(1)	As of December 31, 2020, the Clemson Best Western Property is recorded as an investment property. As of December 31, 2021, the Clemson Best Western Property is recorded as an asset held for sale. Please see the note on “assets held for sale”, below.

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

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

The Company’s depreciation expense on investment properties was $2,415,139 and $3,067,556 for the years ended December 31, 2021, and 2020, respectively.

Capitalized tenant improvements

The Company carries two categories of capitalized tenant improvements on its consolidated balance sheets, both of which are recorded under investment properties, net on the Company’s consolidated balance sheets. The first category is the allocation of acquisition costs to tenant improvements that is recorded on the Company’s 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 consolidated balance sheets. Depreciation expense on both categories of tenant improvements is recorded as a component of depreciation expense on the Company’s 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:


	December 31,
	2021		2020
Capitalized tenant improvements – acquisition cost allocation, net	$	1,840,612	$	1,155,505
Capitalized tenant improvements incurred subsequent to acquisition, net		257,340		179,919

During the years ended December 31, 2021 and 2020, the Company recorded $143,079 and $60,000, respectively, in capitalized tenant improvements. During June 2020, a tenant in the Company’s Franklin Square Property notified the Company that it was abandoning its leased premises and defaulting on its lease. The Company determined that the capitalized tenant improvement associated with this lease that was recorded as part of the purchase of the Franklin Square Property and carried on the Company’s consolidated balance sheets related to this lease of $81,860 should be written off. This amount is included in the loss on impairment reported on the Company’s consolidated statement of operations for the year ended December 31, 2020. No such loss on impairment was recorded during the year ended December 31, 2021.

Depreciation of capitalized tenant improvements incurred subsequent to acquisition was $65,658 and $45,843 for the years ended December 31, 2021 and 2020, respectively.

Depreciation of capitalized tenant improvements arising from the acquisition cost allocation was $371,714 and $267,118 for the years ended December 31, 2021 and 2020, respectively.

Capitalized leasing commissions

The Company carries two categories of capitalized leasing commissions on its 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 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 consolidated balance sheets under investment properties.

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

During the years ended December 31, 2021 and 2020, the Company recorded $75,304 and $56,746, respectively in capitalized leasing commissions. Depreciation of capitalized leasing commissions was $65,414 and $49,578 for the years ended December 31, 2021 and 2020, respectively.

Assets held for sale

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

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

Property continue to meet the criteria for the asset to be recorded an asset held for sale and, as of December 31, 2021, the assets held for sale on the Company’s consolidated balance sheets included certain assets associated with the Clemson Best Western Property. The Company believes that the fair value, less estimated costs to sell, exceeds the Company’s carrying cost, so the Company has not recorded any impairment of assets held for sale related to the Clemson Best Western Property for the year ended December 31, 2021 or 2020.

As of December 31, 2020, the Company committed to a plan to sell an asset group associated with the Hampton Inn Property that includes the land, site improvements, building, building improvements and furniture, fixtures and equipment. As a result, as of December 31, 2020, the Company reclassified these assets, and the related mortgage payable, net, for the Hampton Inn Property as assets held for sale and liabilities associated with assets held for sale, respectively. The Company expected that it would retain cash and restricted cash and would be responsible for the extinguishment of any accounts payable and other liabilities associated with the Hampton Inn Property. Accordingly, these amounts were excluded from the assets and related liabilities that had been reclassified as assets held for sale and liabilities associated with assets held for sale as of December 31, 2020. For the year ended December 31, 2020, the Company recorded an impairment charge of $3,494,058 on assets held for sale. This impairment charge resulted from reducing the carrying value of the Hampton Inn Property for the amounts that exceeded the property’s estimated fair value less estimated selling costs. See Note 2, above. The Company closed on the sale of the Hampton Inn Property on August 31, 2021. (See “Sale of investment property”, below.)

As of December 31, 2021 and 2020, assets held for sale and liabilities associated with assets held for sale consisted of the following:


	December 31,
	2021		2020
Investment properties, net	$	9,846,208	$	12,410,250
Total assets held for sale	$	9,846,208	$	12,410,250


	December 31,
	2021		2020
Mortgages payable, net	$	7,615,368	$	10,352,000
Total liabilities associated with assets held for sale	$	7,615,368	$	10,352,000

Sale of investment property

On August 31, 2021, the Company sold the Hampton Inn Property to an unrelated third party for a sale price of $12.9 million, resulting in a gain on sale of investment properties of $124,641 reported on the Company’s consolidated statement of operations for the year ended December 31, 2021. The Company did not report any gain or loss on the sale of investment properties for the year ended December 31, 2020.

The Company reports properties that are either previously disposed of or currently held for sale in continuing operations in the Company’s 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 Hampton Inn Property and plan to sell the asset group associated with the Clemson Best Western Hotel Property do not constitute a change in the Company’s investment strategy, which continues to include limited service hotels as a targeted asset class.

Operating results of the Hampton Inn Property, which are included in continuing operations, are as follows:


	Year ended December 31,
	2021		2020
Hotel property room revenues	$	1,912,809	$	1,697,432
Hotel property other revenues		28,274		61,250
Total Revenue		1,941,083		1,758,682
Hotel property operating expenses		1,701,451		1,755,684
Depreciation and amortization		—		677,560
Total Operating Expenses		1,701,451		2,433,244
Gain on disposal of investment properties		124,641		—
Operating Income (Loss)		364,273		(674,562)
Interest expense		475,844		811,214
Net Loss from Operations		(111,571)		(1,485,776)

Other income (loss)		178,166		(10,697)
Net Income (Loss)		66,595		(1,496,473)
Net income (loss) attributable to Hampton Inn Property noncontrolling interests		14,651		(1,131,765)
Net Income (Loss) Attributable to Medalist Common Shareholders	$	51,944	$	(364,708)

2021 Property Acquisitions

The Lancer Center Property

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

The Greenbrier Business Center Property

On August 27, 2021, the Company completed its acquisition of the Greenbrier Business Center Property, an 89,290 square foot mixed-use industrial/office property, through a wholly owned subsidiary. The Greenbrier Business Center Property was previously owned by Medalist Fund II-B, LLC, a Virginia limited liability company, which is also managed by the Company’s external manager. This transaction was completed at arms-length. The Greenbrier Business Center Property, built in 1987, was 86.8 percent leased as of December 31, 2021. Major tenants include Bridge Church, Superior Staffing, Consolidated Electrical Distributors and Mid-Atlantic Office Technologies. The purchase price for the Greenbrier Business Center Property was $7,250,000, paid through a combination of cash provided by the Company and the assumption of mortgage debt. The Company’s total investment, including $13,400 of loan issuance costs, was $7,578,762. The Company incurred $178,763 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.

The Parkway Property

On November 1, 2021, the Company completed its acquisition of an undivided 82% tenant-in-common interest in the Parkway Property, a 64,109 square foot mixed-use industrial/office property, through a wholly owned subsidiary. The Parkway Property, built in 1984, was 100% occupied as of December 31, 2021, and is anchored by the City of Virginia Beach and GBRS Group. The purchase price for the Parkway Property was $7,300,000, paid through a combination of $2,138,795 in cash provided by the Company, $469,492 in cash from an unaffiliated tenant-in-common, and net mortgage loan proceeds of approximately $4,989,737. The Company’s total investment, including $110,263 of loan issuance costs, was $7,598,024. The Company incurred $298,024 of acquisition and closing costs which were capitalized and added to the tangible assets acquired. The Company purchased the Parkway Property as a tenant-in-common with PMI Parkway, LLC, an unaffiliated party. The Company acquired an 82% interest in the Parkway Property, and PMI Parkway, LLC owns the remaining 18% interest.


	Lancer		Greenbrier
	Center		Business Center		Parkway
	Property		Property		Property		Total
Fair value of assets acquired
Investment property (a)	$	9,902,876	$	6,896,803	$	7,277,036	$	24,076,715
Lease intangibles and other assets (b)		1,023,753		583,940		472,288		2,079,981
Restricted cash acquired (c)		—		150,000		—		150,000
Above market leases (b)		157,438		48,186		2,494		208,118
Below market leases (b)		(878,682)		(100,167)		(153,794)		(1,132,643)
Preliminary fair value of net assets acquired (d)	$	10,205,385	$	7,578,762	$	7,598,024	$	25,382,171

Purchase consideration
Consideration paid with cash (e)	$	3,783,515	$	3,097,162	$	2,138,795	$	9,019,472
Consideration paid by noncontrolling owner (f)		—		—		469,492		469,492
Consideration paid with new mortgage debt, net (g)		6,421,870		—		4,989,737		11,411,607
Consideration paid with assumed mortgage debt, net (h)		—		4,481,600		—		4,481,600
Preliminary total consideration (i)	$	10,205,385	$	7,578,762	$	7,598,024	$	25,382,171

Represents the fair value of the investment property acquired which includes land, buildings, site improvements, tenant improvements and furniture, fixtures and 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.

b.	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.

c.	Represents an operating reserve funded by the Company at closing.

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

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

f.	Represents cash paid at closing by the noncontrolling owner. In addition to cash paid at closing, the noncontrolling owner provided $34,508 directly to the operating entity for working capital purposes.

g.	Issuance of new mortgage debt to fund the purchase of the Lancer Center Property , net of capitalized loan issuance costs. See Note 5, below.

h.	Assumption of mortgage debt related to the purchase of the Greenbrier Business Center Property. See Note 5, below.

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

December 31,

Capitalized leasing commissions, net