(1)

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

(2)

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

The Company’s depreciation expense on investment properties was $907,221 and $2,471,365 for the three and nine months ended September 30, 2022 and $661,669 and $1,665,203 for the three and nine months ended September 30, 2021, respectively.

Capitalized tenant improvements

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

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


		September 30,
		2022		December 31,
	(unaudited)		2021
Capitalized tenant improvements – acquisition cost allocation, net	$	3,359,767	$	1,840,612
Capitalized tenant improvements incurred subsequent to acquisition, net		349,317		257,340

During the three and nine months ended September 30, 2022, the Company recorded $97,858 and $159,941, respectively, in capitalized tenant improvements. During the three and nine months ended September 30, 2021, the Company recorded $87,229 and $132,379, respectively, in capitalized tenant improvements.

Depreciation of capitalized tenant improvements incurred subsequent to acquisition was $23,968 and $67,964 for the three and nine months ended September 30, 2022, respectively and $18,587 and $45,446 for the three and nine months ended September 30, 2021, respectively.

Depreciation of capitalized tenant improvements arising from the acquisition cost allocation was $185,144 and $441,594 for the three and nine months ended September 30, 2022, respectively and $103,229 and $247,189 for the three and nine months ended September 30, 2021, respectively.

Capitalized leasing commissions

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

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


		September 30, 2022		December 31,
	(unaudited)		2021
Capitalized leasing commissions, net	$	508,906	$	356,327

During the three and nine months ended September 30, 2022, the Company recorded $24,195 and $223,958, respectively in capitalized leasing commissions. During the three and nine months ended September 30, 2021, the Company recorded $33,537 and $45,422, respectively in capitalized leasing commissions. Depreciation of capitalized leasing commissions was $26,942 and $71,379 for the three and nine months ended September 30, 2022, respectively. Depreciation on capitalized leasing commissions was $17,012 and $47,340 for the three and nine months ended September 30, 2021, respectively.

Assets held for sale

The Company records properties as assets held for sale, and any associated mortgages payable, net, as mortgages payable, net, associated with assets held for sale, on the Company's condensed consolidated balance sheets when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one year. As of September 30, 2022 and December 31, 2021, assets held for sale and liabilities associated with assets held for sale consisted of the following:


		September 30, 2022		December 31,
	(unaudited)		2021
Investment properties, net	$	—	$	9,846,208
Total assets held for sale	$	—	$	9,846,208


		September 30, 2022		December 31,
	(unaudited)		2021
Mortgages payable, net	$	—	$	7,615,368
Total liabilities associated with assets held for sale	$	—	$	7,615,368

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 continued to classify the Clemson Best Western Hotel Property asset group and the related mortgage payable, net, as assets held for sale and liabilities associated with assets held for sale, respectively, until the Company closed on the sale of the Clemson Best Western Hotel Property on September 29, 2022.

Sale of investment properties

On September 29, 2022, the Company sold the Clemson Best Western Hotel Property to an unrelated third party for a sale price of $10.015 million, resulting in a loss on sale of investment properties of $389,471 reported on the Company's condensed consolidated statement of operations for the three and nine months ended September 30, 2022. 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 condensed consolidated statement of operations for the three and nine months ended September 30, 2021.

The Company reports properties that have been either previously disposed or that are currently held for sale in continuing operations in the 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 and the Hampton Inn 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 Clemson Best Western Hotel Property and the Hampton Inn Property, which are included in continuing operations, are as follows:


	For the three months ended				For the nine months ended
	September 30,				September 30,
		2022		2021		2022		2021
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Hotel property room revenues	$	376,560	$	1,262,406	$	1,494,836	$	3,970,548
Hotel property other revenues		2,749		17,932		12,813		38,493
Total Revenue		379,309		1,280,338		1,507,649		4,009,041
Hotel property operating expenses		589,311		960,994		1,302,114		2,733,578
Depreciation and amortization		—		—		—		—
Total Operating Expenses		589,311		960,994		1,302,114		2,733,578
(Loss) gain on disposal of investment properties		(389,471)		124,641		(389,471)		124,641
Operating (Loss) Income		(599,473)		443,985		(183,936)		1,400,104
Interest expense		147,589		260,043		426,757		924,339
Net (Loss) Income from Operations		(747,062)		183,942		(610,693)		475,765
Other expense		(172)		(201)		(48)		(190)
Net (Loss) Income		(747,234)		183,741		(610,741)		475,575
Net income attributable to Hampton Inn Property noncontrolling interests		—		1,590		—		19,845
Net (loss) income attributable to Operating Partnership noncontrolling interests		(11,697)		2,387		(12,040)		12,329
Net Loss (Income) Attributable to Medalist Common Shareholders	$	(735,537)	$	179,764	$	(598,701)	$	443,401

2022 Property Acquisitions

On June 13, 2022, the Company completed its 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 September 30, 2022, and 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 the Company and the incurrence of new mortgage debt. The Company’s total investment was $10,279,714. The Company incurred $254,714 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.


		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

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.

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

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.

Represents allocation of the Wells Fargo Mortgage Facility proceeds used to fund the purchase of the Salisbury Marketplace Property, net of $18,847 in capitalized loan issuance costs. See Note 5, below.

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

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 September 30, 2022 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 Manager. The Greenbrier Business Center Property, built in 1987, was 85 percent leased as of September 30, 2022. 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.


		Lancer		Greenbrier
		Center		Business Center
		Property		Property		Total
Fair value of assets acquired:
Investment property (a)	$	9,902,876	$	6,896,803	$	16,799,679
Lease intangibles and other assets (b)		1,023,753		583,940		1,607,693
Restricted cash acquired (c)		—		150,000		150,000
Above market leases (b)		157,438		48,186		205,624
Below market leases (b)		(878,682)		(100,167)		(978,849)
Fair value of net assets acquired (d)	$	10,205,385	$	7,578,762	$	17,784,147

Purchase consideration:
Consideration paid with cash (e)	$	3,783,515	$	3,097,162	$	6,880,677
Consideration paid with new mortgage debt, net (f)		6,421,870		—		6,421,870
Consideration paid with assumed mortgage debt, net (g)		—		4,481,600		4,481,600
Total consideration (h)	$	10,205,385	$	7,578,762	$	17,784,147

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.

Represents an operating reserve funded by the Company at closing.

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

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.

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

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

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