miscellaneous income and $484 of interest income.

Net Loss
Net loss was $1,233,806 for the three months ended March 31, 2023, before adjustments for net income (loss) attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to our common shareholders was $1,221,295. Net loss was $980,383 for the three months ended March 31, 2022, before adjustments for net income (loss) attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to Medalist common shareholders was $989,284, for the three months ended March 31, 2022.

Net loss for the three months ended March 31, 2023 increased by $253,423 over the three months ended March 31, 2022, before adjustments for net loss attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to ~~our~~Medalist common shareholders ~~was $686,639.Total net loss was $511,325~~ for the three months ended March 31, ~~2018, before adjustments for net loss attributable to noncontrolling interests. After adjusting for noncontrolling interests, the net loss attributable to our common shareholders was $450,875.~~
~~Total net loss for the three months ended March 31, 2019~~2023 increased by ~~$329,161~~$232,011 over the three months ended March 31, 2018, before adjustments for net loss attributable to noncontrolling interests. After adjusting for noncontrolling interests, total net loss for the three months ended March 31, 2019 increased by $235,764 over the three months ended March 31, 2018.This increase was a result of lower revenues from the Hampton Inn Property, increased legal, accounting and other professional fees and the impact of the ownership of the Hanover Square Property for the three months ended March 31, 2019.2022.

Funds from Operations

We use ~~Funds~~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.

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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% 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 ~~Company~~our company’s shareholders.

Below is our company’s FFO, which is a non-GAAP measurement, for the three months ended March 31, ~~2019:~~2023 and 2022:

Net income (loss) $ (840,486 )
Depreciation of tangible real property assets (1) 333,590
Depreciation of tenant improvements (2) 60,062
Amortization of leasing commissions (3) 9,678
Amortization of tenant inducements (4) 4,260
Amortization of intangible assets (5) 162,833
Funds from operations $ (270,063 )

For the three months ended

March 31,


2023

2022
Net loss

$
(1,233,806)

(980,383)
Depreciation of tangible real property assets (1)

674,398

602,845
Depreciation of tenant improvements (2)

205,153

148,924
Amortization of leasing commissions (3)

31,930

19,791
Amortization of intangible assets (4)

244,867

383,637
Loss on impairment (5)

36,743

36,670
Impairment of assets held for sale (5)

—

175,671
Funds from operations

$
(40,715)

$
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 ~~Franklin Square Property~~retail center and ~~the Hanover Square Property~~flex center properties and (ii) those constructed ~~during~~by our company for the ~~three months ended March 31, 2019.~~  retail center properties and flex center property subsequent to their acquisition.
(3)
Amortization of leasing commissions paid for the ~~Franklin Square Property~~retail center properties and flex center property subsequent to the ~~Hanover Square Property during~~acquisition of the ~~three months ended March 31, 2019.~~   properties.
(4)
Amortization of ~~tenant inducements paid for the Franklin Square Property during the three months ended March 31, 2019.~~
~~(5)~~ ~~Amortization of~~(i) intangible assets acquired as part of the purchase of the ~~Franklin Square Property~~retail center properties and ~~the Hanover Square Property,~~flex center property, including leasing commissions, leases in place and legal and marketing costs.
(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.”
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

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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, ~~2019~~2023 and 2022 was as follows:

Funds from operations $ (270,063 )
Amortization of above market leases (1) 54,934
Amortization of below market leases (2) (23,512 )
Straight line rent (3) (85,326 )
Capital expenditures, net of escrow reimbursements (4) (211,417 )
Increase in fair value of interest rate cap (5) 50,403
Amortization of loan issuance costs (6) 42,711
Adjusted funds from operations (AFFO) $ (442,270 )

For the three months ended

March 31,

2023

2022
Funds from operations

$
(40,715)

$
387,155
Amortization of above market leases (1)

27,343

69,583
Amortization of below market leases (2)

(100,361)

(95,617)
Straight line rent (3)

(48,899)

(14,921)
Capital expenditures (4)

(647,690)

(366,059)
(Increase) decrease in fair value of interest rate cap (5)

39,868

(91,042)
Amortization of loan issuance costs (6)

26,990

28,118
Amortization of preferred stock discount and offering costs (7)

58,804

53,923
Share-based compensation (8)

—

233,100
Bad debt expense (9)

27,122

12,783
Adjusted funds from operations (AFFO)

$
(657,538)

$
217,023
31

(1)

Adjustment to FFO resulting from non-cash amortization of intangible ~~assets recorded as part of the purchase of the Franklin Square Property and the Hanover Square Property.~~assets.

(2)

Adjustment to FFO resulting from non-cash amortization of intangible ~~liabilities recorded as part of the purchase of the Franklin Square Property and the Hanover Square Property.~~liabilities.

(3)

Adjustment to FFO resulting from non-cash revenues recognized as a result of applying straight line revenue recognition for the ~~Franklin Square Property~~retail center properties and ~~the Hanover Square Property.~~flex center properties.

(4)

Adjustment to FFO for capital expenditures, ~~made during the three months ended March 31, 2019 for the Franklin Square Property, the Hanover Square Property~~including capitalized leasing commissions, tenant improvements, building and ~~Hampton Inn Property~~site improvements and purchases of furniture, fixtures and equipment that ~~will~~have not bebeen reimbursed by property escrow accounts. ~~During the three months ended March 31, 2019, our company paid $778,600 in costs~~See Investing Activities, above, for leasing commissions, tenant inducements and tenant improvements at the Franklin Square Property and the Hanover Square Property and interior and exterior renovations and advance deposits for furniture and fixtures at the Hampton Inn Property. During the three months ended March 31, 2019, our company received $567,183 in funds from propertydetail of capital ~~reserves held by the Hampton Inn Property mortgage holder.~~ expenditures.

(5)

Adjustment to FFO resulting from non-cash ~~revenues~~expenses recognized as a result of ~~increase~~decreases in the fair value of the interest rate ~~cap.~~caps for the Parkway Property and Clemson Best Western Property.

(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.

(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.

(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.

(9)

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

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~~Item 3.~~ ~~Quantitative and Qualitative Disclosures about Market Risk~~
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~~
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that such information is accumulated and communicated to management, including our Chief Executive Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
~~Based on~~We have carried out an evaluation, under the ~~most recent evaluation,~~supervision and with the ~~Company’s~~participation of management, including our principal executive officer and principal financial officer, ~~has determined that~~regarding the ~~Company’s~~effectiveness of our 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, ~~2019.~~2023, the end of the period covered by this Quarterly Report. Based on the foregoing, our principal executive officer and principal financial officer have concluded, as of March 31, 2023, that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports filed or submitted under the Exchange Act (i) is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow for timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our management, including our principal executive officer and principal financial officer, evaluated, as of March 31, 2023, the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on that evaluation, our principal executive officer and principal financial officer concluded that our internal control over financial reporting, as of March 31, 2023, were effective.
This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Quarterly Report.
Changes in Internal Control over Financial Reporting
There ~~have been~~was no ~~changes to~~change in our internal control over financial reporting that occurred during ~~the period covered by this report~~our most recent fiscal quarter that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
~~Item 1.~~ ~~Legal Proceedings~~
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~~We are not ~~believe that~~presently subject to any ~~such~~material litigation ~~will materially affect~~nor, to our knowledge, is any other litigation threatened against us, other than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business, some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a material adverse effect on our liquidity, results of operations or business or financial ~~position or operations.~~condition.

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~~Item 1A.~~ ~~Risk Factors~~
ITEM 1A.RISK FACTORS
~~There~~We have ~~been no material changes from the~~omitted a discussion of risk factors ~~disclosed in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018.~~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 Board authorized a share repurchase program whereby we may repurchase up to 500,000 shares
of our common stock for a maximum price of $4.80 per share. As of December 31, 2022, the Company had repurchased 268,070 shares of our common stock at a total cost of $278,277 and an average price of $1.038 per share. During the three months ended March 31, 2023, the Company did not make any share repurchases.

~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~
~~None.~~
~~Item 3.~~ ~~Defaults Upon Senior Securities~~
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
32
~~Item 4.~~ ~~Mine Safety Disclosures~~
ITEM 4. MINE SAFETY DISCLOSURES
Not ~~applicable.~~Applicable.
~~Item 5.~~ ~~Other Information~~
ITEM 5. OTHER INFORMATION
None.

EXHIBIT INDEX

~~Item 6.~~
~~Exhibits~~
~~Exhibit~~
~~Number~~
~~Description~~
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

First Articles of Amendment to Articles of Incorporation of Medalist Diversified REIT, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 3, 2023).
~~3.2~~
3.4

Second Articles of Amendment to Articles of Incorporation of Medalist Diversified REIT, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 3, 2023).
3.5
Bylaws of Medalist Diversified REIT, Inc. *
4.1
~~4.1~~
Form of Certificate of Common ~~Stock~~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)
~~4.2~~
4.3

Description of Medalist Diversified REIT, Inc.’s Securities (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).
10.1

Letter Agreement, ~~of Limited Partnership of~~dated March 10, 2023, by and among Medalist Diversified REIT, Inc., Medalist Diversified Holdings, L.P. *and Medalist Fund Manager, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).
10.2

First Amendment to Consulting Agreement, dated as of March 10, 2023, by and between Medalist Diversified REIT, Inc. and Gunston Consulting, LLC (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).

Table of Contents

10.3		Change in Control Agreement, dated as of March 10, 2023, by and among Medalist Diversified REIT, Inc., Gunston Consulting, LLC and Colin Elliott (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).
~~31.1~~ 10.4		First Amendment, dated as of May 2, 2023, to Revolving Line of Credit Note by and between MDR Greenbrier, LLC, MDR Lancer, LLC, MDR Salisbury, LLC, Wells Fargo Bank, National Association, and Medalist Diversified REIT, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 8, 2023).
31.1		Certification byof the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
31.2		Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
32.1		Certification of the 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 the 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**	Inline XBRL Instance Document.
101.SCH		Inline XBRL Schema Document.
~~101.SCH~~ 101.CAL	SCHEMA DOCUMENT**	Inline XBRL Calculation Linkbase Document.
101.DEF		Inline XBRL Definition Linkbase Document.
~~101.CAL~~ 101.LAB	CALCULATION LINKBASE DOCUMENT**	Inline XBRL Labels Linkbase Document.
101.PRE		Inline XBRL Presentation Linkbase Document.
~~101.LAB~~ 104	LABELS LINKBASE DOCUMENT**

~~101.PRE~~	PRESENTATION LINKBASE DOCUMENT**

~~101.DEF~~	DEFINITION LINKBASE DOCUMENT** Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101).

†Filed herewith.

†	~~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.~~
**	To be filed by amendment. Attached as Exhibit 101 are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

* 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.

Attached as Exhibit 101 to this report are the following documents formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.

Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 15, 2019~~

ay

Date: May 11, 2023

By:
/s/ Thomas E. Messier
Thomas E. Messier
Chief Executive Officer and Chairman of the Board
(principal executive ~~officer,~~ officer)

By:
/s/ C. Brent Winn
C. Brent Winn
Chief Financial Officer
(principal accounting officer and principal financial officer)

¨
	For the quarterly period ended March 31, 2023

	OR

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


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


Large accelerated filer	¨ ◻	Accelerated filer	¨ ◻

Non-accelerated filer	¨ ☒	Smaller reporting company	x ☒

		Emerging growth company	x ☐

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

~~PART I.FINANCIAL INFORMATION~~	3
PART I. FINANCIAL INFORMATION			3
~~Item 1.~~	~~Financial Statements~~	3
Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of March 31, ~~2019~~2023 (unaudited) and December 31, ~~2018~~2022	3

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2019~~2023 and ~~2018~~2022 (unaudited)	4

	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, ~~2019~~2023 and ~~2018~~2022 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2019~~2023 and ~~2018~~2022 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32 52

Item 4.	Controls and Procedures	32 52

PART II. OTHER INFORMATION		32 52

Item 1.	Legal Proceedings	32 52

Item 1A.	Risk Factors	32 53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32 53

Item 3.	Defaults Upon Senior Securities	32 53

Item 4.	Mine Safety Disclosures	33 53

Item 5.	Other Information	33 53

Item 6.	Exhibits	33 53

Signatures		34 55

	Three Months Ended
	March 31,
	2019			2018

REVENUE
Retail center property revenues	$	750,820		$	384,502
Retail center property tenant reimbursements		143,174			72,369
Hotel property room revenues		630,035			733,566
Hotel property other revenues		14,453			12,413
Total Revenue	$	1,538,482		$	1,202,850

OPERATING EXPENSES
Retail center property operating expenses	$	269,275		$	192,681
Hotel property operating expenses		581,975			563,054
Legal, accounting and other professional fees		353,747			212,179
Corporate general and administrative expenses		55,705			2,305
Depreciation and amortization		566,163			393,964
Total Operating Expenses		1,826,865			1,364,183
Operating Loss		(288,383	)		(161,333	)
Interest expense		506,074			424,281
Net Loss from Operations		(794,457	)		(585,614	)
Other income		4,374			-
Decrease (increase) in fair value - interest rate cap		50,403			(74,289	)
Net Loss		(840,486	)		(511,325	)
Less: Net loss attributable to Hampton Inn Property noncontrolling interests		(132,879	)		(40,767	)
Less: Net loss attributable to Hanover Square Property noncontrolling interests		(4,705	)		-
Less: Net loss attributable to Operating Partnership noncontrolling interests		(16,263	)		(19,683	)
Net Loss Attributable to Medalist Common Shareholders	$	(686,639	)	$	(450,875	)

Loss per share from operations - basic and diluted	$	(0.30	)	$	(0.27	)

Weighted-average number of shares - basic and diluted		2,321,582			1,687,516

Dividends declared per common share	$	-		$	-

	Common Stock															Noncontrolling Interests
	Shares		Par Value		Additional Paid in Capital		Offering Costs			Accumulated Deficit			Total Shareholders' Equity			Hampton Inn Property			Hanover Square Property		Operating Partnership			Total Equity

Balance, January 1, 2018		1,148,002	$	11,480	$	11,086,897	$	(912,060	)	$	(1,398,222	)	$	8,788,095		$	2,211,345		$	-	$	1,082,591		$	12,082,031

Common stock issuances		839,080	$	8,391	$	7,885,045	$	-		$	-		$	7,893,436		$	-		$	-	$	-		$	7,893,436
Offering costs		-		-		-		(265,612	)		-			(265,612	)		-			-		-			(265,612	)
Net loss		-		-		-		-			(450,875	)		(450,875	)		(40,767	)		-		(19,683	)		(511,325	)

Balance, March 31, 2018		1,987,082	$	19,871	$	18,971,942	$	(1,177,672	)	$	(1,849,097	)	$	15,965,044		$	2,170,578		$	-	$	1,062,908		$	19,198,530

	For the Three Months Ended
	March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss	$	(840,486	)	$	(511,325	)

Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities
Depreciation		403,330			302,304
Amortization		162,833			91,660
Loan cost amortization		42,711			39,528
Amortization of tenant inducements		4,260			-
Decrease (increase) in fair value - interest rate cap		50,403			(74,289	)
Above (below) market lease amortization, net		31,422			36,386

Changes in assets and liabilities
Rent and other receivables, net		11,874			13,775
Unbilled rent		(85,326	)		(18,575	)
Prepaid expenses		5,092			20,748
Other assets		-			(50,000	)
Accounts payable and accrued liabilities		298,709			(73,143	)
Net cash provided by (used in) operating activities		84,822			(222,931	)

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures		(405,769	)		(46,568	)
Advance deposits		(372,831	)		-
Net cash used in investing activities		(778,600	)		(46,568	)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends and distributions paid		(16,000	)		-
Repayment of notes payable and related party notes payable		-			(2,177,538	)
Repayment of mortgages payable		(32,408	)		-
Proceeds from sales of common stock, net of offering costs		(138,827	)		7,590,356
Net cash (used in) provided by investing activities		(187,235	)		5,412,818

(DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(881,013	)		5,143,319
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period		4,120,796			3,294,847
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	3,239,783		$	8,438,166
		-			-
CASH AND CASH EQUIVALENTS, end of period shown in consolidated balance sheets		1,269,765			5,290,371
RESTRICTED CASH including assets restricted for capital and operating reserves and tenant deposits		1,970,018			3,147,795
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period shown in the statement of cash flows	$	3,239,783		$	8,438,166

Supplemental Disclosures and Non-Cash Activities:

Interest paid, net of interest rate cap offsetting receipts		427,674			409,702
Transfer advance deposits to investment properties		515,430			-
Short term receivable in lieu of proceeds from sale of common stock		-			37,468

		March 31, 2019 (unaudited)				December 31, 2018
Capitalized tenant inducements, net		$	109,380			$	113,640

	Hanover Square
Fair value of assets acquired
Investment property (a)	$	11,493,360
Lease intangibles and other assets (b)		1,093,057
Escrows and property reserves created or acquired (c)		300,000
Above market leases (b)		170,154
Below market leases (b)		(217,047	)
Fair value of net assets acquired (d)	$	12,839,524

Purchase consideration
Consideration paid with cash (e)	$	3,291,404
Consideration paid with assumed mortgage debt (f)		8,527,315
Consideration paid with new mortgage debt (g)		372,685
Consideration paid by noncontrolling interest (h)		648,120
Total consideration (i)	$	12,839,524

							Balance
							December 31,
Property	Monthly Payment		Interest Rate			Maturity	March 31, 2019 (unaudited)			December 31, 2018

Franklin Square	Interest only			4.7	%	October 2021	$	14,275,000		$	14,275,000
Hampton Inn (a)	Interest only			Variable	(b)	November 2020		10,600,000			10,600,000
Hanover Square (c)	$	51,993		4.9	%	December 2027		8,740,154			8,772,562

Unamortized issuance costs, net								(368,454	)		(411,165	)
Total mortgages payable, net							$	33,246,700		$	33,236,397



	For the three months ended March 31, 2023 (unaudited)
			Amortization		Interest rate
	Mortgage		of discounts and		protection		Other
	Interest		capitalized		transaction		interest
	Expense		issuance costs		payments		expense		Total
Franklin Square mortgage	$	126,140	$	7,093	$	—	$	—	$	133,233
Hanover Square mortgage		170,640		3,223		—		—		173,863
Ashley Plaza mortgage		102,133		4,357		—		—		106,490
Brookfield Center mortgage		45,391		2,838		—		—		48,229
Parkway Center mortgage		47,257		2,757		(19,342)		—		30,672
Wells Fargo Mortgage Facility		206,039		6,722		—		—		212,761
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		58,804		—		100,000		158,804
Total interest expense	$	697,600	$	85,794	$	(19,342)	$	100,000	$	864,052


	As of March 31, 2023 (unaudited)				As of December 31, 2022
			Accumulated				Accumulated
			amortization of				amortization
	Accrued		capitalized		Accrued		of capitalized
	interest		issuance costs		interest		issuance costs
Franklin Square mortgage	$	43,448	$	37,829	$	43,448	$	30,736
Hanover Square mortgage		60,539		63,103		38,792		59,880
Ashley Plaza mortgage		—		62,466		35,296		58,109
Brookfield Center mortgage		—		39,731		—		36,893
Parkway Center mortgage		22,041		15,621		26,502		12,864
Wells Fargo Mortgage Facility		—		20,166		—		13,444
Amortization and accrued preferred stock dividends on mandatorily redeemable preferred stock (1)		70,004		648,443		70,004		589,639
Total	$	196,032	$	887,359	$	214,042	$	801,565

For the remaining nine months ending December 31, 2019	$	153,937
2020		10,814,895
2021		14,501,658
2022		237,791
2023		249,471
Thereafter		7,657,402
Total Maturities	$	33,615,154
Less unamortized issuance costs		(368,454	)
Mortgages payable, net	$	33,246,700

For the remaining nine months ending December 31, 2019	$	2,279,803
2020		2,736,315
2021		2,529,467
2022		1,566,444
2023		909,842
Thereafter		2,275,291
Total minimum rents	$	12,297,162

	Period	Annual Rent		Percentage Rent
Years 1 – 3	November, 2017 – October, 2020	$	866,834	6% of Gross Revenue
Years 4 – 5	November, 2020 – October, 2022	$	946,834	10% of Gross Revenue

							Balance
	Monthly		Interest				Balance - March 31,
Property	Payment		Rate			Maturity	2019		2018
Franklin Square	Interest only			4.7	%	October 2021	$	14,275,000	$	14,275,000
Hampton Inn (a)	Interest only			Variable		November 2020		10,600,000		10,600,000
Hanover Square (b)	$	51,993		4.9	%	December 2027		8,740,154		-

Net income (loss)	$	(840,486	)
Depreciation of tangible real property assets (1)		333,590
Depreciation of tenant improvements (2)		60,062
Amortization of leasing commissions (3)		9,678
Amortization of tenant inducements (4)		4,260
Amortization of intangible assets (5)		162,833
Funds from operations	$	(270,063	)

Funds from operations	$	(270,063	)
Amortization of above market leases (1)		54,934
Amortization of below market leases (2)		(23,512	)
Straight line rent (3)		(85,326	)
Capital expenditures, net of escrow reimbursements (4)		(211,417	)
Increase in fair value of interest rate cap (5)		50,403
Amortization of loan issuance costs (6)		42,711
Adjusted funds from operations (AFFO)	$	(442,270	)

~~Exhibit~~ ~~Number~~	~~Description~~
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		First Articles of Amendment to Articles of Incorporation of Medalist Diversified REIT, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 3, 2023).
~~3.2~~ 3.4		Second Articles of Amendment to Articles of Incorporation of Medalist Diversified REIT, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 3, 2023).
3.5		Bylaws of Medalist Diversified REIT, Inc. *
4.1
~~4.1~~	Form of Certificate of Common ~~Stock~~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)
~~4.2~~ 4.3		Description of Medalist Diversified REIT, Inc.’s Securities (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).
10.1		Letter Agreement, ~~of Limited Partnership of~~dated March 10, 2023, by and among Medalist Diversified REIT, Inc., Medalist Diversified Holdings, L.P. *and Medalist Fund Manager, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).
10.2		First Amendment to Consulting Agreement, dated as of March 10, 2023, by and between Medalist Diversified REIT, Inc. and Gunston Consulting, LLC (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed on March 10, 2023).

ay
Date: May 11, 2023

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

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

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

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