Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
As of June 30, 2020, the last business day of the registrant’s
most recently completed second fiscal quarter, the aggregate market value
of the registrant’s common stock held by non-affiliates of the registrant was $8,688,782, based on the closing sales price
of $1.83 per share as reported on the Nasdaq Capital Market.
As of March 10, 2021, the registrant had 6,380,520 shares of
common stock outstanding.
Documents incorporated by reference: Portions of the registrant’s
Definitive Proxy Statement for the 2020 Annual Meeting of Shareholders (to be filed with the Securities and Exchange Commission
no later than 120 days after the end of the registrant’s fiscal year end) are incorporated by reference in this Annual Report
on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.
This Annual Report
on Form 10-K contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking
statements are included throughout this Annual Report on Form 10-K. 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 Annual Report
on Form 10-K.
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
forward-looking statements contained in this Annual Report on Form 10-K 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 Annual Report on Form 10-K speaks only as of the date of this Annual Report on Form 10-K. 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.
PART I
As used in this
Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “our,” “us,”
and “our company” refer to Medalist Diversified REIT, Inc., a Maryland corporation, together with our consolidated
subsidiaries, including Medalist Diversified Holdings, LP, a Delaware limited partnership of which we are the sole general partner,
except where it is clear from the context that the term only means Medalist Diversified REIT, Inc.
Overview
Medalist
Diversified REIT, Inc. was formed in 2015 as a Maryland corporation, to acquire, reposition, renovate, lease and manage income-producing
properties, with a primary focus on (i) commercial properties, including flex-industrial and retail properties, (ii) multi-family
residential properties and (iii) limited service hotel properties. We invest primarily in properties across secondary and
tertiary markets in the southeastern part of the United States, with a concentration in Virginia, North Carolina, South Carolina,
Georgia, Florida and Alabama. Beginning with our taxable year ended December 31, 2017, we believe that we have operated in
a manner qualifying us as a REIT, and we have elected to be taxed as a REIT for federal income tax purposes. We are externally
managed and advised by Medalist Fund Manager, Inc., a Virginia corporation, or our Manager. Our Manager makes all investment
decisions for us. Our Manager is owned fifty percent each by Mr. Bill Elliott and Mr. Tim Messier, who are co-Presidents
thereof.
We
operate as an UPREIT, and own our properties through our subsidiary, Medalist Diversified Holdings, L.P., a Delaware limited partnership.
We may also pursue other real estate-related investments, including but not limited to equity or other ownership interests in entities
that are the direct or indirect owners of real property, or indirect investments in real property, such as those that may be obtained
in a joint venture. We anticipate that any such equity or joint venture investments to be in controlling interests in such entities.
While we do not intend for these types of investments to be a primary focus, we may make such investments in our Manager’s
sole discretion. We refer to our investments in real property and our real estate-related investments, collectively, as Investments.
Our
principal objectives include sourcing value-add Investments in markets in which we maintain deep industry relationships and local
market knowledge, and the creation of value for stockholders by utilizing our relationships and local knowledge of commercial real
estate investment, management and disposition. There is, however, no assurance that any of these objectives will be achieved.
We
may make Investments in properties owned by unaffiliated third parties, our Manager, or affiliates of our Manager, as determined
by our Manager in its sole discretion.
Management
Our
Manager and its affiliated companies specialize in acquiring, developing, owning and managing value-added commercial real estate
in the Mid-Atlantic and Southeast regions. Through their prior experience in the real estate industry, our Manager’s principals
and their respective affiliates have developed a strong network of relationships with real estate owners, investors, operators
and developers of all sizes and investment formats, across the United States and have a track record of success. We intend to leverage
this experience to gain access to and identify suitable Investments, located across secondary and tertiary markets throughout the
southeastern part of the United States, primarily in Virginia, North Carolina, South Carolina, Georgia, Florida and Alabama. We
do not anticipate making Investments outside of the United States.
The
principal executive offices of the company and our Manager are located at 1051 E. Cary Street, Suite 601, James Center Three,
Richmond, Virginia 23219. Our telephone number is (804) 344-4445.
Investment
Strategies
Our
Manager believes that its focus on value-add and opportunistic commercial real estate provides an attractive balance of risk and
returns. Our Manager intends to use some or all of the following strategies to enhance the performance, quality and value of our
Investments:
|
·
|
proprietary investment sourcing;
|
|
·
|
a rigorous, consistent and replicable process for sourcing and conducting due diligence;
|
|
·
|
appropriate exit strategy;
|
|
·
|
hands-on portfolio management; and
|
|
·
|
focus on opportunistic properties.
|
Our
investment policies provide our Manager with substantial discretion with respect to the selection, purchase and sale of specific
Investments, subject to the limitations in our management agreement. We may revise the investment policies without the approval
of our stockholders. We will review the investment policies at least annually to determine whether the policies are in the best
interests of our stockholders.
Our Portfolio
Our
goal is to acquire and own, through wholly owned subsidiaries of our operating partnership, a portfolio of commercial, retail and
hotel properties located primarily in the southeastern United States. We currently own six Investments comprised of three retail
properties, two hotel properties and one flex/industrial property. We own 100% of the interests in our Investments, except for
one hotel property of which we own 78% tenant-in-common interest in the property and one retail property of which we own 84% tenant-in-common
interest in the property. For further information on properties and our tenant base, see “Item 2—Properties.”
Reporting Segments
We
establish operating segments at the property level and aggregate individual properties into reportable segments based on product
types in which we have Investments. As of December 31, 2020, we had the following reportable segments: retail center
properties, flex center properties and hotel properties.
Competition
We
are subject to significant competition in seeking real estate investments and tenants. We compete with many third parties engaged
in real estate investment activities including other REITs, specialty finance companies, savings and loan associations, banks,
mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental
bodies and other entities. We also face competition from other real estate investment programs, for investments that may be suitable
for us. Many of our competitors have substantially greater financial and other resources than we have and may have substantially
more operating experience than either us or our Manager. They also may enjoy significant competitive advantages that result from,
among other things, a lower cost of capital.
Environmental
Matters
As
the owner of the buildings on our properties, we 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 our buildings. Environmental laws govern the presence, maintenance,
and removal of hazardous materials in buildings, and if we do not comply with such laws, it could face fines for such noncompliance.
Also, we could be liable to third parties (e.g., occupants of the buildings) for damages related to exposure to hazardous materials
or adverse conditions in our buildings, and we could incur material expenses with respect to abatement or remediation of hazardous
materials or other adverse conditions in our buildings. In addition, some of our tenants routinely handle and use hazardous or
regulated substances and wastes as part of their operations at our properties, which are subject to regulation. Such environmental
and health and safety laws and regulations could subject us or our tenants to liability resulting from these activities. Environmental
liabilities could affect a tenant’s ability to make rental payments to us, 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 our operations. We are not aware of any material contingent liabilities, regulatory matters or environmental matters that
may exist.
Staffing
We
are externally managed by our Manager pursuant to a management agreement. We do not have any
employees and our executive officers are employed by our Manager. Our properties are managed by third party property management
companies with whom our Manager contracts.
Available
Information
We
electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
all amendments to those reports with the SEC. Copies of our filings with the SEC may be obtained from the SEC’s website at
www.sec.gov, or downloaded from our website at www.medalistreit.com, as soon as reasonably practicable after such
material has been filed with, or furnished to, the SEC. Access to these filings is free of charge.
We
have omitted a discussion of risk factors because, as a smaller reporting company, we are not required to provide such information.
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
None.
We
establish operating segments at the property level and aggregate individual properties into reportable segments based on product
types in which we have Investments. As of December 31, 2020, we had the following reportable segments: (i) retail center
properties, consisting of the Franklin Square Property, an undivided 84% tenant-in-common interest in the Hanover Square Property
and the Ashley Plaza Property; (ii) flex center properties, consisting of the Brookfield Center Property and (iii) hotel
properties, consisting of the Clemson Best Western Property and an undivided 78% tenant-in-common interest in the Hampton Inn Property.
Name
|
|
Type
|
|
Description
|
Franklin Square Property
|
|
Retail
|
|
134,239 square foot retail property located at 3940 East Franklin Boulevard in Gastonia, North Carolina 28056, on 10.293 acres, built in 2006 and 2007, that is 82.3% occupied as of December 31, 2020 and anchored by Ashley Furniture and Altitude.
|
|
|
|
|
|
Hampton Inn Property
|
|
Hotel
|
|
Located at 7803 National Service Road, Greensboro, North Carolina, 27409. The hotel has 125 rooms, was built in 1996, is approximately 65,400 square feet and sits on 2.162 acres.
|
|
|
|
|
|
Hanover Square Property
|
|
Retail
|
|
73,441 square foot retail center located at 7230 Bell Creek Road in Mechanicsville, Virginia 23111, on 9.630 acres, built in 2007, that is 100% occupied as of December 31, 2020 and anchored by a Marshalls store and an Old Navy store.
|
|
|
|
|
|
Ashley Plaza Property
|
|
Retail
|
|
160,356 square foot retail property located at 201–221 North Berkeley Boulevard in Goldsboro, North Carolina 27534, built in 1977, fully renovated in 2018, 98.0 percent leased as of December 31, 2020, and is anchored by Hobby Lobby, Harbor Freight, Ashley Home Store and Planet Fitness.
|
|
|
|
|
|
Clemson Best Western Property
|
|
Hotel
|
|
Located at 1310 Tiger Boulevard, Clemson, South Carolina, 29631 The Clemson Best Western Property has 148 rooms, was built in 1982, substantially renovated in 2016 and 2017, is approximately 85,300 square feet and sits on 5.92 acres.
|
|
|
|
|
|
Brookfield Center Property
|
|
Flex-industrial
|
|
64,880 square foot flex-industrial property located at 48 Brookfield Center Drive, Greenville, South Carolina 29607, built in 2007, 93.8 percent leased as of December 31, 2020, and is anchored by Gravitopia Trampoline Park and Turning Point Greenville Church.
|
Franklin
Square Property
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, or the Franklin
Square Loan. 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, is anchored by Ashley Furniture,
Monkey Joe’s, Allen Tate, Inc. and Altitude Trampoline Park, or Altitude, and is located in Gastonia, North Carolina.
The
Franklin Square Loan was originally made on February 10, 2016 in the original principal amount of $14,275,000 and assumed
by us at acquisition. The Franklin Square Loan will mature in October, 2021. The Franklin Square Loan requires monthly interest
only payments during the term. The Franklin Square Loan bears interest at 4.7%. The Franklin Square Loan may be prepaid, subject
to certain conditions and limitations contained in the loan documents. The Franklin Square Loan is secured by the Franklin Square
Property.
The
property is an eight building one-floor retail center totaling approximately 134,239 gross leasable area. The building is concrete
slab on grade with spread footings. The exterior walls are a combination of insulation and finish system, metal panel siding, brick
veneer and textured CMU. Retail storefronts are double-pane glass set in anodized aluminum frames. The roof is flat with fully-adhered,
thermoplastic olefin membrane roof system. The parking area comprises 435 spaces.
Tenants occupying 10%
or more of the rentable square footage:
Tenant
|
|
Business
|
|
Leased
Square
Footage
|
|
|
Percentage
of Rentable
Square
Footage
|
|
|
Annual Rent
|
|
|
Lease
Expiration
|
|
Renewal
Options
|
Ashley Furniture
|
|
Retail
|
|
|
34,682
|
|
|
|
25.84
|
%
|
|
$
|
277,456
|
|
|
12/31/2025
|
|
12/31/2030
12/31/2035
|
Altitude Trampoline Park
|
|
Entertainment
|
|
|
30,000
|
|
|
|
22.35
|
%
|
|
|
300,000
|
|
|
7/31/2029
|
|
7/31/2034
7/31/2039
7/31/2044
|
Occupancy data for
the five preceding years (as of December 31, unless otherwise noted):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Occupancy Rate
|
|
|
82.3
|
%
|
|
|
92.4
|
%
|
|
|
92.5
|
%
|
|
|
71.0
|
%
|
|
|
95.1
|
%
|
Average effective annual
rent per square foot for the five preceding years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Average Effective Annual Rent Per Square Foot (1)
|
|
$
|
12.67
|
|
|
$
|
13.47
|
|
|
$
|
11.98
|
|
|
$
|
9.87
|
|
|
$
|
12.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Average effective rent per square foot represents the average annual rent for all occupied space for the respective periods after accounting for rent abatements and concessions but before accounting for tenant reimbursements or rent deferrals.
|
Lease expirations in
the next 10 years:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
Leases Expiring
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
4
|
|
|
|
6
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
1
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square Footage
|
|
|
4,260
|
|
|
|
3,656
|
|
|
|
4,235
|
|
|
|
9,564
|
|
|
|
49,713
|
|
|
|
-
|
|
|
|
9,061
|
|
|
|
-
|
|
|
|
30,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Rent (1)
|
|
$
|
89,460
|
|
|
$
|
83,424
|
|
|
$
|
95,964
|
|
|
$
|
222,924
|
|
|
$
|
622,224
|
|
|
$
|
-
|
|
|
$
|
238,644
|
|
|
$
|
-
|
|
|
$
|
300,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Aggregate Annual Rent (2)
|
|
|
6.0
|
%
|
|
|
5.6
|
%
|
|
|
6.4
|
%
|
|
|
14.9
|
%
|
|
|
41.6
|
%
|
|
|
0.0
|
%
|
|
|
15.9
|
%
|
|
|
0.0
|
%
|
|
|
20.0
|
%
|
|
|
-
|
%
|
|
(1)
|
Annual rent is determined by multiplying the monthly rent in effect at the time of the lease expiration by 12 months.
|
|
|
|
|
(2)
|
The percentage of aggregate annual rent is determined by dividing (i) the annual rent (see note 1) related to expiring leases by (ii) the total 2021 projected rent.
|
Monkey Joe’s, a tenant occupying
12,632 square feet defaulted on its lease and abandoned its premises in June 2020. Monkey Joe’s annual rent for the
remainder of its term, through August 31, 2025, would have been $113,688. During the year ended December 31, 2020, the
lease of a second tenant, Ashley HomeStore, was renegotiated, resulting in a $334,871 reduction in annual rent, but with a 42 month
extension of the term of the lease.
Hampton Inn Property
On November 3,
2017, we purchased an undivided 64% tenant-in-common interest in the property commonly referred to as the Greensboro Airport Hampton
Inn located at 7803 National Service Road in Greensboro, North Carolina, or the Hampton Inn Property. The purchase price for the
Hampton Inn Property was $15,100,000. The Hampton Inn Property has 125 rooms, was built in 1996, is approximately 65,400 square
feet and sits on 2.162 acres. In the transaction, our operating partnership acquired an undivided sixty-four percent (64%) tenant-in-common
interest in the Hampton Inn Property and PMI Greensboro, LLC, or PMI Greensboro, a noncontrolling owner, acquired the remaining
undivided thirty-six percent (36%) tenant-in-common interest, each from Medalist Properties 8, LLC, a Delaware limited liability
company and affiliate of our company.
The purchase price,
closing costs and acquisition fee for the Hampton Inn Property was financed with (a) $7,823,312 in equity, comprised of (i) $4,048,281
in cash from our company, (ii) $300,000 in the form of 3,000 shares of our common stock, (iii) $1,175,000 in the form
of 125,000 common units of limited partnership interest in our operating partnership, or OP Units, and (iv) $2,300,031 in
cash from PMI Greensboro, and (b) net mortgage loan proceeds of $10,181,309 from a senior mortgage loan made by Benefit Street
Partners Realty Operating Partnership, L.P., or the Greensboro Lender, in the original principal amount of $10,600,000, or the
Greensboro Senior Loan.
The cash portion
of the amount contributed by us was financed by (i) a short-term loan made by Virginia Commonwealth Bank in the original principal
amount of $1,500,000, or the Virginia Commonwealth Bank Loan, (ii) a short-term loan made by Medalist Fund I, LLC, our affiliate,
in the original principal amount of $252,000, or the Fund I Loan, (iii) a short-term loan made by Medalist Fund II, LLC, our
affiliate, in the original principal amount of $150,000, or the Fund II Loan, (iv) a short-term loan from Medalist Properties
8, LLC, our affiliate and the seller of the Greensboro Airport Hampton Inn Property, in the original principal amount of $125,238,
or the Seller Loan, (v) a short-term loan from K&R Automotive in the original principal amount of $100,000, or the K&R
Loan, and (vi) a short-term loan from Medalist Fund I-B, LLC, our affiliate, in the original principal amount of $50,000,
or the Fund I-B Loan.
The Hampton Inn
Senior Loan had an initial 36-month term, maturing on November 9, 2020. The borrowers, however, had extension options, which
if exercised, could extend the maturity date of the Hampton Inn Senior Loan for two (2) successive 12-month periods. On November 9,
2020, our company entered into an amendment to the Hampton Inn Property mortgage loan agreement extending the term of the loan
by 18 months to May 9, 2022.
The Hampton Inn
Senior Loan requires monthly interest only payments. Under the terms of the loan amendment extending its term, the Hampton Inn
Senior Loan bears interest at the greater of (i) 6.25% plus the Adjusted LIBOR rate (which is calculated by multiplying the
LIBOR rate by the resulting reciprocal fraction of 1.0 less the reserve percentage of the Greensboro Lender), and (ii) 6.5%.
The Hampton Inn Senior Loan may be prepaid, subject to certain conditions and payments. The Hampton Inn Senior Loan is secured
by the Hampton Inn Property.
The Virginia Commonwealth
Bank Loan carried interest at the rate of 4.223%. The Virginia Commonwealth Bank Loan was repaid in full on January 24, 2018.
The Fund I Loan, the Fund II Loan, the Seller Loan, the K&R Loan and the Fund I-B Loan were repaid in full on January 31,
2018. The Fund I Loan, the Fund II Loan, the K&R Loan and the Fund I-B Loan were issued at interest rates of 5%, and the Seller
Loan was an interest free loan.
In connection
with our acquisition of the Hampton Inn Property, we, through a subsidiary, entered into the Tenants in Common Agreement with PMI
Greensboro, as amended, or the Greensboro TIC Agreement. Among other approvals, under the Greensboro TIC Agreement, the consent
of both tenants in common is required to approve (i) any lease, sublease, deed restriction, or grant of easement of/on all
or any portion of the Hampton Inn Property, (ii) any sale or exchange of the Hampton Inn Property, or (iii) any indebtedness
or loan, and any negotiation or refinancing thereof, secured by a lien on the Hampton Inn Property. In the event the tenants in
common are unable to agree on a decision which requires the consent of both tenants in common, a tenant in common may purchase
the undivided interest of the other tenant in common subject to certain rights contained in the Greensboro TIC Agreement.
On January 1,
2020, we effected a transaction by which PMI Greensboro exchanged (i) approximately 7.55% of its tenant in common interest
in the Hampton Inn Property for the settlement of $867,000 in advances made by our company to the Hampton Inn Property; and (ii) approximately
3.45% of its tenant in common interest in the Hampton Inn Property for 93,580 OP Units. As a result of this transaction, our company’s
tenant-in-common interest in the Hampton Inn Property increased from 64% to 75%, and PMI Greensboro’s tenant in common interest
decreased from 36% to 25%.
Effective on November 9,
2020, the noncontrolling owner exchanged approximately 3.00 percent of its tenant in common interest in the Hampton Inn Property
for the settlement of $1,021,960 in advances made by our company to the Hampton Inn Property. As a result of this transaction,
our company’s tenant-in-common interest in the Hampton Inn Property increased from 75 percent to 78 percent, and the noncontrolling
owner’s tenant-in-common interest decreased from 25 percent to 22 percent. These transactions did not have any impact on
our company’s total assets, liabilities or shareholder’s equity or total equity as of December 31, 2020.
The
hotel is a five-story building totaling approximately 65,400 square feet, with 125 guestrooms. The building is cast in place reinforced
concrete upper level flooring supported by reinforced concrete columns bearing on spread footings and piers. The ground level floor
is a concrete slab-on-grade. The exterior walls are frame with brick veneer with synthetic stucco exterior elements. Carpeting
covers common area corridor and guestroom flooring with ceramic tiles in restrooms and guest services lobby, business center and
breakfast/lounge area. Flat rubber membrane roof covers the building. The parking area comprises 138 spaces, including 6 ADA accessible
stalls. Perimeter sidewalks are concrete.
The
Hampton Inn Property average occupancy rate, average daily rate, or ADR and RevPAR for the past five years are as follows:
Period
|
|
Average
Occupancy
Rate
|
|
|
ADR
|
|
|
RevPAR
|
|
Year Ended December 31, 2020
|
|
|
44.38
|
%
|
|
$
|
84.10
|
|
|
$
|
37.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
60.62
|
%
|
|
$
|
113.41
|
|
|
$
|
68.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
67.62
|
%
|
|
$
|
117.88
|
|
|
$
|
79.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
70.10
|
%
|
|
$
|
115.31
|
|
|
$
|
80.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
70.08
|
%
|
|
$
|
114.80
|
|
|
$
|
80.45
|
|
Hanover Square
Property
On
May 8, 2018, we acquired an undivided 84% tenant-in-common interest in the Shops at the Hanover Square Property from COF North,
LLC, a Virginia limited liability company. The property is comprised of (i) an approximately 73,441 square foot retail center
located on 8.766 acres of land at 7230 Bell Creek Road in Mechanicsville, Virginia 23111 and (ii) a contiguous, undeveloped
parcel of land totaling 0.864 acres. We refer to both parcels herein as the Hanover Square Property. The contract purchase price
for the Hanover Square Property was $12,173,000. We acquired the Hanover Square Property with $3,291,404 in cash from us, $648,120
in cash from an unaffiliated tenant-in-common, and the assumption of a secured loan of approximately $8,527,315 from Langley Federal
Credit Union, which amount was increased by an additional $372,685, or the Hanover Square Property Loan. In connection with the
acquisition, we paid our Manager an acquisition fee of $252,451. Our company purchased the Hanover Square Property as a tenant-in-common
with PMI Hanover Square, LLC, an unaffiliated party. Our company acquired an 84% interest in the Hanover Square Property, and PMI
Hanover Square, LLC owns the remaining 16% interest. The retail center forming a part of the Hanover Square Property was built
in 2007 and, as of December 31, 2020, was 100% occupied.
We
assumed the Hanover Square Property Loan as of the closing of the acquisition. The Hanover Square Property Loan matures on December 1,
2027. The Hanover Square Property Loan requires monthly payments of principal, on a 25-year amortization schedule, and interest
during the term. On May 8, 2020, our company entered into a refinancing transaction with the mortgage lender for the
Hanover Square Property which increased the mortgage amount and reduced the interest rate. Under this transaction, the
principal amount of the loan was increased to $10,500,000 and the interest rate reduced to a fixed rate of 4.25 percent until January 1,
2023, when the interest rate will adjust to a new fixed rate which will be determined by adding 3.00 percentage points to the daily
average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available by the Federal
Reserve Board, with a minimum of 4.25 percent. The fixed monthly payment, which includes principal and interest, increased to $56,882.
In
connection with our acquisition of the Hanover Square Property, we, through a subsidiary, entered into the Tenants in Common Agreement
with PMI Hanover SQ, LLC, or the Hanover Square TIC Agreement. Among other approvals, under the Hanover Square TIC Agreement, the
consent of both tenants in common is required to approve (i) any lease, sublease, deed restriction, or grant of easement of/on
all or any portion of the Hanover Square Property, (ii) any sale or exchange of the Hanover Square Property, or (iii) any
indebtedness or loan, and any negotiation or refinancing thereof, secured by a lien on the Hanover Square Property. In the event
the tenants in common are unable to agree on a decision which requires the consent of both tenants in common, a tenant in common
may purchase the undivided interest of the other tenant in common subject to certain rights contained in the Hanover Square Property
TIC Agreement.
The
property is a three-lot one-floor strip retail shopping center totaling approximately 73,441 square feet of net leasable area.
The building is concrete slab with floor coverings consisting of a mixture of vinyl tile and carpeting. The exterior walls are
masonry with brick veneer and EIFS at front and painted concrete block sides and rear. Windows are plate glass fixed pane storefront
type in aluminum frames. The roof is single-ply, mechanically fastened EPDM over rigid insulation and steel framing in a flat configuration.
The parking area comprises approximately 365 spaces.
As of December 31,
2020, tenants occupying 10% or more of the rentable square footage are:
Tenant
|
|
Business
|
|
|
Leased
Square
Footage
|
|
|
Percentage
of
Rentable
Square
Footage
|
|
|
Annual
Rent
|
|
|
Lease
Expiration
|
|
Renewal
Options
|
Old Navy
|
|
|
Retail
|
|
|
|
15,000
|
|
|
|
20.42
|
%
|
|
$
|
104,400
|
|
|
4/30/2024
|
|
4/30/2029
|
Marshall’s
|
|
|
Retail
|
|
|
|
28,000
|
|
|
|
38.13
|
%
|
|
$
|
322,000
|
|
|
2/28/2022
|
|
2/28/2027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/2032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/28/2037
|
Occupancy data for
the five preceding years (as of December 31):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Occupancy Rate
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
97
|
%
|
|
|
92
|
%
|
|
|
96
|
%
|
Average effective annual
rent per square foot for the five preceding years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Average Effective Annual Rent Per Square Foot (1)
|
|
$
|
14.59
|
|
|
$
|
15.31
|
|
|
$
|
14.71
|
|
|
$
|
15.83
|
|
|
$
|
15.42
|
|
|
(1)
|
Average effective rent per square foot represents the average annual rent for all occupied space for the respective periods after accounting for rent abatements and concessions but before accounting for tenant reimbursements. For the year ended December 31, 2018, we owned the Hanover Square Property for eight months, the period on which the average annual rent per square foot is based.
|
Lease expirations in
the next 10 years:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
Leases
Expiring
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
Footage
|
|
|
-
|
|
|
|
36,400
|
|
|
|
14,900
|
|
|
|
18,140
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Rent (1)
|
|
$
|
-
|
|
|
$
|
543,828
|
|
|
$
|
193,608
|
|
|
$
|
300,288
|
|
|
$
|
-
|
|
|
$
|
69,276
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of Aggregate Annual Rent (2)
|
|
|
0.0
|
%
|
|
|
53.2
|
%
|
|
|
18.9
|
%
|
|
|
29.4
|
%
|
|
|
0.0
|
%
|
|
|
6.8
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
(1)
|
Annual rent is determined by multiplying the monthly rent in effect at the time of the lease expiration by 12 months.
|
|
|
|
|
(2)
|
The percentage of aggregate annual rent is determined by dividing (i) the annual rent (see note 1) related to expiring leases by (ii) the projected 2021 rent.
|
During the year ended December 31,
2020, Old Navy’s lease was renegotiated, resulting in a $104,400 reduction in annual base rent, but with a 24 month extension
of the term of the lease. In addition, Old Navy will pay additional rent based on a percentage of its monthly sales if such sales
are in excess of a specified amount, but there is no guarantee that the tenant’s sales will exceed such amounts.
Ashley Plaza
Property
On August 30,
2019, we purchased from RCG-Goldsboro, LLC, a Georgia limited liability company, Ashley Plaza, a 160,356 square foot retail property
located at 201–221 North Berkeley Boulevard in Goldsboro, North Carolina 27534, or the Ashley Plaza Property, for $15,200,000.
The Ashley Plaza Property was built in 1977, fully renovated in 2018, was 98 percent leased as of December 31, 2020, and is
anchored by Hobby Lobby, Harbor Freight, Ashley Home Store and Planet Fitness.
The
purchase price, closing costs and acquisition fee for the Ashley Plaza Property was financed with $3,281,144 in equity, $1,000,000
in funds from a short term line of credit from Virginia Commonwealth Bank (our company paid $30,000 of loan fees, which
were recorded as capitalized issuance costs and are presented as a direct reduction of the associated debt),
and net mortgage loan proceeds of $11,225,700 from a senior mortgage loan made by Bank of America, N.A., or the Ashley Plaza Lender,
in the original principal amount of $11,400,000, or the Ashley Plaza Senior Loan. In connection with the acquisition, we
paid our Manager an acquisition fee of $309,080.
The
Ashley Plaza Senior Loan will mature on September 1, 2029. The Ashley Plaza Senior Loan required monthly interest only payments
during the first 12 months of the term. For the remainder of the term, the Ashley Plaza Senior Loan requires monthly payments
of principal on a 30-year amortization schedule, and interest. The Ashley Plaza Senior Loan bears
interest at 3.75%. The Ashley Plaza Senior Loan may not be prepaid until June 1, 2029, subject to certain conditions and limitations
contained in the loan documents. The Ashley Plaza Senior Loan is secured by the Ashley Plaza Property.
The
Virginia Commonwealth Bank line of credit had an original term of six months, maturing on February 21, 2020, and bears interest
at 2.5% plus the 30 day LIBOR rate. As of December 31, 2020, the rate in effect was 2.653%. The Virginia Commonwealth Bank
line of credit requires interest payments every three months. Effective on February 21, 2020, the original maturity
date of the line of credit, short term, our company extended the line of credit, short term, for 60 days until April 21, 2020.
On March 3, 2020 our company received $550,000 in funding from the line of credit, short term, to fund working capital and
dividend payments. On April 21, 2020, our company extended the line of credit, short term, for 40 days until May 31,
2020. On May 31, 2020, our company extended the line of credit, short term, for 90 days until August 31, 2020. On August 12,
2020, our company extended the line of credit, short term, until September 30, 2020. On November 4, 2020, our company
made a $225,000 payment to reduce the balance of the line of credit, short term to $325,000, and extended the line of credit, short
term, until March 31, 2021.
The
Ashley Plaza Property consists of a single-story, main retail strip building and two pad sites, all constructed in 1977. Foundations
consist of continuous, concrete spread footers. The floor is a reinforced concrete slab-on-grade. The building superstructure utilizes
load bearing CMU, interior steel columns supporting steel beams and open web steel joists supporting metal decking. The exterior
walls consist of exterior insulation and finishing system, ribbed and painted concrete masonry unit walls. The roof is low-sloped
with a portion covered by a single play TPO roof membrane and a portion covered by tar and gravel roofing. Parking is available
for five hundred and sixty-seven (567) automobiles on asphalt-paved parking areas.
Tenants occupying 10%
or more of the rentable square footage:
Tenant
|
|
Business
|
|
Leased
Square
Footage
|
|
|
Percentage
of Rentable
Square
Footage
|
|
|
Annual Rent
|
|
|
Lease
Expiration
|
|
Renewal
Options
|
Ashley Home Store
|
|
Retail
|
|
|
17,920
|
|
|
|
11.2
|
%
|
|
$
|
161,280
|
|
|
8/31/2028
|
|
8/31/2033
8/31/2038
8/31/2043
8/31/2048
|
Harbor Freight Tools
|
|
Retail
|
|
|
21,416
|
|
|
|
13.4
|
%
|
|
$
|
159,840
|
|
|
2/28/2029
|
|
2/28/2034
2/28/2039
|
Hobby Lobby
|
|
Retail
|
|
|
50,000
|
|
|
|
31.2
|
%
|
|
$
|
250,000
|
|
|
3/31/2029
|
|
3/31/2034
3/31/2039
3/31/2044
|
Planet Fitness
|
|
Fitness
|
|
|
20,131
|
|
|
|
12.6
|
%
|
|
$
|
181,179
|
|
|
4/30/2030
|
|
4/30/2033
4/30/2038
|
Occupancy data for
the five preceding years (as of December 31):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Occupancy Rate
|
|
|
98
|
%
|
|
|
98.0
|
%
|
|
|
52.5
|
%
|
|
|
28.7
|
%
|
|
|
94.6
|
%
|
Average effective annual
rent per square foot for the five preceding years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Average Effective Annual Rent Per Square Foot (1)
|
|
$
|
7.98
|
|
|
$
|
7.74
|
|
|
$
|
4.60
|
|
|
$
|
3.32
|
|
|
$
|
3.44
|
|
|
(1)
|
Average effective rent per square foot represents the average annual rent for all occupied space for the respective periods after accounting for rent abatements and concessions but before accounting for tenant reimbursements. For the year ended December 31, 2019, we owned Ashley Plaza for four months. The average annual rent per square foot is based on rents from the prior owner for period from January, 2019 through August, 2019 and on rents from our ownership period from September, 2019 through December, 2019.
|
Lease expirations in
the next 10 years:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
Leases
Expiring
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
-
|
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
Footage
|
|
|
3,000
|
|
|
|
-
|
|
|
|
18,199
|
|
|
|
1,575
|
|
|
|
4,000
|
|
|
|
-
|
|
|
|
1,400
|
|
|
|
29,320
|
|
|
|
71,416
|
|
|
|
20,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Rent (1)
|
|
$
|
120,000
|
|
|
$
|
-
|
|
|
$
|
104,160
|
|
|
$
|
29,925
|
|
|
$
|
57,600
|
|
|
$
|
-
|
|
|
$
|
40,575
|
|
|
$
|
304,344
|
|
|
$
|
438,324
|
|
|
$
|
181,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of Aggregate Annual Rent (2)
|
|
|
9.9
|
%
|
|
|
0.0
|
%
|
|
|
8.6
|
%
|
|
|
2.5
|
%
|
|
|
4.8
|
%
|
|
|
0.0
|
%
|
|
|
3.3
|
%
|
|
|
25.1
|
%
|
|
|
36.2
|
%
|
|
|
14.9
|
%
|
|
(1)
|
Annual rent is determined by multiplying the monthly rent in effect at the time of the lease expiration by 12 months.
|
|
|
|
|
(2)
|
The percentage of aggregate annual rent is determined by dividing (i) the annual rent (see note 1) related to expiring leases by (ii) the projected 2021 rent.
|
Clemson
Best Western Hotel
On
September 27, 2019, we purchased the Clemson Best Western University Inn located at 1310 Tiger Boulevard, Clemson, South Carolina
29631, or the Clemson Best Western Property, from Heri AUM, LLC, a South Carolina limited liability company, for $9,750,000. The
Clemson Best Western Property has 148 rooms, was built in 1982, substantially renovated in 2016 and 2017, is approximately 85,300
square feet and sits on 5.92 acres.
The
purchase price, closing costs and acquisition fee for the Clemson Best Western Property was financed with $1,767,528 in equity,
$1,000,000 in funds from a short term line of credit from Virginia Commonwealth Bank, and net mortgage loan proceeds of $7,480,746
from a senior mortgage loan made by Ladder Capital Finance, LLC, or the Clemson Lender, in the original principal amount of $7,750,000,
or the Clemson Senior Loan. In connection with the acquisition, we paid our Manager an acquisition fee of $203,091.
The
Clemson Senior Loan has an initial 36-month term, maturing on October 6, 2022. The borrower, however, has an extension option,
which if exercised, could extend the maturity date of the Clemson Senior Loan for one (1) 12-month period. The Clemson Senior
Loan requires monthly interest only payments during the 36-month term. The Clemson Senior Loan bears interest at the greater of
(i) 4.9% plus the 30 day LIBOR rate, and (ii) 7.15%. The Clemson Senior Loan may be prepaid, subject to certain conditions
and payments. The Clemson Senior Loan is secured by the Clemson Best Western Property.
The Virginia
Commonwealth Bank line of credit has a six month term, maturing on February 21, 2020 and bears interest at 2.5% plus the 30
day LIBOR rate. As of December 31, 2020, and 2019 the rate in effect was 2.653% and 4.285%, respectively. The Virginia Commonwealth
Bank line of credit requires interest payments every three months. On February 20, 2020, our company repaid the line
of credit, short term in the amount of $2,000,000 plus accrued interest of $21,437. Effective on February 21, 2020, the maturity
date of the line of credit, short term, our company extended the line of credit, short term for 60 days. On March 3, 2020,
our company received $550,000 in funding from the line of credit, short term to fund working capital and dividend payments. On
April 21, 2020, our company extended the line of credit, short term, for 40 days until May 31, 2020. On May 31,
2020, our company extended the line of credit, short term, for 90 days until August 31, 2020. On August 12, 2020, our
company extended the line of credit, short term, until September 30, 2020. On November 4, 2020, our company made a $225,000
payment to reduce the balance of the line of credit, short term to $325,000, and extended the line of credit, short term, until
March 31, 2021.
The
Clemson Best Western Property is a four-story building totaling approximately 85,300 square feet, with 148 guestrooms. The building
is cast in place concrete upper level flooring supported by a concrete masonry unit (CMU) superstructure bearing on continuous
perimeter reinforced spread footings and interior isolated spread footings and column pads. The ground level floor is a concrete
slab-on-grade. The exterior walls are CMU with faux-stone veneer and EIFS. Common area flooring consists of a combination of carpet,
laminate strip, ceramic tile and vinyl tile. Guest room flooring consists of carpet, laminate and ceramic tile. The upper roof
consists of standing-seam metal panels and the lower roof consists of single-ply thermoplastic polyolefin (TPO) membrane.
The
parking area comprises 240 spaces, including 12 ADA accessible stalls. Perimeter sidewalks are concrete. The hotel is considered
to be overall good and well-maintained condition.
The
Clemson Best Western Property is operated by Marshall Hotels and Resorts.
The
Clemson Best Western Property average occupancy rate, average daily rate, or ADR and RevPAR for the past five years are as follows:
Period
|
|
Average
Occupancy
Rate
|
|
|
ADR
|
|
|
RevPAR
|
|
Year Ended December 31, 2020
|
|
|
47.2
|
%
|
|
$
|
59.08
|
|
|
$
|
27.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
|
39.4
|
%
|
|
$
|
110.16
|
|
|
$
|
43.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
35.1
|
%
|
|
$
|
110.63
|
|
|
$
|
38.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
|
24.6
|
%
|
|
$
|
131.26
|
|
|
$
|
32.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
|
13.7
|
%
|
|
$
|
120.93
|
|
|
$
|
16.58
|
|
Brookfield
Center Property
On October 3,
2019, we purchased from Appian-Brookfield South 48, LLC, a South Carolina limited liability company, Brookfield Center, a 64,880
square foot flex-industrial property located at 48 Brookfield Center Drive, Greenville, South Carolina 29607, or the Brookfield
Center Property, for $6,700,000. The Brookfield Center Property was built in 2007, was 93.8 percent leased as of December 31,
2020, and is anchored by the Gravitopia Trampoline Park and Summit Church.
The
purchase price, closing costs and acquisition fee for the Brookfield Center Property was financed with $1,876,138 in equity, $263,000
in funds from a short term, related party note and net mortgage loan proceeds of $4,736,495 from a senior mortgage loan made by
CIBC, Inc., or the Brookfield Center Lender, in the original principal amount of $4,850,000, or the Brookfield Center Senior
Loan. In connection with the acquisition, we paid our Manager an acquisition fee of $137,000.
The
Brookfield Center Senior Loan will mature on November 1, 2029. The Brookfield Center Senior Loan requires monthly interest
only payments during the first 12 months of the term. For the remainder of the term, the Brookfield Center Senior Loan requires
monthly payments of principal on a 30-year amortization schedule, and interest. The Brookfield Center
Senior Loan bears interest at 3.90%. The Brookfield Center Senior Loan may not be prepaid until September 1, 2029, subject
to certain conditions and limitations contained in the loan documents. The Brookfield Center Senior Loan is secured by the Brookfield
Center Property.
We entered into
related party notes, short term, with the Manager by which the Manager provided an aggregate of $263,000 to fund a portion of our
company’s acquisition of the Brookfield Center Property. The notes are due on demand and bear interest at a rate of 5 percent
annually. On February 20, 2020, our company repaid these related party notes payable, short term, as well as additional related
party notes, short term, in the principal amount of $852,000 plus accrued interest of $11,710.
The
Brookfield Center Property consists of a single-story building on a 7.88 acre parcel of land, and was built in 2007. The foundation
consists of a concrete slab-on-grade with continuous perimeter reinforced concrete spread footings and interior isolated spread
footings and column pads. The floor is a reinforced concrete slab-on-grade. The building superstructure consists of concrete tilt-up
panels with steel columns and steel stud infill walls. The roof is flat and consists of a single ply thermoplastic polyolefin (TPO)
membrane. Parking is available for two hundred and seventy-three (273) automobiles on asphalt-paved parking areas, including 12
ADA accessible spaces.
The
property is considered to be in good overall condition and appears to have been proactively maintained.
Occupancy data for
the five preceding years (as of December 31):
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Occupancy Rate
|
|
|
93.8
|
%
|
|
|
93.8
|
%
|
|
|
93.8
|
%
|
|
|
93.8
|
%
|
|
|
100.0
|
%
|
Average effective annual
rent per square foot for the five preceding years:
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Average Effective Annual Rent Per Square Foot (1)
|
|
$
|
8.33
|
|
|
$
|
6.52
|
|
|
$
|
7.86
|
|
|
$
|
8.49
|
|
|
$
|
6.62
|
|
|
(1)
|
Average effective rent per square foot represents the average annual rent for all occupied space for the respective periods after accounting for rent abatements and concessions but before accounting for tenant reimbursements.
|
Tenants occupying 10%
or more of the rentable square footage:
Tenant
|
|
Business
|
|
|
Leased
Square
Footage
|
|
|
Percentage
of Rentable
Square
Footage
|
|
|
Annual
Rent
|
|
|
Lease
Expiration
|
|
Renewal
Options
|
Turning Point Greenville Church
|
|
|
Religious
|
|
|
|
9,000
|
|
|
|
13.9
|
%
|
|
$
|
92,250
|
|
|
9/30/2025
|
|
|
S&ME
|
|
|
Engineering
|
|
|
|
8,582
|
|
|
|
13.2
|
%
|
|
$
|
101,097
|
|
|
11/30/2023
|
|
N/A
|
Gravitopia
|
|
|
Entertainment
|
|
|
|
35,160
|
|
|
|
54.2
|
%
|
|
$
|
272,576
|
|
|
4/30/2026
|
|
4/30/2031
|
Lease expirations in
the next 10 years:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
2030
|
|
Leases
Expiring
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
Footage
|
|
|
-
|
|
|
|
4,046
|
|
|
|
8,582
|
|
|
|
4,046
|
|
|
|
9,000
|
|
|
|
35,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Rent (1)
|
|
$
|
-
|
|
|
$
|
40,784
|
|
|
$
|
105,994
|
|
|
$
|
39,971
|
|
|
$
|
106,612
|
|
|
$
|
296,986
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of
Aggregate Annual Rent (2)
|
|
|
0.0
|
%
|
|
|
7.5
|
%
|
|
|
19.5
|
%
|
|
|
7.4
|
%
|
|
|
19.6
|
%
|
|
|
54.6
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
(1)
|
Annual rent is determined by multiplying the monthly rent in effect at the time of the lease expiration by 12 months.
|
|
|
|
|
(2)
|
The percentage of aggregate annual rent is determined by dividing (i) the annual rent (see note 1) related to expiring leases by (ii) the total 2021 projected rent.
|
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries
are, from time to time, parties to litigation arising from the ordinary course of their business. We are not presently subject
to any material litigation 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 condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our
common stock has been listed on the Nasdaq Capital Market under the symbol “MDRR” since November 28, 2018. Prior
to that time, there was no public market for our common stock. On March 10, 2021, the closing sale price of our common stock on
the Nasdaq Capital Market was $2.00. On January 11, 2021, we had 2,785 holders of record of our common stock. This figure does
not represent the actual number of beneficial owners of our common stock because shares of our common stock are frequently held
in “street name” by securities dealers and others for the benefit of beneficial owners who may vote the shares.
Given
the uncertainty of the COVID-19 pandemic’s near and potential long-term impact on our company’s business, and in order
to preserve its liquidity position, our company’s board of directors has only declared dividends on our company’s mandatorily
redeemable preferred stock ($344,444 declared and paid during the year ended December 31, 2020). Our company’s board of directors
has not declared a common dividend since the fourth quarter of 2019 ($562,357 paid during the first quarter of 2020) and may consider
continuing to suspend quarterly dividend distributions. The actual amount and timing of distributions will be at the discretion
of our board of directors and will depend upon our financial condition in addition to the requirements of the Internal Revenue
Code of 1986, as amended, and no assurance can be given as to the amounts or timing of future distributions.
Recent Sales of Unregistered Securities
During
January and February 2018, our company issued 839,080 shares of common stock at $10.00 per share, subject to issuance
costs and discounts. The net proceeds were used to (i) retire the short-term notes payable used to finance the purchase of
the Greensboro Hampton Inn and (ii) fund our acquisition of Hanover Square North, which closed in May 2018. These shares
were issued pursuant to an exemption from registration pursuant to Section 3(b)(2) of the Securities Act.
During
June 2018, our company issued 8,500 shares of common stock at $10.00 per share, subject to issuance costs and discounts. The
net proceeds were used for working capital and general corporate purposes. These shares were issued pursuant to an exemption from
registration pursuant to Section 3(b)(2) of the Securities Act.
During September 2018,
our company issued warrants to purchase 49,890 shares of our common stock at a price of $0.001 per warrant. The proceeds were used
for working capital and general corporate purposes. The warrants are exercisable from September 12, 2019 through July 8,
2021 at a price of $12.50. The warrants were issued pursuant to an exemption from registration pursuant to Section 4(a)(2) the
Securities Act.
During
May 2019, our company issued shares of common stock at $4.80 per share, subject to issuance costs and discounts. The proceeds
were used as working capital and general corporate purposes. The warrants were issued pursuant to an exemption from registration
pursuant to Section 4(a)(2) the Securities Act.
During January 2020,
our company’s operating partnership issued 93,580 OP Units in exchange for tenant in common interests in the Greensboro Hampton
Inn. These securities were issued pursuant to an exemption from registration pursuant to Section 4(a)(2) the Securities
Act.
During October 2020,
our company issued a $1,500,000 convertible debenture. The proceeds were used as working capital and general corporate purposes.
The convertible debenture was issued pursuant to an exemption from registration pursuant to Section 4(a)(2) the Securities
Act.
During December 2020,
our company issued a $2,000,000 convertible debenture. The proceeds were used as working capital and general corporate purposes.
The convertible debenture was issued pursuant to an exemption from registration pursuant to Section 4(a)(2) the Securities
Act.
During January 2021,
our company issued a $1,500,000 convertible debenture. The proceeds were used as working capital and general corporate purposes.
The convertible debenture was issued pursuant to an exemption from registration pursuant to Section 4(a)(2) the Securities
Act.
ITEM 6. SELECTED FINANCIAL
DATA
Not Applicable.
ITEM 7. 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 consolidated financial statements and the related
notes thereto of Medalist Diversified REIT, Inc. for the years ended December 31, 2020 and December 31, 2019.
This management’s
discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks,
uncertainties and assumptions. See “Cautionary Statement Regarding Forward-Looking 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.
Company Overview
Medalist Diversified
REIT Inc. is a Maryland corporation formed on September 28, 2015. Beginning with our taxable year ended December 31,
2017, we believe that we have operated in a manner qualifying us as a real estate investment trust (“REIT”), and we
have elected to be taxed as a REIT for federal income tax purposes. Our company serves as the general partner of Medalist Diversified
Holdings, LP which was formed as a Delaware limited partnership on September 29, 2015.
Our company was
formed to acquire, reposition, renovate, lease and manage income-producing properties, with a primary focus on (i) commercial
properties, including flex-industrial and retail properties, (ii) multi-family residential properties and (iii) limited
service hotel properties in secondary and tertiary markets in the southeastern part of the United States, with an expected concentration
in Virginia, North Carolina, South Carolina, Georgia, Florida and Alabama. We may also pursue, in an opportunistic manner, other
real estate-related investments, including, among other things, equity or other ownership interests in entities that are the direct
or indirect owners of real property, and indirect investments in real property, such as those that may be obtained in a joint venture.
While these types of investments are not intended to be a primary focus, we may make such investments in our Manager’s discretion.
Our company is
externally managed by Medalist Fund Manager, Inc. (the “Manager”). The Manager makes all investment decisions
for our company. The Manager and its affiliated companies specialize in acquiring, developing, owning and managing value-added
commercial real estate in the Mid-Atlantic and Southeast regions. The Manager oversees our company’s overall business and
affairs and has broad discretion to make operating decisions on behalf of our company and to make investment decisions. Our company’s
stockholders are not involved in its day-to-day affairs.
As of December 31,
2020, our company owned and operated six 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, the Hanover North Shopping Center (the “Hanover Square
Property”), a 73,440 square foot retail property located in Mechanicsville, Virginia, the Ashley Plaza Shopping Center (the
“Ashley Plaza Property”), a 160,356 square foot retail property located in Goldsboro, North Carolina, the Clemson Best
Western University Inn (the “Clemson Best Western Property”), a hotel with 148 rooms on 5.92 acres in Clemson, South
Carolina and Brookfield Center (the “Brookfield Center Property”), a 64,880 square foot mixed-use industrial/office
property located in Greenville, South Carolina. As of December 31, 2020, we owned 78 percent of the Hampton Inn Property as
a tenant in common with a noncontrolling owner which owned the remaining 22 percent interest. The tenants in common lease the Hampton
Inn Property to a taxable REIT subsidiary that, as of December 31,2020, is also owned 78 percent by us and 22 percent by the
noncontrolling owner. As of December 31, 2020, we owned 84 percent of the Hanover Square Property as a tenant in common with
a noncontrolling owner which owned the remaining 16 percent interest.
Reporting Segments
We establish operating
segments at the property level and aggregate individual properties into reportable segments based on product types in which we
have Investments. As of December 31, 2020, our reportable segments were retail center properties, flex center properties,
and hotel properties.
Recent Trends
and Activities
Significant events
that have impacted our company are summarized below.
Equity Issuances
On May 8, 2019, our company issued
and sold 1,666,667 shares of common stock at an offering price of $4.80 per share. Net proceeds from the issuance totaled $7,222,501,
which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and reimbursable
legal fees and other expenses. On May 21, 2019, our company issued and sold 227,062 shares of common stock at an offering
price of $4.80 per share, pursuant to its underwriter’s over-allotment option related to the May 8, 2019 offering. Net
proceeds from the issuance totaled $991,807, which includes the impact of discounts and offering costs, including the underwriter’s
selling commissions. On May 31, 2019, our company issued and sold 270,833 shares of common stock pursuant to a private placement
at an offering price of $4.80 per share. Net proceeds from the issuance totaled $1,183,998, which includes the impact of discounts
and offering costs, including the underwriter’s selling commissions and reimbursable legal fees. During the year ended December 31,
2019, our company also incurred $116,632 and $887,465, respectively, in offering costs, including legal, accounting, advisory and
other professional fees.
Mandatorily
redeemable preferred stock issuance
On February 19,
2020, our company issued and sold 200,000 shares of 8.0% Series A Cumulative Redeemable Preferred Stock (“Series A
Preferred Stock”) at $23.00 per share, resulting in gross proceeds of $4,600,000. Net proceeds from the issuance were $3,860,882,
which includes the impact of the underwriter’s discounts, selling commissions and legal, accounting and other professional
fees. At issuance, our company created an escrow for $371,111 for the first year of dividends. As of December 31, 2020 and
December 31, 2019, respectively, the balance of the preferred dividend escrow was $97,632 and $0, respectively, which is reported
as restricted cash on our company’s consolidated balance sheet. Our company has classified the Series A 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 consolidated statements of operations.
Common stock grants under the 2018 Equity Incentive Plan
On July 18,
2019, our company’s Board of Directors approved a grant of 14,000 shares of our common stock to our company’s five
independent directors. The effective date of the grants was July 18, 2019. The shares granted vested immediately and were
unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the shares vested
immediately, the fair value of the grants, or $61,600, was recorded to expense on the effective date of the grant. The fair value
of the grants was determined by the market price of our company’s common stock on the effective date of the grant.
On March 11,
2020, our company’s Board of Directors approved a grant of 156,522 shares of Common Shares to two employees of the Manager
who also serve as directors of our company, a grant of 65,215 Common Shares to our company’s five independent directors,
and a grant of 26,087 shares to an Affiliate of our company (as defined by the Plan) who provides contract financial and accounting
services to our company. The effective date of the grants was March 11, 2020. The Common Shares granted vested immediately
and were unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common
Shares vested immediately, the fair value of the grants, or $569,995, was recorded to share based compensation expense 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.
2019 Acquisitions
The Ashley Plaza Property
On August 30,
2019, our company completed its acquisition of the Ashley Plaza Property, a 160,356 square foot retail property located in Goldsboro,
North Carolina, through a wholly owned subsidiary. The Ashley Plaza Property, built in 1977 and fully renovated in 2018, was 98
percent leased as of December 31, 2020 and is anchored by Hobby Lobby, Harbor Freight and Ashley Home Store. The purchase
price for the Ashley Plaza Property was $15,200,000 paid through a combination of cash provided by our company, the incurrence
of new mortgage debt and funds from a line of credit, short term. Our company’s total investment, including acquisition and
closing costs, escrows and lease reserves was $15,885,444, including $204,300 of loan issuance costs. Our company paid $357,823
of acquisition and closing costs which were capitalized and added to the tangible assets acquired.
The Clemson Best Western Property
On September 27,
2019, our company completed its acquisition of the Clemson Best Western Property, a 148 room hotel on 5.92 acres located in Clemson,
South Carolina, through a wholly owned subsidiary. The Clemson Best Western Property was built in 1982 and substantially renovated
in 2016 and 2017. The purchase price for the Clemson Best Western Property was $9,750,000 paid through a combination of cash provided
by our company, the incurrence of new mortgage debt and funds from a line of credit, short term. Our total investment, including
acquisition and closing costs, escrows and lease reserves was $10,786,782, including $269,254 of loan issuance costs. Our company
paid $578,953 of acquisition and closing costs which were capitalized and added to the tangible assets acquired.
The Brookfield
Center Property
On October 3,
2019, our company completed its acquisition of the Brookfield Center Property, a 64,880 square foot flex-industrial property located
in Greenville, South Carolina, through a wholly owned subsidiary. The Brookfield Center Property, built in 2007, was 93.8 percent
leased as of December 31, 2020. Major tenants include Gravitopia Trampoline Park and Turning Point Church. The purchase price
for the Brookfield Center Property was $6,700,000 paid through a combination of cash provided by our company, the incurrence of
new mortgage debt and funds from related party notes payable, short term. Our company’s total investment, including $113,505
of loan issuance costs, was $7,102,643. Our company paid $207,957 of acquisition and closing costs which were capitalized and added
to the tangible assets acquired.
Financing Activities
Mortgages payable
Our company financed its acquisitions
of its investment properties through mortgages, as follows:
|
|
Monthly
|
|
|
Interest
|
|
|
|
|
|
December 31,
|
|
Property
|
|
Payment
|
|
|
Rate
|
|
|
Maturity
|
|
|
2020
|
|
|
2019
|
|
Franklin Square (a)
|
|
|
Interest only
|
|
|
|
4.70
|
%
|
|
|
October 2021
|
|
|
$
|
14,275,000
|
|
|
$
|
14,275,000
|
|
Hanover Square (b)
|
|
$
|
56,882
|
|
|
|
4.25
|
%
|
|
|
December 2027
|
|
|
|
10,380,791
|
|
|
|
8,592,195
|
|
Ashley Plaza (c)
|
|
$
|
52,795
|
|
|
|
3.75
|
%
|
|
|
September 2029
|
|
|
|
11,349,518
|
|
|
|
11,400,000
|
|
Clemson Best Western (d)
|
|
$
|
22,876
|
|
|
|
Variable
|
|
|
|
October 2022
|
|
|
|
7,750,000
|
|
|
|
7,750,000
|
|
Brookfield Center (e)
|
|
|
Interest only
|
|
|
|
3.90
|
%
|
|
|
November 2029
|
|
|
|
4,842,887
|
|
|
|
4,850,000
|
|
Total mortgages payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,598,196
|
|
|
$
|
46,867,195
|
|
|
(a)
|
The mortgage loan for the Franklin Square Property matures in October 2021. Our company plans to commence efforts in early 2021 to refinance this mortgage, but there is no guarantee that our efforts will be successful. See Future Liquidity Needs, below.
|
|
(b)
|
On May 8, 2020, our company entered
into a refinancing transaction with the mortgage lender for the Hanover Square Property which increased the mortgage amount and
reduced the interest rate. Under this transaction, the principal amount of the loan was increased to $10,500,000 and
the interest rate reduced to a fixed rate of 4.25 percent until January 1, 2023, when the interest rate will adjust to a new
fixed rate which will be determined by adding 3.00 percentage points to the daily average yield on United States Treasury securities
adjusted to a constant maturity of five years, as made available by the Federal Reserve Board, with a minimum of 4.25 percent.
The fixed monthly payment, which includes principal and interest, increased to $56,882. Our company has accounted for this transaction
as a loan modification. Under this accounting treatment, our company recorded $1,500 in capitalized loan issuance costs for loan
fees paid to the lender and recorded $43,852 in third party costs associated with the transaction as an expense under retail property
operating expenses on our company’s consolidated statement of operations for the year ended December 31, 2020.
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 percent. As of December 31, 2020 and December 31,
2019, respectively, our company believes that it is compliant with these covenants.
|
|
(c)
|
The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75 percent and is 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 Clemson Best Western Property bears interest at a variable rate based on LIBOR with a minimum rate of 7.15 percent. The interest rate payable is the USD LIBOR one-month rate plus 4.9 percent. As of December 31, 2020, the rate in effect for the Clemson Best Western Property mortgage was 7.15 percent.
|
|
(e)
|
The mortgage loan for the Brookfield Property bears interest at a fixed rate of 3.90 percent and is interest only for the first twelve months. Beginning on November 1, 2020, the monthly payment became $22,876 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty year amortization schedule.
|
Our company financed its acquisitions
of its assets held for sale through mortgages, which as of December 31, 2020 are recorded as mortgages payable, net, associated
with assets held for sale, on our consolidated balance sheets, as follows:
|
|
Monthly
|
|
Interest
|
|
|
|
December 31,
|
|
Property
|
|
Payment
|
|
Rate
|
|
Maturity
|
|
2020
|
|
|
2019
|
|
Hampton Inn (a)
|
|
Interest only
|
|
Variable
|
|
May 2022
|
|
|
10,400,000
|
|
|
|
10,600,000
|
|
|
(a)
|
As of December 31, 2020, our company
reclassified the mortgage loan for the Hampton Inn property to liabilities associated with assets held for sale. The mortgage loan
for the Hampton Inn property matured on November 9, 2020 and, on November 9, 2020 our company entered into an amendment
to extend the loan until May 2022. Our company has accounted for this transaction as a loan modification in accordance with
ASC 470. Under this accounting treatment, our company recorded $54,000 in capitalized loan issuance costs for loan fees paid to
the lender and recorded $22,784 in third party costs associated with the transaction as an expense under hotel property operating
expenses on our company’s consolidated statement of operations for the year ended December 31, 2020.
The mortgage loan for the Hampton Inn Property
bears interest at a variable rate based on LIBOR with a minimum rate of 6.50 percent. The interest rate payable is the USD LIBOR
one-month rate plus 6.25 percent. As of December 31, 2020 and 2019, the rate in effect for the Hampton Inn Property
mortgage was 6.50 percent and 6.75 percent, respectively.
|
Convertible
debenture issuance
On October 27, 2020, our company entered
into an agreement providing for the issuance of convertible debentures in the principal amount of $5 million to a financing entity.
The debentures were issued at a 5 percent discount to the principal amount, accrue interest at a rate of 5.00 percent per annum
(payable at maturity), and were closed in three separate tranches. During the year ended December 31, 2020, two tranches were
closed with a total principal amount of $3,500,000 resulting in net proceeds of $2,926,483. The third tranche closed on January 5,
2021 in the principal amount of $1,500,000 and net proceeds of $1,305,000. (See Note 5 of the accompanying notes to consolidated
financial statements.)
Line of credit, short term
As of December 31, 2020 and December 31,
2019, our company had a line of credit, short term, outstanding in the principal amount of $325,000 and $2,000,000, respectively.
The line of credit, short term, was established on August 21, 2019 to provide short term funding for our company’s acquisition
of the Ashley Plaza Property and the Clemson Best Western Property (see note on 2019 acquisitions, above). On February 20,
2020, our company repaid the line of credit, short term, in the amount of $2,000,000 plus accrued interest of $21,437. Effective
on February 21, 2020, the original maturity date of the line of credit, short term, our company extended the line of credit,
short term, for 60 days until April 21, 2020. On March 3, 2020 our company received $550,000 in funding from the line
of credit, short term, to fund working capital and dividend payments. On April 21, 2020, we extended the line of credit, short
term, for 40 days until May 31, 2020. On May 31, 2020, we extended the line of credit, short term, for 90 days until
August 31, 2020. On August 12, 2020, we extended the line of credit, short term, until September 30, 2020. On November 4,
2020, our company made a $225,000 payment to reduce the balance of the line of credit, short term to $325,000, and extended the
line of credit, short term until March 31, 2021.
The line of credit, short term, bears interest
at a variable rate calculated at 250 basis points over USD 1-Month LIBOR as published in the Wall Street Journal. The rate adjusts
on the first day of each month during which the loan is outstanding. As of December 31, 2020 and 2019, the rate in effect
for the line of credit, short term, was 2.653 percent and 4.285 percent, respectively. For the year ended December 31, 2020,
interest expense includes amortization of the capitalized issuance costs using the straight-line method, which approximates to
the effective interest method, over the initial six-month term of the loan.
Related party notes payable, short term
As of December 31,
2020 and December 31, 2019, respectively, our company had $0 and $852,000, respectively, in related party notes payable, short
term, outstanding. During the year ended December 31, 2020 our company repaid related party notes payable, short term, in
the principal amount of $852,000 plus accrued interest of $11,710. These notes were issued on September 30, 2019 in the principal
amount of $183,000 and on October 2, 2019 in the principal amount of $80,000, both to fund a portion of our company’s
acquisition of the Brookfield Center Property, which closed on October 3, 2019. In addition, our company issued a related
party note payable in the principal amount of $589,000 on November 29, 2019 to pay dividends and fund working capital requirements.
The related party notes payable bore interest at a rate of 5 percent annually.
Notes payable
As of December 31, 2020 and 2019,
our company had a note payable outstanding in the principal amount of $176,300 and $0, respectively, under the Small Business Administration’s
Paycheck Protection Program (the “SBA PPP Loan Program”). This note was issued on April 30, 2020, on behalf of
a subsidiary, MDR PMI Greensboro TRS, LLC, the entity that operates the Hampton Inn Property. Our company believes that it has
used these funds pursuant to the limitations established by the SBA PPP Loan Program for payroll and other eligible expenses for
the Hampton Inn Property. Under the terms of the loan, all, a portion or none of the loan may be forgiven, based on criteria established
by the SBA PPP Loan Program. Our company believes that it has expended the loan funds in accordance with the criteria required
for forgiveness and has submitted its forgiveness application to the SBA PPP Loan Program, but there is no assurance that all or
a portion of the loan will be forgiven. Any portion of the loan that is not forgiven will bear interest at a fixed rate of 1 percent
per annum and be repaid in 18 monthly installments of principal and interest of $9,923. Under the original terms of the SBA PPP
Loan Program, principal and interest payments would have commenced on November 1, 2020. However, due to changes in regulations
for the SBA PPP Loan Program, commencement of principal and interest payments were extended until ten months after the completion
of the borrower’s “Covered Period”, as defined by the SBA PPP Loan Program to provide borrowers sufficient time
to submit loan forgiveness applications. Under these guidelines, our company’s principal and interest payments for the Hampton
Inn PPP loan would commence on August 15, 2021 if our company does not qualify for loan forgiveness.
In addition, during the year ended December 31,
2020, a second note payable in the principal amount of $129,600 that was issued on April 30, 2020 under the SBA PPP Loan Program
to a wholly owned subsidiary, MDR Clemson TRS, LLC, the entity that operates the Clemson Best Western Property, was forgiven by
the SBA. Our company used these funds pursuant to the limitations established by the SBA PPP Loan Program for payroll and other
eligible expenses for the Clemson Best Western Property. On December 8, 2020, our company received confirmation that the note
payable had been forgiven, in full, including $799 of accrued interest. The forgiven principal and interest were recognized as
a gain upon debt extinguishment and are recorded on our company’s consolidated statement of operations as other income.
COVID-19 Impact
The following
discussion is intended to provide certain information regarding the impacts of the COVID-19 pandemic on our company’s business
and management’s efforts to respond to those impacts. Unless otherwise specified, the statistical and other information regarding
our company’s portfolio are estimates based on information available to our company as of the date of this Annual Report
on Form 10-K. As a result of the rapid development, fluidity and uncertainty surrounding this situation, our company expects
that such statistical and other information will change, potentially significantly, going forward and may not be indicative of
the actual impact of the COVID-19 pandemic on our company’s business, operations, cash flows and financial condition for
the third quarter of 2020 and future periods.
Since March, 2020,
the spread of COVID-19 has had a significant impact on the global economy, the U.S. economy, the economies of the local markets
throughout the Mid-Atlantic states in which our company’s properties are located, and the broader financial markets. Nearly
every industry was impacted directly or indirectly, and the U.S. hospitality and retail markets came under severe pressure due
to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health
crisis such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home”
orders. While some of these measures have been relaxed by the respective governmental authorities, with the uncertainty resulting
from the continued spread of COVID-19, new variants of the disease, delays in the production and delivery of vaccines, 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, the negative impact on room demand for our hotel properties
and consumer demand for the goods and services of our retail tenants within our portfolio could continue to be significant in the
coming months.
Impact on Retail
Center and Flex Center Properties
As of the date of this Annual Report on
Form 10-K, all of the tenants in our company’s retail properties (the Franklin Square Property, Hanover Square Property
and Ashley Plaza Property) and flex property (Brookfield Center) are open, with two exceptions. A tenant in the Franklin Square
Property defaulted on its lease and abandoned its premises, resulting in the recognition of the loss on impairment discussed in
the accompanying notes to consolidated financial statements. A second tenant in the Hanover Square Property which was operating
under bankruptcy protection, did not renew its lease upon its expiration. However, this space was re-leased during the year ended
December 31, 2020 and the tenant has taken occupancy and will commence rent payments during the year ended December 31,
2021.
As is the case
with retail landlords across the U.S., our company received a number of rent relief requests from tenants, which our company evaluated
on a case-by-case basis. As of the date of this Annual Report on Form 10-K, our company has granted lease concessions in the
form of (i) rent deferrals or (ii) rent abatements.
Under the rent
deferral agreements, the tenants have agreed to repay unpaid rent over a specified time period or before a certain date. As of
the date of this Annual Report on Form 10-K, our company has agreed to defer base rent payments of $228,345 from various tenants
that were due during the year ended December 31, 2020. In addition, our company has agreed to defer future rents of $81,773
that would have been due during the period from January 1, 2021 through December 31, 2021. Such deferrals were for various
terms, but will be repaid by January 1, 2023.
|
|
Rent Deferrals
|
|
|
Rent Deferral Repayments
|
|
|
|
Number
|
|
|
Year ended
December 31,
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
|
|
|
of
Tenants
|
|
|
2020
|
|
|
2021
|
|
|
Total
Deferrals
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Total
Repayments
|
|
Franklin Square
|
|
|
1
|
|
|
$
|
56,250
|
|
|
$
|
-
|
|
|
$
|
56,250
|
|
|
$
|
-
|
|
|
$
|
53,581
|
|
|
$
|
2,669
|
|
|
$
|
56,250
|
|
Hanover Square
|
|
|
1
|
|
|
|
26,833
|
|
|
|
-
|
|
|
|
26,833
|
|
|
|
26,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,833
|
|
Ashley Plaza
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Brookfield Center
|
|
|
1
|
|
|
|
145,262
|
|
|
|
81,773
|
|
|
|
227,035
|
|
|
|
-
|
|
|
|
227,035
|
|
|
|
-
|
|
|
|
227,035
|
|
Total
|
|
|
3
|
|
|
$
|
228,345
|
|
|
$
|
81,773
|
|
|
$
|
310,118
|
|
|
$
|
26,833
|
|
|
$
|
280,616
|
|
|
$
|
2,669
|
|
|
$
|
310,118
|
|
Under the rent
abatement agreements, our company has agreed to permanently abate rent in exchange for lease extensions of between one and three
years, depending on the amount of the abatement. In one case, our company has agreed to abate a portion of a tenant’s base
rent in exchange for future rent payments based on the tenant’s monthly sales. As of the date of this Annual Report on Form 10-K,
our company has agreed to abate base rent payments of $346,897 from various tenants that would have been paid during the year ended
December 31, 2020. In addition, our company has agreed to abate future rent payments totaling $439,271 that would have been
due during the year ending December 31, 2021 and $174,330 that would have been due during the year ending December 31,
2022.
|
|
|
|
|
For the year ended December 31,
|
|
|
|
|
|
|
Number
of
Tenants
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Total Rent
Abated
|
|
Franklin Square
|
|
|
2
|
|
|
$
|
204,721
|
|
|
$
|
334,871
|
|
|
$
|
139,530
|
|
|
$
|
679,122
|
|
Hanover Square
|
|
|
2
|
|
|
|
71,971
|
|
|
|
104,400
|
|
|
|
34,800
|
|
|
|
211,171
|
|
Ashley Plaza
|
|
|
2
|
|
|
|
70,205
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,205
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
6
|
|
|
$
|
346,897
|
|
|
$
|
439,271
|
|
|
$
|
174,330
|
|
|
$
|
960,498
|
|
In addition to
the deferrals and abatements, two tenants in our company’s retail property centers declared bankruptcy and one tenant defaulted
on its lease during the year ended December 31, 2020. While under bankruptcy protection, the first tenant’s term expired
on June 30, 2020 and our company was unable to collect rent totaling $18,750. This rent was recognized and then written off
and is recorded as bad debt expense on our company’s consolidated statement of operations for the year ended December 31,
2020. A second tenant declared bankruptcy and then emerged from bankruptcy protection during the year ended December 31, 2020.
As part of the bankruptcy proceeding, the tenant’s lease was restructured, resulting in a rent abatement of $77,653 for the
year ended December 31, 2020. In addition, under the restructured lease, our company granted rent reductions for the year
ended December 31, 2021 of $53,760, for the year ended December 31, 2022 of $22,760 and for the year ended December 31,
2023 of $7,300. Under the restructured lease, the Tenant’s lease term, which originally expired in 2023, was extended for
one five-year period.
A third tenant
defaulted on its lease and abandoned its premises. During the year ended December 31, 2020, our company wrote off a total
of $34,556 in rent and CAM. Of this amount, $16,842 was initially recorded as retail center property revenues, $8,817 was initially
recorded as retail property tenant reimbursements on our company’s consolidated statement of operations during the year ended
December 31, 2020 and $8,897 was initially recorded as retail center property revenues and retail property tenant reimbursements
on our company’s consolidated statement of operations during the year ended December 31, 2019. These amounts were then
recorded as bad debt expense on our company’s consolidated statement of operations for the year ended December 31, 2020.
In addition, our company was not able to collect rent totaling $61,055 for the year ending December 31, 2020 and will not
collect future rents of $530,544 under this lease.
|
|
Rent Losses and Reductions Due to Bankruptcies,
Bankruptcy Restructuring and Tenant Default
|
|
|
|
Number
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
of
Tenants
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Total Rent
Reductions
|
|
Franklin Square
|
|
|
1
|
|
|
$
|
77,898
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
75,792
|
|
|
$
|
608,442
|
|
Hanover Square
|
|
|
1
|
|
|
|
14,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,563
|
|
Ashley Plaza
|
|
|
1
|
|
|
|
77,653
|
|
|
|
53,760
|
|
|
|
22,760
|
|
|
|
7,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
161,473
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
3
|
|
|
$
|
170,114
|
|
|
$
|
167,448
|
|
|
$
|
136,448
|
|
|
$
|
120,988
|
|
|
$
|
113,688
|
|
|
$
|
75,792
|
|
|
$
|
784,478
|
|
In return for
(i) granting abatements and (ii) restructuring the lease of the tenant under bankruptcy protection, our company received
lease extension agreements of between one and five years, resulting in additional future rents payable under these leases as follows.
|
|
Additional Rent Under Term Extensions (1)
|
|
|
|
For the year ended December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Franklin Square
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161,849
|
|
|
$
|
277,456
|
|
|
$
|
333,039
|
|
|
$
|
360,830
|
|
|
$
|
111,165
|
|
|
$
|
1,244,339
|
|
Hanover Square
|
|
|
-
|
|
|
|
-
|
|
|
|
242,069
|
|
|
|
259,306
|
|
|
|
76,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
577,925
|
|
Ashley Plaza
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,993
|
|
|
|
125,000
|
|
|
|
128,333
|
|
|
|
744,858
|
|
|
|
1,123,184
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
403,918
|
|
|
$
|
661,755
|
|
|
$
|
534,589
|
|
|
$
|
489,163
|
|
|
$
|
856,023
|
|
|
$
|
2,945,448
|
|
|
(1)
|
Excludes future rent payments based on tenant’s monthly sales revenues.
|
There is no assurance
that our company will receive these future rent payments.
While our company’s rent collections
from its retail and flex center properties stabilized during the last six months of the year, the continued impact of COVID-19
on revenues from our company’s retail and flex center properties and tenants remains uncertain. Future revenues will be impacted
by the deferral and abatement agreements (discussed above) that our company has granted to various tenants. Additionally, revenues
could continue to be negatively impacted until consumer demand for the goods and services of our company’s retail and flex
center tenants returns to levels prior to the virus outbreak. However, there is significant uncertainty about when this could occur
and (i) whether restrictions will continue to be re-imposed or extended, (ii) whether tenants’ business activity
will return to pre-COVID-19 levels, and (iii) when customers will re-engage with tenants as they have in the past. Until such
time as the virus is contained or eradicated and room demand for our company’s hotel properties and consumer demand for the
goods and services of our company’s retail and flex center tenants returns to more customary levels, our company may continue
to experience material reductions in its operating revenue.
Impact on Hotel Properties
Our company’s hotel properties (the
Hampton Inn Property and the Clemson Best Western Property), which depend on leisure and business travel, experienced significant
declines in occupancy rates and revenues that began in March and continued throughout the year ending December 31, 2020.
Operating statistics for the years ended
December 31, 2020 and 2019, respectively, for the Hampton Inn Property were as follows:
|
|
Occupancy
|
|
|
Average Daily Rate
|
|
Hampton Inn Property
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
January
|
|
|
41.6
|
%
|
|
|
43.9
|
%
|
|
$
|
100.41
|
|
|
$
|
94.57
|
|
February
|
|
|
72.0
|
%
|
|
|
51.9
|
%
|
|
|
102.73
|
|
|
|
105.15
|
|
March
|
|
|
33.3
|
%
|
|
|
64.1
|
%
|
|
|
106.98
|
|
|
|
109.11
|
|
April
|
|
|
25.7
|
%
|
|
|
62.3
|
%
|
|
|
65.15
|
|
|
|
149.33
|
|
May
|
|
|
41.5
|
%
|
|
|
55.8
|
%
|
|
|
67.87
|
|
|
|
111.37
|
|
June
|
|
|
49.0
|
%
|
|
|
55.0
|
%
|
|
|
73.40
|
|
|
|
103.89
|
|
July
|
|
|
65.1
|
%
|
|
|
60.8
|
%
|
|
|
71.34
|
|
|
|
110.57
|
|
August
|
|
|
50.3
|
%
|
|
|
75.7
|
%
|
|
|
77.73
|
|
|
|
107.29
|
|
September
|
|
|
59.8
|
%
|
|
|
65.0
|
%
|
|
|
80.27
|
|
|
|
105.22
|
|
October
|
|
|
41.8
|
%
|
|
|
75.0
|
%
|
|
|
99.43
|
|
|
|
160.01
|
|
November
|
|
|
28.8
|
%
|
|
|
66.6
|
%
|
|
|
83.02
|
|
|
|
106.43
|
|
December
|
|
|
24.4
|
%
|
|
|
48.7
|
%
|
|
|
75.67
|
|
|
|
99.43
|
|
Full Year
|
|
|
44.4
|
%
|
|
|
60.6
|
%
|
|
$
|
84.10
|
|
|
$
|
113.41
|
|
From
April 2020 through September 2020, the Hampton Inn Property had a contract with the City of Greensboro to house homeless
families. During this period, this contract resulted in 5,704 room nights of occupancy, or approximately 28 percent of the total
occupied rooms during the year ended December 31, 2020. Additionally, during September 2020, High Point University rented
1,241 rooms for quarantined students.
Operating statistics for the years ended
December 31, 2020 and 2019, respectively, for the Clemson Best Western Property were as follows:
|
|
Occupancy
|
|
|
Average Daily Rate
|
|
Clemson Best Western Property
|
|
2020
|
|
|
2019 (1)
|
|
|
2020
|
|
|
2019 (1)
|
|
January
|
|
|
24.8
|
%
|
|
|
27.4
|
%
|
|
$
|
77.04
|
|
|
$
|
98.10
|
|
February
|
|
|
31.9
|
%
|
|
|
34.8
|
%
|
|
|
94.07
|
|
|
|
92.03
|
|
March
|
|
|
26.7
|
%
|
|
|
67.3
|
%
|
|
|
90.58
|
|
|
|
92.61
|
|
April
|
|
|
24.5
|
%
|
|
|
47.4
|
%
|
|
|
68.97
|
|
|
|
103.92
|
|
May
|
|
|
19.9
|
%
|
|
|
37.5
|
%
|
|
|
61.54
|
|
|
|
109.69
|
|
June
|
|
|
24.0
|
%
|
|
|
38.4
|
%
|
|
|
61.24
|
|
|
|
93.80
|
|
July
|
|
|
22.7
|
%
|
|
|
31.6
|
%
|
|
|
56.13
|
|
|
|
85.34
|
|
August
|
|
|
27.0
|
%
|
|
|
47.2
|
%
|
|
|
64.35
|
|
|
|
111.60
|
|
September
|
|
|
65.0
|
%
|
|
|
38.5
|
%
|
|
|
67.59
|
|
|
|
161.11
|
|
October
|
|
|
100.0
|
%
|
|
|
38.3
|
%
|
|
|
58.99
|
|
|
|
143.35
|
|
November
|
|
|
100.0
|
%
|
|
|
39.3
|
%
|
|
|
58.48
|
|
|
|
121.87
|
|
December
|
|
|
99.7
|
%
|
|
|
28.4
|
%
|
|
|
26.94
|
|
|
|
83.12
|
|
Full Year
|
|
|
47.2
|
%
|
|
|
34.9
|
%
|
|
$
|
59.08
|
|
|
$
|
118.64
|
|
|
(1)
|
January through August 2019 data for the Clemson Best Western Property is from the prior owner. September 2019 data is from the September 2019 STR report for the Clemson Best Western Property.
|
Occupancy
rates in October, November and December, 2020 were a result of an agreement by which our company leased the entire Clemson
Best Western Property to Clemson University from September 14, 2020 through December 15, 2020. In January 2021,
this agreement was amended to extend the agreement through May 5, 2020.
While intense
efforts to reduce operating costs resulted in expense reductions during the year ended December 31, 2020, our company cannot
be certain as to what level of savings can continue to be achieved overall to mitigate the material decline in hotel revenues we
may experience. The federal government has provided assistance to the industries negatively affected by the virus, including the
hospitality industry, and our two hotel properties have received loans under one of these programs (see Note 5 to the accompanying
notes to the consolidated financial statements), but the aid has not mitigated the material reduction in revenue resulting from
COVID-19 travel impacts. Our company was not eligible to participate in the new Payroll Protection Program loans announced in December 2020.
The anticipated negative impact on revenues,
discussed above, from our company’s retail, flex center and hotel properties has also, and will continue, to impact our company’s
liquidity, resulting in reduced cash flow to meet our company’s obligations and to fund dividend distribution payments.
Due to the depressed
outlook for leisure and business travel, on which both of our company’s hotel properties rely significantly, our company
committed to a plan to sell the Hampton Inn Property. On February 17, 2021, we entered into a contract with an unrelated party
to sell the Hampton Inn property, as discussed in Note 11 to the accompanying notes to the consolidated financial statements. Also
as discussed in Note 11, on February 5, 2021, our company committed to a plan to sell the Clemson Best Western Property. There
is no assurance that our company will be able to complete the sales of the two hotel properties on the terms we expect, or at all.
Discussion
of Potential Future Impact
While some of
the containment measures have been relaxed by the respective governmental authorities, with the uncertainty resulting from new
variants of COVID-19 and the possibilities of the re-imposition of mandatory business closures, quarantines, restrictions on travel
and “shelter-in-place” or “stay-at-home” orders by some governmental authorities, the negative impact on
room demand for our hotel properties and consumer demand for the goods and services of our retail tenants within our portfolio
could continue to be significant in the coming months.
Our company derives revenues primarily
from rents and reimbursement payments received from tenants under leases at our company’s properties. Our company’s
operating results therefore depend materially on the ability of its tenants to make required rental payments. The extent to which
the COVID-19 pandemic impacts the businesses of our company’s tenants, and our company’s operations and financial condition,
will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic
effects of the pandemic and such containment measures, among others. While the extent of the outbreak and its impact on our company,
its tenants and the U.S. retail market is uncertain, a prolonged crisis could result in continued disruptions in the credit and
financial markets, a continued rise in unemployment rates, decreases in consumer confidence and consumer spending levels and an
overall worsening of global and U.S. economic conditions. The factors described above, as well as additional factors that our company
may not currently be aware of, could materially negatively impact our company’s ability to collect rent and could lead to
termination of leases by tenants, tenant bankruptcies, decreases in demand for retail space at our company’s properties,
difficulties in accessing capital, impairment of our company’s long-lived assets and other impacts that could materially
and adversely affect our company’s business, results of operations, financial condition and ability to pay distributions
to stockholders.
Off-Balance
Sheet Arrangements
As of December 31,
2020 and December 31, 2019, we have no off-balance sheet arrangements.
Summary of
Critical Accounting Policies
The preparation
of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates
and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different,
or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different
financial results or a different presentation of our financial statements. Below is a discussion of the accounting policies that
we consider critical to an understanding of our financial condition and operating results that may require complex or significant
judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant
accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, “Summary
of Significant Accounting Policies,” of our Consolidated Financial Statements. We believe that the application of these policies
on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial
condition.
Revenue Recognition
Principal components
of our total revenues for our retail center properties and flex center properties include base rents and tenant reimbursements.
We accrue minimum (base) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent
asset or deferred rent liability being recorded on the balance sheet. Certain lease agreements contain provisions that grant additional
rents based on tenants’ sales volumes (contingent or percentage rent) which we recognize when the tenants achieve the specified
targets as defined in their lease agreements. We periodically review the valuation of the asset/liability resulting from the straight-line
accounting treatment of our leases in light of any changes in lease terms, financial condition or other factors concerning our
tenants.
For our hotel
property, revenues are recognized as earned, which is generally defined as the date upon which a guest occupies a room or utilizes
the hotel’s services.
Our company adopted
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective
on January 1, 2019. This adoption did not have a material impact on our company’s recognition of revenues from either
its retail center properties, flex center property or hotel properties.
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.
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
included in this report, has impacted our accounting framework for the acquisition of investment properties. Upon acquisition of
investment properties, our company estimates the fair value of acquired tangible assets (consisting of land, buildings and improvements,
and furniture, fixtures and equipment) and identified intangible assets and liabilities, including in-place leases, above- and
below-market leases, tenant relationships and assumed debt based on evaluation of information and estimates available at that date.
Fair values for these assets are not directly observable and estimates are based on comparable market data and other information
which is subjective in nature, including estimated cash flow projections that utilize appropriate discount and capitalization rates
and available market information.
Impairment
of Long-Lived Assets
We periodically
review investment properties for impairment on a property-by-property basis to identify any events or changes in circumstances
that indicate that the carrying value of investment properties may not be recoverable. These circumstances include, but are not
limited to, declines in the property’s cash flows, occupancy and fair market value. If any such events or changes in circumstances
are identified, we perform a formal impairment analysis. We measure any impairment of investment property when the estimated undiscounted
operating income before depreciation and amortization, is less than the carrying value of the property. To the extent impairment
has occurred, we charge to income the excess of carrying value of the property over its estimated fair value. We estimate fair
value using data such as operating income, estimated capitalization rates or multiples, leasing prospects and local market information.
Our company also reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
value of its intangible assets may not be recoverable, but at least annually.
REIT Status
We are a Maryland
corporation that has elected to be treated, for U.S. federal income tax purposes, as a REIT. We elected to be taxed as a REIT under
the Code For the year ended December 31, 2017 and have not revoked such election. A REIT is a corporate entity which holds
real estate interests and must meet a number of organizational and operational requirements, including a requirement that it currently
distribute at least 90 percent of its adjusted taxable income to stockholders. As a REIT, we generally will not be subject to corporate
level federal income tax on our taxable income if we annually distribute 100 percent of our taxable income to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will be subject to regular federal and state corporate income taxes and
may not be able to elect to qualify as a REIT for four subsequent taxable years. Our qualification as a REIT requires management
to exercise significant judgment and consideration with respect to operational matters and accounting treatment. Therefore, we
believe our REIT status is a critical accounting estimate.
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 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
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 consolidated financial statements
have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. In applying applicable accounting guidance, management considered our company’s current
financial condition and liquidity sources, including current funds available, forecasted future cash flows and our company’s
obligations due over the next twelve months, as well as our company’s recurring business operating expenses.
Our company concludes that it is probable
that our company will be able to meet its obligations arising within one year of the date of issuance of these 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 our company’s consolidated
financial statements.
Liquidity and
Capital Resources
Our business model
is intended to drive growth through acquisitions. Access to the capital markets is an important factor for our continued success.
We expect to continue to issue equity in our company, with proceeds being used to acquire additional investment properties.
Our primary liquidity
needs are funding for (1) operations, including operating expenses, corporate and administrative costs, payment of principal
of, and interest on, outstanding indebtedness, and escrow and reserve payments associated with long-term debt financing for our
properties; (2) investing needs, including property acquisitions and recurring capital expenditures; and (3) financing
needs, including cash dividends and debt repayments.
Internal liquidity to fund operating needs
will be provided primarily by the rental receipts from our retail properties and flex center property, and revenues from our hotel
properties. However, during year ended December 31, 2020, the impact of the COVID-19 pandemic, including the effects on our
financial and operational results that provide the liquidity for operating needs, was significant. For our retail and flex center
properties, our company recognized $431,143 in bad debt expense during the year ended December 31, 2020.
For our hotel properties, occupancy and
revenues were significantly impacted by COVID-19. For the year ended December 31, 2020, total revenues from our Hampton Inn
Property were 54.5 percent of the revenues for the year ended December 31, 2019. For our Clemson Best Western Property, room
revenues for the year ended December 31, 2020 were approximately 65.8 percent of the estimated room revenues for the year
ended December 31, 2019, based on the prior owner’s records.
The full extent of the impact will be dictated
by, among other things, its nature, duration and scope, the success of efforts to contain the spread of COVID-19 and the impact
of actions taken in response to the pandemic including travel bans and restrictions, quarantines, shelter in place orders, the
promotion of social distancing and limitations on business activity, including business closures. New variants of COVID-19 and
continued delays in vaccine distribution could result in the re-imposition of limitations on business activity, travel and other
restrictions that could increase the extent of the impact on our investment properties. Possible future declines in rental rates
and expectations of future rental concessions, including granting free rent to induce tenants to renew their leases early, to retain
tenants who are up for renewal, or to attract new tenants, or requests from tenants for rent abatements during periods when they
are severely impacted by COVID-19, may result in decreases in our cash flows from our retail and flex properties. The past and
potential for future travel bans and stay at home orders have and could continue to materially affect our hotel revenues. At this
point, the extent to which the COVID-19 pandemic may impact the economy and our business is uncertain, but pandemics or other significant
public health events could have a material adverse effect on our business, results of operations and internal liquidity.
Cash Flows
At December 31,
2020, our consolidated cash and restricted cash on hand totaled $5,096,928 compared to consolidated cash on hand of $2,072,190
at December 31, 2019. Cash from operating activities, investing activities and financing activities for the year ended December 31,
2020 and 2019 are as follows:
Operating Activities
For the year ended
December 31, 2020, our financial results include the impact of owning six properties (the Franklin Square Property, the Hampton
Inn Property, the Hanover Square Property, the Ashley Plaza Property, the Clemson Best Western Property and the Brookfield Center
Property) for the full 12 month period. For the year ended December 31, 2019, our company owned and operated three properties
(the Franklin Square Property, the Hampton Inn Property, and the Hanover Square Property) for the full year, the Ashley Plaza Property
for four months, the Clemson Best Western Hotel Property for approximately three months and the Brookfield Center for approximately
three months.
During the year
ended December 31, 2020 our cash used in operating activities was $1,684,934 compared to cash provided by operating activities
of $805,689 for the year ended December 31, 2019, an increase of cash used in operating activities of $2,490,623.
Cash used in operating
activities has two components. The first component consists of net operating loss adjusted for non-cash operating activities. During
the year ended December 31, 2020, operating activities adjusted for non-cash items resulted in net cash used in operating
activities of $435,537. During the year ended December 31, 2019, operating activities adjusted for non-cash items resulted
in net cash provided by operating activities of $348,122. The increase of $783,659 in cash used in operations for the year ended
December 31, 2020 was a result of the reduced year over year net operating income of the Hampton Inn Property, Franklin Square
Property and Hanover Square Property due to reduced revenues resulting from the impact of COVID-19 and increased legal, accounting
and other professional fees and corporate general and administrative expenses during the year ended December 31, 2020, offset
by increased net operating income from the owning the Ashley Plaza Property, Clemson Best Western Property and Brookfield Center
Property for the full year ended December 31, 2020.
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 year ended December 31,
2020, net changes in asset and liability accounts resulted in $1,249,397 in cash used in operations. During the year ended December 31,
2019, net changes in asset and liability accounts resulted in $457,567 in cash provided by operations. This increase of $1,706,964
in changes in assets and liabilities is a result of an increased change in rent receivables of $690,994 due to COVID-19 related
rent delinquencies, which reduced cash provided from operations, normal changes in the increase of unbilled rent of $11,168, a
decrease in the changes in accounts payable and accrued liabilities of $995,898, which reduced cash provided from operations, and
a decrease in the changes in other assets of $8,904.
The net of (i) the
$783,659 increase in cash used in operations from the first category and (ii) the $1,706,964 increase in cash used in operations
from the second category results in a total increase of cash used in operations of $2,490,623.
Investing Activities
During the year
ended December 31, 2020, our cash used in investing activities was $414,361, compared to cash used in investing activities
of $34,930,405 during the year ended December 31, 2019, a decrease in cash used in investing activities of $34,516,044. During
the year ended December 31, 2020, cash used in investing activities consisted of $414,361 in capital expenditures, including
$103,194 in site improvements for our Hanover Square Property, $56,746 in leasing commissions for our retail center properties,
$60,000 in tenant improvements for our Ashley Plaza Property, $64,818 in furniture, fixtures and equipment, $39,423 in interior
construction and $22,664 in site improvements related to the Property Improvement Plan for the Hampton Inn Property and $38,016
in building improvements and $29,500 in site improvements for the Clemson Best Western Property.
During the year ended December 31,
2019, cash used in investing activities included $32,794,733 used for investment property acquisitions (the Ashley Plaza Property,
the Clemson Best Western Property and the Brookfield Center Property, including tangible and intangible assets recorded as part
of the Ashley Plaza Property and Brookfield Center acquisitions) and $2,135,672 in capital expenditures, consisting of $1,995,892
in interior and exterior construction costs and furniture, fixtures and equipment for the Property Improvement Plan for the Hampton
Inn Property, $83,520 in tenant improvements, leasing commissions and building improvements for the Franklin Square Property, $2,598
in leasing commissions for the Hanover Square Property, $18,736 in leasing commissions for the Ashley Plaza Property, $30,066 in
leasing commissions for the Brookfield Center property and $4,860 in equipment for the Clemson Best Western Property.
There were no non-cash investing activities
for the year ended December 31, 2020. Non-cash investing activities for the year ended December 31, 2019 that did not
affect our cash used in investing activities were $423,747, representing advance deposits made for Hanover Square Property furniture,
fixtures and equipment that was expended during the year ended December 31, 2018 and transferred to investment properties
during the year ended December 31, 2019.
Financing Activities
During the year
ended December 31, 2020, our cash provided by financing activities was $5,124,033 compared to cash provided by financing activities
of $32,076,110 during the year ended December 31, 2019, a decrease in cash provided by financing activities of $26,952,077.
During the year ended December 31, 2020, we generated net proceeds, after offering costs, from our preferred stock issuance
of $3,860,882, net proceeds, after issuance costs, from the closings on the first and second tranches of our convertible debentures
of $2,926,483, net funds of $1,938,697, after loan issuance costs, from the refinancing of the Hanover Square North mortgage payable
($1,992,697) and extension of the Hampton Inn Property mortgage (capitalized issuance costs of $54,000), funds from a line of credit,
short term, net, in the amount of $550,000 and funds from notes payable of $305,900. Additionally, our company used funds to repay
a line of credit, short term, in the amount of $2,225,000, related party notes payable, short term, in the amount of $852,000,
and mortgage debt principal associated with the Hanover Square Property, Ashley Square Property and Brookfield Center Property
of $263,196, and $200,000 in principal reduction payments associated with the extension of the Hampton Inn Property mortgage. Our
company paid dividends and distributions of $917,733 during the year ended December 31, 2020.
During the year ended December 31,
2019, we generated net proceeds, after offering costs, from our stock issuances of $8,427,639. Additionally, we incurred new mortgage
debt (in connection with our acquisition of the Ashley Plaza Property, Clemson Best Western Property and the Brookfield Center
Property) of $23,442,941 (net of capitalized loan issuance costs), we generated funds from a line of credit, short term, net, in
the amount of $1,970,000 (net of capitalized loan issuance costs) and we issued related party notes payable, short term in the
total amount of $852,000. We also paid dividends and distributions of $2,436,103 and repaid mortgage debt principal associated
with the Hanover Square Property of $180,367.
Non-cash financing activities for the year
ended December 31, 2020, that did not affect our cash provided by financing activities were the exchanges of operating partnership
units for portions of the noncontrolling owner’s interest in the Hampton Inn Property, the settlement of advances made by
our company for additional portions of the noncontrolling owner’s interest in the Hampton Inn Property, the $129,600 forgiveness
of the Clemson Best Western Hotel property’s note payable under the SBA PPP loan program and the conversion of operating
partnership common units for common shares in our company. For the year ended December 31, 2019, there were no non-cash financing
activities.
Future Liquidity Needs
Liquidity for
general operating needs and our company’s investment properties is generally provided by the rental receipts from our retail
properties and flex center property, and revenues from our hotel properties. Liquidity for growth (acquisition of new investment
properties) will be provided by raising additional investment capital. In addition, our company continually reviews and evaluates
its outstanding mortgages payable for refinancing opportunities. While some of our mortgages payable are not pre-payable, some
mortgages payable may present opportunities for refinancing.
The primary liquidity needs of our company, in addition to the
funding of our ongoing operations, are $14,275,000 in mortgage debt maturities (the Franklin Square Property mortgage), the maturity
of the $325,000 balance of the line of credit, short term, and the maturity of the $2,000,000 outstanding balance of the convertible
debentures (see subsequent events Note 11 for conversion of $3,000,000 of convertible debentures in January and February, 2021)
during the year ended December 31, 2021 and as described in Note 5 in the notes to consolidated financial statements included
in this Form 10-K. Our company also has approximately $530,000 in principal payments due on its mortgages payable during the
year ending December 31, 2021. In addition to liquidity required to fund these principal payments, we may also incur some
level of capital expenditures during the year for our existing properties that cannot be passed on to our tenants. Our company
plans to pay these obligations through a combination of mortgage refinancings, capital raises, potential dispositions and operating
cash. Management intends to refinance or extend the remaining maturing debt as it comes due.
As discussed above, the continuing COVID-19
pandemic outbreak has adversely impacted states and cities where our company’s tenants operate their businesses and where
our company’s properties are located. The COVID-19 pandemic could have a material adverse effect on our company’s financial
condition, results of operations and cash flows as the reduced economic activity severely impacts certain of our company’s
tenants’ businesses, financial condition and liquidity and may cause certain tenants to be unable to meet their obligations
to our company in full. Closures of stores operated by our company’s tenants could reduce our company’s cash flows.
To meet these future liquidity needs, we
have the following resources:
|
·
|
$2,862,994 in unrestricted cash as of December 31, 2020
|
|
|
|
|
·
|
$1,305,000 in proceeds from the January 5, 2021 closing
on the third tranche of the convertible debentures (see Note 5 and 11 of the notes to consolidated financial statements included
in this Form 10-K)
|
|
|
|
|
·
|
$2,233,934 held in lender reserves for
the purpose of tenant improvements, lease commissions, real estate taxes and insurance premiums
|
|
|
|
|
·
|
cash generated from operations during the year ended December 31,
2021, if any.
|
In addition, the Board has not declared
a dividend since the fourth quarter 2019 dividend, paid in March 2020. The Board plans to continually evaluate our company’s
approach to dividends. The Board believes that forgoing quarterly dividends will provide our company funding to help meet its ongoing
liquidity needs. Additionally, our company plans to undertake measures to grow its operations and increase liquidity through its
continued efforts to raise capital and acquire additional investment properties.
Our success in refinancing the debt, and
executing on our strategy will dictate our liquidity needs going forward. If we are unable to execute in these areas, our ability
to grow and reinstate dividends may be limited without additional capital.
Results of Operations
Revenues
Total
revenue was $9,276,160 for the year ended December 31, 2020, consisting of $5,152,150 in revenues from retail center
properties, $3,337,176 from hotel properties and $786,834 from the flex center property. Total
revenues for the year ended December 31, 2020 increased by $998,777 over the year ended December 31, 2019, due to new
revenues from the acquisition of three new properties, the Ashley Plaza Property, the Clemson Best Western Property and the Brookfield
Center Property, offset by declines in revenues from the Franklin Square Property and Hampton Inn Property due to reduced occupancy
and revenues resulting from COVID-19.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Retail center properties
|
|
$
|
5,152,150
|
|
|
$
|
4,195,360
|
|
|
$
|
956,790
|
|
Hotel properties
|
|
|
3,337,176
|
|
|
|
3,898,254
|
|
|
|
(561,078
|
)
|
Flex center property
|
|
|
786,834
|
|
|
|
183,769
|
|
|
|
603,065
|
|
|
|
$
|
9,276,160
|
|
|
$
|
8,277,383
|
|
|
$
|
998,777
|
|
Revenues from
retail center properties were $5,152,150 for the year ended December 31, 2020, an increase of $956,790 over retail center
property revenues for the year ended December 31, 2019. Decreased revenues from the Franklin Square Property due to the impact
of COVID were offset by new revenues from the acquisition of the Ashley Plaza Property and a slight increase in revenues from the
Hanover Square Property.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Retail Center Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Square Property
|
|
$
|
2,130,702
|
|
|
$
|
2,312,328
|
|
|
$
|
(181,626
|
)
|
Hanover Square Property
|
|
|
1,348,164
|
|
|
|
1,329,695
|
|
|
|
18,469
|
|
Ashley Plaza Property
|
|
|
1,673,284
|
|
|
|
553,337
|
|
|
|
1,119,947
|
|
|
|
$
|
5,152,150
|
|
|
$
|
4,195,360
|
|
|
$
|
956,790
|
|
Revenues from
hotel properties were $3,337,176 for the year ended December 31, 2020, a decrease of $561,078 over revenues from hotel properties
for the year ended December 31, 2019. Increased revenues of $903,371 from the Clemson Best Western Property, which was acquired
on September 27, 2019 and owned for approximately three months during the year ended December 31, 2019, offset a decline
in revenues from the Hampton Inn Property of $1,464,449 due to reduced occupancy and revenues resulting from COVID-19.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Hotel Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton Inn Property
|
|
$
|
1,758,682
|
|
|
$
|
3,223,131
|
|
|
$
|
(1,464,449
|
)
|
Clemson Best Western Property
|
|
|
1,578,494
|
|
|
|
675,123
|
|
|
|
903,371
|
|
|
|
$
|
3,337,176
|
|
|
$
|
3,898,254
|
|
|
$
|
(561,078
|
)
|
Revenues from
the flex center property were $786,834 for the year ended December 31, 2020, an increase of $603,065 over revenues from flex
center properties for the year ended December 31, 2019, resulting from owning the Brookfield Center Property, which was acquired
on October 3, 2019, for the full year ended December 31, 2020.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Brookfield Center Property
|
|
$
|
786,834
|
|
|
$
|
183,769
|
|
|
$
|
603,065
|
|
Operating Expenses
Total operating
expenses were $15,018,058 for the year ended December 31, 2020, consisting of $1,793,675 in expenses from retail center
properties, $3,164,646 in expenses from hotel properties, $231,209 in expenses from the flex center property, $569,995 in share
based compensation expenses, $1,258,863 in legal, accounting and other professional fees, $300,641 in corporate general and administrative
expenses, a loss on impairment of $223,097, impairment of assets held for sale of $3,494,058 and $3,981,874 in depreciation and
amortization.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail center properties (1)
|
|
$
|
1,793,675
|
|
|
$
|
1,143,333
|
|
|
$
|
650,342
|
|
Hotel properties
|
|
|
3,164,646
|
|
|
|
3,156,664
|
|
|
|
7,982
|
|
Flex center property
|
|
|
231,209
|
|
|
|
55,266
|
|
|
|
175,943
|
|
Total Investment Property Operating Expenses
|
|
|
5,189,530
|
|
|
|
4,355,263
|
|
|
|
834,267
|
|
Share based compensation expenses
|
|
|
569,995
|
|
|
|
61,600
|
|
|
|
508,395
|
|
Legal, accounting and other professional fees
|
|
|
1,258,863
|
|
|
|
1,089,246
|
|
|
|
169,617
|
|
Corporate general and administrative expenses
|
|
|
300,641
|
|
|
|
261,934
|
|
|
|
38,707
|
|
Loss on impairment
|
|
|
223,097
|
|
|
|
-
|
|
|
|
223,097
|
|
Impairment of assets held for sale
|
|
|
3,494,058
|
|
|
|
-
|
|
|
|
3,494,058
|
|
Loss on disposition of furniture, fixtures and equipment
|
|
|
-
|
|
|
|
983,855
|
|
|
|
(983,855
|
)
|
Depreciation and amortization
|
|
|
3,981,874
|
|
|
|
2,773,805
|
|
|
|
1,208,069
|
|
Total Operating Expenses
|
|
$
|
15,018,058
|
|
|
$
|
9,525,703
|
|
|
$
|
5,492,355
|
|
|
(1)
|
Includes $431,143 and $8,615 of bad debt expense for the year ended December 31, 2020 and
2019, respectively.
|
Operating expenses
for retail center properties were $1,793,675 for the year ended December 31, 2020, an increase of $650,342 over retail center
property operating expenses for the year ended December 31, 2019. Increased operating expenses resulting from the ownership
of the Ashley Plaza Property for the full year ended December 31, 2020, third-party costs related to the loan modification
for the Hanover Square Property mortgage and bad debt expenses were offset by a slight reduction in operating expenses (excluding
the bad debt expense of $220,700 and $8,615 for the year ended December 31, 2020 and 2019, respectively) for the Franklin
Square Property of $28,945 resulting from efforts to reduce costs to offset revenue declines from COVID-19.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Retail Center Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Square Property (1)
|
|
$
|
901,739
|
|
|
$
|
718,599
|
|
|
$
|
183,140
|
|
Hanover Square Property (2)
|
|
|
451,593
|
|
|
|
311,759
|
|
|
|
139,834
|
|
Ashley Plaza Property (3)
|
|
|
440,343
|
|
|
|
112,975
|
|
|
|
327,368
|
|
|
|
$
|
1,793,675
|
|
|
$
|
1,143,333
|
|
|
$
|
650,342
|
|
|
(1)
|
Includes bad debt expense of $220,700 and $8,615 for the year ending December 31, 2020 and
2019, respectively
|
|
(2)
|
Includes bad debt expense of $95,271 and $0 for the year ending December 31, 2020 and 2019,
respectively
|
|
(3)
|
Includes bad debt expense of $115,172 and $0 for the year ending December 31, 2020 and 2019,
respectively
|
Operating
expenses for hotel properties were $3,164,646 for the year ended December 31, 2020, an increase of $7,982 over operating expenses
from hotel properties for the year ended December 31, 2019. Increased operating expenses of $847,410 resulting from owning
the Clemson Best Western Property for the full year ended December 31, 2020, offset a decline in operating expenses from the
Hampton Inn Property of $839,428, due to reduced variable expenses from lower occupancy and
cost-cutting measures put in place in response to COVID-19.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Hotel Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton Inn Property
|
|
$
|
1,755,684
|
|
|
$
|
2,595,112
|
|
|
$
|
(839,428
|
)
|
Clemson Best Western Property
|
|
|
1,408,962
|
|
|
|
561,552
|
|
|
|
847,410
|
|
|
|
$
|
3,164,646
|
|
|
$
|
3,156,664
|
|
|
$
|
7,982
|
|
Operating expenses
from the flex center property were $231,209 for the year ended December 31, 2020 an increase of $175,943 over flex center
property operating expenses for the year ended December 31, 2019 due to owning the Brookfield Center Property for the full
year ended December 31, 2020.
|
|
For the year ended
December 31,
|
|
|
Increase /
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Brookfield Center Property
|
|
$
|
231,209
|
|
|
$
|
55,266
|
|
|
$
|
175,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
The
operating loss for the year ended December 31, 2020 was $5,741,898, an increase of $4,493,578 over the operating loss of $1,248,320
for the year ended December 31, 2019. Increased operating income from the three properties acquired during the year ended
December 31, 2019 and owned for the full year ended December 31, 2020 of $792,579 from the Ashley Plaza Property, $427,122
from the Brookfield Center Property and $55,961 from the Clemson Best Western Property, was offset by decreased operating income
of $625,021 from the Hampton Inn Property, $121,365 from the Hanover Square Property and $364,766 from the Franklin Square Property
due to a reduction in rent revenues and bad debt expense resulting from the impact of COVID-19 on the properties, (iii) increased
depreciation and amortization expense of $1,208,069 resulting from the three property acquisitions, (iv) increased
legal, accounting and other professional fees of $169,617, and (iv) increased corporate general and administrative expenses
of $38,707. Additionally, during the year ended December 31, 2020, a loss on impairment of $223,097 and impairment on assets
held for sale of $3,494,058 were recorded, while during the year ended December 31, 2019, a loss on disposition of
furniture, fixtures and equipment of $983,855 was recorded.
Interest Expense
Interest expense
was $3,960,626 and $2,472,628 for the year ended December 31, 2020 and 2019, respectively, as follows:
|
|
For the year ended
December 31,
|
|
|
Increase/
|
|
|
|
2020
|
|
|
2019
|
|
|
(Decrease)
|
|
Franklin Square
|
|
$
|
698,342
|
|
|
$
|
698,793
|
|
|
$
|
(451
|
)
|
Hanover Square
|
|
|
445,875
|
|
|
|
439,367
|
|
|
|
6,508
|
|
Hampton Inn
|
|
|
811,214
|
|
|
|
895,205
|
|
|
|
(83,991
|
)
|
Ashley Plaza
|
|
|
451,741
|
|
|
|
153,063
|
|
|
|
298,678
|
|
Clemson Best Western
|
|
|
662,276
|
|
|
|
179,948
|
|
|
|
482,328
|
|
Brookfield Center
|
|
|
203,633
|
|
|
|
50,652
|
|
|
|
152,981
|
|
Amortization and preferred stock dividends on mandatorily redeemable preferred stock
|
|
|
506,819
|
|
|
|
-
|
|
|
|
506,819
|
|
Amortization and interest on convertible debentures
|
|
|
136,171
|
|
|
|
-
|
|
|
|
-
|
|
Line of credit, short term
|
|
|
36,699
|
|
|
|
46,916
|
|
|
|
(10,217
|
)
|
Related party notes payable, short term
|
|
|
5,835
|
|
|
|
5,875
|
|
|
|
(40
|
)
|
Other interest
|
|
|
2,021
|
|
|
|
2,809
|
|
|
|
(788
|
)
|
Total interest expense
|
|
$
|
3,960,626
|
|
|
$
|
2,472,628
|
|
|
$
|
1,487,998
|
|
Total interest expense for the year ended
December 31, 2020 increased by $1,487,998 over the year ended December 31, 2019. This increase
was a result of new investment property interest expense from the Ashley Plaza Property, Clemson Best Western Property and Brookfield
Center Property, and new interest expense resulting from the preferred stock dividends (recorded as interest expense on our consolidated
statements of operations), convertible debentures and the related party notes payable, short term, offset by reduced interest expense
from the Hampton Inn Mortgage as a result of the principal reduction made as part of the loan extension, and from the line of credit,
short term. Interest expense above includes non-cash amortization of discounts and capitalized issuance costs and, for the year
ended December 31, 2019, the impact of payments received from the interest rate protection transactions. See Note 5 of the
accompanying notes to the Consolidated Financial Statements.
Net Loss
Net loss was $9,581,542
for the year ended December 31, 2020, before adjustments for net loss attributable to noncontrolling interests. After adjusting
for noncontrolling interests, the net loss attributable to our common shareholders was $8,180,609. Net loss was $3,804,494 for
the year ended December 31, 2019, before adjustments for net loss attributable to noncontrolling interests. After adjusting
for noncontrolling interests, the net loss attributable to Medalist common shareholders was $3,015,718 for the year ended December 31,
2019.
Net loss for the
year ended December 31, 2020 increased by $5,777,048 over the year ended December 31, 2019, before adjustments for net
loss attributable to noncontrolling interests. This increase was due to increased operating expenses of $5,500,970 and increased
interest expense of $1,487,998, offset by increased revenues of $1,007,392, all as discussed above.
After adjusting
for noncontrolling interests, the net loss attributable to Medalist common shareholders for the year ended December 31, 2020
increased by $5,164,891 over the year ended December 31, 2019.
Funds from
Operations
We use Funds from
operations (“FFO”), a non-GAAP measure, as an alternative measure of our operating performance, specifically as it
relates to results of operations and liquidity. We compute FFO in accordance with standards established by the Board of Governors
of the National Association of Real Estate Investment Trusts (“NAREIT”) in its March 1995 White Paper (as amended
in November 1999, April 2002 and December 2018). As defined by NAREIT, FFO represents net income (computed in accordance
with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding
amortization of loan origination costs and above and below market leases) and after adjustments for unconsolidated partnerships
and joint ventures. Most industry analysts and equity REITs, including us, consider FFO to be an appropriate supplemental measure
of operating performance because, by excluding gains or losses on dispositions and excluding depreciation, FFO is a helpful tool
that can assist in the comparison of the operating performance of a company’s real estate between periods, or as compared
to different companies. Management uses FFO as a supplemental measure to conduct and evaluate our business because there are certain
limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting
for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over
time, while historically real estate values have risen or fallen with market conditions. Accordingly, we believe FFO provides a
valuable alternative measurement tool to GAAP when presenting our operating results.
NAREIT’s December 2018 White
Paper states, “FFO of a REIT includes the FFO of all consolidated properties, including consolidated, partially owned affiliates”.
Additionally, since the adjustments to GAAP net income, such as depreciation and amortization, used in the reconciliation of net
income (loss) to determine FFO are not allocated between shareholders and noncontrolling interests (i.e. 100 percent of depreciation
and amortization are “added back” without reduction to reflect the noncontrolling owners’ interest in such items),
our company believes that the appropriate starting point for the calculation is the net income (loss) before allocation to noncontrolling
interests. This allows our company to use FFO as a tool to measure the overall performance of its investment properties,
as a whole, not just the portion of the investment properties controlled by our company’s shareholders.
Below is our company’s
FFO, which is a non-GAAP measurement, for the year ended December 31, 2020:
Net income (loss)
|
|
$
|
(9,581,542
|
)
|
Depreciation of tangible real property assets (1)
|
|
|
2,705,017
|
|
Depreciation of tenant improvements (2)
|
|
|
312,961
|
|
Amortization of leasing commissions (3)
|
|
|
49,578
|
|
Amortization of tenant inducements (4)
|
|
|
7,100
|
|
Amortization of intangible assets (5)
|
|
|
914,318
|
|
Loss on impairment (6)
|
|
|
223,097
|
|
Impairment of assets held for sale (7)
|
|
|
3,494,058
|
|
Funds from operations
|
|
|
(1,875,413
|
)
|
|
(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 and Hanover Square Property and (ii) those constructed by our company subsequent to the acquisition of the properties.
|
|
|
|
|
(3)
|
Amortization of leasing commissions paid for the Franklin Square Property, Hanover Square Property, Ashley Plaza Property and Brookfield Center Property subsequent to the acquisition of the properties.
|
|
|
|
|
(4)
|
Amortization of tenant inducements paid for the Franklin Square Property during the year ended December 31, 2020.
|
|
|
|
|
(5)
|
Amortization of (i) intangible assets acquired as part of the purchase of the Franklin Square Property, the Hanover Square Property, the Ashley Plaza Property and the Brookfield Center Property, including leasing commissions, leases in place and legal and marketing costs during the year ended December 31, 2020 and (ii) the franchise fee paid as part of the acquisition of the Clemson Best Western Property.
|
|
|
|
|
(6)
|
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).”
|
|
|
|
|
(7)
|
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 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 year ended December 31, 2020 was as follows:
Funds from operations
|
|
$
|
(1,875,413
|
)
|
Amortization of above market leases (1)
|
|
|
221,390
|
|
Amortization of below market leases (2)
|
|
|
(215,248
|
)
|
Straight line rent (3)
|
|
|
(244,003
|
)
|
Capital expenditures (4)
|
|
|
(226,640
|
)
|
Decrease (Increase) in fair value of interest rate cap (5)
|
|
|
12,124
|
|
Amortization of loan issuance costs (6)
|
|
|
279,951
|
|
Amortization of preferred stock discount (7)
|
|
|
57,019
|
|
Amortization of preferred stock offering costs (8)
|
|
|
105,356
|
|
Share-based compensation (9)
|
|
|
569,995
|
|
Write off unbilled rent (10)
|
|
|
31,162
|
|
Bad debt expense (11)
|
|
|
431,143
|
|
Debt forgiveness (11)
|
|
|
(129,600
|
)
|
Adjusted funds from operations (AFFO)
|
|
|
(982,764
|
)
|
|
(1)
|
Adjustment to FFO resulting from non-cash amortization of intangible assets recorded as part of the purchase of the Franklin Square Property, the Hanover Square Property, the Ashley Plaza Property and the Brookfield Center Property during the year ended December 31, 2020.
|
|
|
|
|
(2)
|
Adjustment to FFO resulting from non-cash amortization of intangible liabilities recorded as part of the Franklin Square Property, the Hanover Square Property, the Ashley Plaza Property and the Brookfield Center Property during the year ended December 31, 2020.
|
|
|
|
|
(3)
|
Adjustment to FFO resulting from non-cash revenues recognized as a result of applying straight line revenue recognition for the Franklin Square Property, the Hanover Square Property, the Ashley Plaza Property and the Brookfield Center Property during the year ended December 31, 2020.
|
|
|
|
|
(4)
|
Adjustment
to FFO for capital expenditures, including capitalized leasing commissions, tenant improvements, building and site improvements
and purchases of furniture, fixtures and equipment for the Franklin Square Property, the Hanover Square Property, Hampton Inn
Property, Ashley Plaza Property and Clemson Best Western Property that will not be reimbursed by property escrow accounts. During
the year ended December 31, 2020, our company paid $103,194 in site improvements for our Hanover Square Property, $56,746
in leasing commissions for our retail center properties, $60,000 in tenant improvements for our Ashley Plaza Property, $64,818
in furniture, fixtures and equipment, $39,423 in interior construction and $22,664 in site improvements related to the Property
Improvement Plan for the Hampton Inn Property and $38,016 in building improvements and $29,500 in site improvements for the Clemson
Best Western Property. During the year ended December 31, 2020, our company received $82,693 in funds from property capital
reserves held by the Hampton Inn Property mortgage holder.
|
|
|
|
|
(5)
|
Adjustment to FFO resulting from non-cash expenses recognized as a result of decreases in the fair value of the interest rate caps for the Hampton Inn Property and the Clemson Best Western Property during the year ended December 31, 2020.
|
|
|
|
|
(6)
|
Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing loan issuance costs over the terms of the respective mortgages during the year ended December 31, 2020.
|
|
(7)
|
Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing the preferred stock discount over its five year term during the year ended December 31, 2020.
|
|
(8)
|
Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing the preferred stock offering costs over its five year term during the year ended December 31, 2020.
|
|
|
|
|
(9)
|
Adjustment to FFO resulting from non-cash expenses recorded for share based compensation.
|
|
|
|
|
(10)
|
Adjustment to FFO for writing off the unbilled rent associated with the default of the Franklin Square Property tenant.
|
|
|
|
|
(11)
|
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 expenses (bad debt expense) in its calculation of AFFO.
|
ITEM 7A. 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 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Our consolidated
financial statements and supplementary data required by this Item 8 are included as a separate section of this Annual Report on
Form 10-K, see “Item 15. Exhibits and Financial Statement Schedules,” and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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.
We
have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer,
regarding the effectiveness of our disclosure controls and procedures as of December 31, 2020, the end of the period covered
by this Annual Report. Based on the foregoing, our Chief Executive Officer has concluded, as of December 31, 2020, 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 Chief Executive Officer, evaluated, as of December 31,
2020, 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 Chief Executive Officer concluded that our internal control over financial reporting, as of December 31, 2020, were effective.
This
annual 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 Annual
Report.
Changes in Internal Control over
Financial Reporting
There
was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
Notes to Consolidated
Financial Statements
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 December 31, 2020,
the REIT, through the Operating Partnership, owned and operated six properties, 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”), the Shops at
Hanover Square North (the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville,
Virginia, the Ashley Plaza Shopping Center (the “Ashley Plaza Property”), a 160,356 square foot retail property located
in Goldsboro, North Carolina, the Clemson Best Western University Inn (the “Clemson Best Western Property”), a hotel
with 148 rooms on 5.92 acres in Clemson, South Carolina and Brookfield Center, a 64,880 square foot mixed-use industrial/office
property located in Greenville, South Carolina (the “Brookfield Center Property”). As of December 31, 2020, the
Company owned 78 percent of the Hampton Inn Property as a tenant in common with a noncontrolling owner which owns the remaining
22 percent interest. The Company owns 84 percent of the Hanover Square Property as a tenant in common with a noncontrolling owner
which owns the remaining 16 percent interest.
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 which own or operate
the properties, and the taxable REIT subsidiaries which operate the Hampton Inn Property and the Clemson Best Western Property.
As a REIT, certain tax laws limit the amount of “non-qualifying” income that Company can earn, including income derived
directly from the operation of hotels. As a result, the Company and, in the case of the Hampton Inn Property, the tenant in common
(“TIC”) noncontrolling owner, leases its consolidated hotel properties to taxable REIT subsidiaries (“TRS”)
for federal income tax purposes. The TRS subsidiaries are subject to income tax and are not limited as to the amount of nonqualifying
income they can generate, but they are limited in terms of their value as a percentage of the total value of the Company’s
assets. The TRS subsidiaries enter into agreements with a third party to manage the operations of the hotel. The Company prepared
the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States
of America (“GAAP”). References to the consolidated financial statements and references to individual financial statements
included herein, reference the 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 hotels, and retail properties, and (ii) multi-family residential properties
in secondary and tertiary markets in the southeastern part of the United States, with an expected concentration in Virginia, North
Carolina, South Carolina, Georgia, Florida and Alabama. The Company may also pursue, in an opportunistic manner, other real estate-related
investments, including, among other things, equity or other ownership interests in entities that are the direct or indirect owners
of real property, indirect investments in real property, such as those that may be obtained in a joint venture. While these types
of investments are not intended to be a primary focus, the Company may make such investments in its Manager’s discretion.
The Company is externally
managed by Medalist Fund Manager, Inc. (the ‘‘Manager’’). The Manager makes all investment decisions
for the Company. The Manager and its affiliated companies specialize in acquiring, developing, owning and managing value-added
commercial real estate in the Mid-Atlantic and Southeast regions. The Manager oversees the Company’s overall business and
affairs and has broad discretion to make operating decisions on behalf of the Company and to make investment decisions. The Company’s
stockholders are not involved in its day-to-day affairs.
2.
|
Summary of Significant Accounting Policies
|
Investment
Properties
The
Company has adopted Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805), which clarifies
the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised
framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the
definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions
of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions.
As a result, all of the Company’s acquisitions to date qualified as asset acquisitions and the Company expects future acquisitions
of operating properties to qualify as asset acquisitions. Accordingly, third-party transaction costs associated with these acquisitions
have been and will be capitalized, while internal acquisition costs will continue to be expensed.
Accounting
Standards Codification (“ASC”) 805 mandates that “an acquiring entity shall allocate the cost of an acquired
entity to the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition.” ASC 805
results in an allocation of acquisition costs to both tangible and intangible assets associated with income producing real estate.
Tangible assets include land, buildings, site improvements, tenant improvements and furniture, fixtures and equipment, while intangible
assets include the value of in-place leases, lease origination costs (leasing commissions and tenant improvements), legal and marketing
costs and leasehold assets and liabilities (above or below market leases), among others.
The
Company uses independent, third party consultants to assist management with its ASC 805 evaluations. The Company determines fair
value based on accepted valuation methodologies including the cost, market, and income capitalization approaches. The purchase
price is allocated to the tangible and intangible assets identified in the evaluation.
The
Company records depreciation on buildings and improvements utilizing the straight-line method over the estimated useful life of
the asset, generally 5 to 40 years. The Company reviews depreciable lives of investment properties periodically and makes adjustments
to reflect a shorter economic life, when necessary. Tenant allowances, tenant inducements and tenant improvements are amortized
utilizing the straight-line method over the term of the related lease. Amounts allocated to buildings are depreciated over the
estimated remaining life of the acquired building or related improvements.
Acquisition
and closing costs are capitalized as part of each tangible asset on a pro rata basis. Improvements and major repairs and maintenance
are capitalized when the repair and maintenance substantially extend the useful life, increases capacity or improves the efficiency
of the asset. All other repair and maintenance costs are expensed as incurred.
The
Company reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances
indicate that the carrying value of investment properties may not be recoverable, but at least annually. These circumstances include,
but are not limited to, declines in the property’s cash flows, occupancy and fair market value. The Company measures any
impairment of investment property when the estimated undiscounted cash flows plus its residual value, is less than the carrying
value of the property. To the extent impairment has occurred, the Company charges to income the excess of the carrying value of
the property over its estimated fair value. The Company estimates fair value using unobservable data such as projected future operating
income, estimated capitalization rates, or multiples, leasing prospects and local market information. The Company may decide to
sell properties that are held for use and the sale prices of these properties may differ from their carrying values. Other than
the tenant-specific loss on impairment and 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 year ended December 31,
2020, that would result in the projected value being below the carrying value of the Company’s properties.
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 carrying value of certain tangible and intangible assets and liabilities associated
with this lease that (i) were recorded as part of the purchase of the Franklin Square Property and (ii) were related
to this lease and which were recorded during the Company’s ownership of the Franklin Square Property, should be written off.
As a result, the Company recorded a loss on impairment of $223,097 for the year ended December 31, 2020, as follows:
Loss on impairment – capitalized tenant inducements
|
|
$
|
89,500
|
|
|
|
|
|
|
Loss on impairment – capitalized tenant improvements arising from acquisition cost allocation
|
|
|
81,860
|
|
|
|
|
|
|
Loss on impairment – intangible assets – leasing commissions
|
|
|
18,606
|
|
|
|
|
|
|
Loss on impairment – intangible assets – legal and marketing costs
|
|
|
6,281
|
|
|
|
|
|
|
Loss on impairment – intangible assets – leases in place
|
|
|
67,065
|
|
|
|
|
|
|
Gain on impairment – intangible liabilities – below market leases
|
|
|
(40,215
|
)
|
|
|
|
|
|
Loss on impairment, net
|
|
$
|
223,097
|
|
During the year ended
December 31, 2019 the Company recognized a loss on disposition of furniture, fixtures and equipment of $983,855.
Assets Held
for Sale
The Company may decide
to sell properties that are held as investment properties. The Company records these properties, and any associated liabilities,
as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation
of the sale is considered probable and is expected within one year. Properties classified as held for sale are reported at the
lower of their carrying value or their fair value, less estimated costs to sell. When the carrying value exceeds the fair value,
less estimated costs to sell, an impairment charge is recognized. The Company determines fair value based on the three-level valuation
hierarchy for fair value measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level
2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in
markets that are not active; and inputs other than quoted prices. Level 3 inputs are unobservable inputs that are supported by
little or no market activity and that are significant to the fair value of the assets or liabilities.
As of December 31,
2020, the Company committed to a plan to sell the Hampton Inn Property. The Company’s plan includes the sale of an asset
group that includes the land, site improvements, building, building improvements and furniture, fixtures and equipment associated
with the Hampton Inn Property. As a result, the Company determined that as of December 31, 2020, the carrying value of the
Hampton Inn Property exceeded its fair value, less estimated costs to sell, and recorded impairment of assets held for sale of
$3,494,058 and $0 on its consolidated statements of operations during the years ended December 31, 2020 and 2019, respectively.
The impairment of assets held for sale represents the difference between the carrying value of the Hampton Inn Property and its
estimated fair value, less estimated closing costs.
The Company based its
estimate of the fair value of the Hampton Inn Property on the actual contract sale price, less estimated closing costs, a level
2 input. The fair value measurement date is as of December 31, 2020.
See Note 3 for additional
details on impairment of assets held for sale for the years ended December 31, 2020 and 2019.
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 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 book
value of the intangible assets and liabilities, net, associated with this lease of $51,737 that were recorded as part of the purchase
of the Franklin Square Property 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. The Company did not record any impairment adjustments
to its intangible assets during the year ended December 31, 2019.
Details
of these deferred costs, net of amortization, arising from the Company’s purchases of the Franklin Square Property, Hanover
Square Property, Ashley Plaza Property and Brookfield Center Property are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Intangible Assets
|
|
|
|
|
|
|
|
|
Leasing commissions
|
|
$
|
948,427
|
|
|
$
|
1,145,948
|
|
Legal and marketing costs
|
|
|
86,786
|
|
|
|
122,582
|
|
Above market leases
|
|
|
402,895
|
|
|
|
624,285
|
|
Net leasehold asset
|
|
|
1,818,254
|
|
|
|
2,565,256
|
|
|
|
$
|
3,256,362
|
|
|
$
|
4,458,071
|
|
|
|
|
|
|
|
|
|
|
Intangible Liabilities
|
|
|
|
|
|
|
|
|
Below market leases, net
|
|
$
|
(1,022,497
|
)
|
|
$
|
(1,277,960
|
)
|
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 years ended December 31, 2020 and 2019, respectively,
were as follows:
|
|
For the year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Amortization of above market leases
|
|
$
|
(221,390
|
)
|
|
$
|
(226,251
|
)
|
Amortization of below market leases
|
|
|
215,248
|
|
|
|
140,481
|
|
|
|
$
|
(6,142
|
)
|
|
$
|
(85,770
|
)
|
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 years ended December 31, 2020 and 2019, respectively,
were as follows:
|
|
For the year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Leasing commissions
|
|
$
|
(178,915
|
)
|
|
$
|
(121,150
|
)
|
Legal and marketing costs
|
|
|
(29,515
|
)
|
|
|
(32,944
|
)
|
Net leasehold asset
|
|
|
(679,937
|
)
|
|
|
(585,518
|
)
|
|
|
$
|
(888,367
|
)
|
|
$
|
(739,612
|
)
|
As
of December 31, 2020 and 2019, the Company’s accumulated amortization of lease origination costs, leases in place and
legal and marketing costs totaled $2,353,103 and $1,518,772, respectively.
Future
amortization of above and below market leases, lease origination costs, leases in place, legal and marketing costs and tenant relationships
is as follows:
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
2026-2039
|
|
|
Total
|
|
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing commissions
|
|
$
|
168,030
|
|
|
$
|
133,682
|
|
|
$
|
106,075
|
|
|
$
|
88,222
|
|
|
$
|
79,830
|
|
|
$
|
372,588
|
|
|
$
|
948,427
|
|
Legal and marketing costs
|
|
|
23,749
|
|
|
|
18,879
|
|
|
|
13,960
|
|
|
|
8,894
|
|
|
|
5,366
|
|
|
|
15,938
|
|
|
|
86,786
|
|
Above market leases
|
|
|
214,452
|
|
|
|
121,137
|
|
|
|
33,311
|
|
|
|
7,692
|
|
|
|
7,692
|
|
|
|
18,611
|
|
|
|
402,895
|
|
Net leasehold asset
|
|
|
570,082
|
|
|
|
341,480
|
|
|
|
195,139
|
|
|
|
143,256
|
|
|
|
122,282
|
|
|
|
446,015
|
|
|
|
1,818,254
|
|
|
|
$
|
976,313
|
|
|
$
|
615,178
|
|
|
$
|
348,485
|
|
|
$
|
248,064
|
|
|
$
|
215,170
|
|
|
$
|
853,152
|
|
|
$
|
3,256,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market leases, net
|
|
$
|
(200,044
|
)
|
|
$
|
(177,581
|
)
|
|
$
|
(131,112
|
)
|
|
$
|
(89,303
|
)
|
|
$
|
(63,039
|
)
|
|
$
|
(361,418
|
)
|
|
$
|
(1,022,497
|
)
|
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 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 years ended December 31, 2020 and 2019, respectively.
Cash and Cash Equivalents and
Restricted Cash
The
Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents.
Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts
and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash
and equivalents and its trade accounts receivable.
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 December 31, 2020, the Company held two cash accounts with balances that exceeded the FDIC limit by an aggregate
amount of $1,719,233. As of December 31, 2019, the Company had no cash accounts with balances that exceeded the FDIC limit.
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) capital reserves held by lenders for investment property capital
improvements and (iv) an escrow for the first year of dividends on the Company’s mandatorily redeemable preferred stock
(see Note 4, below).
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 December 31, 2020 and 2019, the Company reported $109,059 and $101,503, respectively, in security
deposits held as restricted cash.
Escrow
deposits are restricted cash balances held by lenders for real estate taxes, insurance and other operating reserves. As of December 31,
2020 and 2019, the Company reported $1,352,723 and $882,265, 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 December 31, 2020 and 2019, the Company reported $674,520 and $474,747, respectively, in capital
property reserves. These funds are being held in reserve, as follows:
|
|
December 31,
|
|
Property and Purpose of Reserve
|
|
2020
|
|
|
2019
|
|
Hampton Inn Property – improvements
|
|
$
|
-
|
|
|
$
|
82,693
|
|
Hampton Inn Property – furniture, fixtures and equipment
|
|
|
18,460
|
|
|
|
-
|
|
Clemson Best Western Property - improvements
|
|
|
50,009
|
|
|
|
50,002
|
|
Clemson Best Western Property - furniture, fixtures and equipment
|
|
|
149,752
|
|
|
|
27,226
|
|
Franklin Square Property - leasing costs
|
|
|
408,278
|
|
|
|
307,438
|
|
Brookfield Center Property – maintenance reserve
|
|
|
48,021
|
|
|
|
7,388
|
|
Total
|
|
$
|
674,520
|
|
|
$
|
474,747
|
|
The
escrow for mandatorily redeemable preferred stock dividends is held by a financial institution under an escrow agreement by which
the funds are restricted for payment of dividends on the Company’s mandatorily redeemable preferred stock for the first 12
months. As of December 31, 2020 and 2019, the Company reported $97,632 and $0, respectively, in escrow reserves. (See Note
4 for further discussion of the Company’s mandatorily redeemable preferred stock).
Revenue
Recognition
The
Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective on January 1, 2019.
This adoption did not have a material impact on the Company’s recognition of revenues from either its retail, flex or hotel
properties.
Retail
and Flex Center Property Revenues
The
Company recognizes minimum rents from its retail center properties (the Franklin Square, Hanover Square and Ashley Plaza properties)
and flex center property (Brookfield Center) on a straight-line basis over the terms of the respective leases which results in
an unbilled rent asset being recorded on the consolidated balance sheets. 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 portion of the unbilled rent asset carried on the consolidated balance sheets related to this lease of $31,162
should be written off. This amount is included as a reduction to retail property revenues on the Company’s consolidated statement
of operations for the year ended December 31, 2020. As of December 31, 2020 and 2019, the Company reported $673,728 and
$460,888, respectively, in unbilled rent.
The
Company’s leases generally require the tenant to reimburse the Company for a substantial portion of its expenses incurred
in operating, maintaining, repairing, insuring and managing the shopping center and common areas (collectively defined as Common
Area Maintenance or “CAM” expenses). The Company includes these reimbursements, along with other revenue derived from
late fees and seasonal events, on the consolidated statements of operations under the captions "Retail center property tenant
reimbursements” and “Flex center property tenant reimbursements." This significantly reduces the Company’s
exposure to increases in costs and operating expenses resulting from inflation or other outside factors. The Company accrues reimbursements
from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred.
The Company calculates the tenant’s share of operating costs by multiplying the total amount of the operating costs by a
fraction, the numerator of which is the total number of square feet being leased by the tenant, and the denominator of which is
the average total square footage of all leasable buildings at the property. The Company also receives payments for these reimbursements
from substantially all its tenants on a monthly basis throughout the year.
The Company recognizes
differences between previously estimated recoveries and the final billed amounts in the year in which the amounts become final.
During the years ended December 31, 2020 and 2019, respectively, the Company recognized $14,934 and $50,498, respectively,
in CAM reimbursement revenues.
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 years
ended December 31, 2020 and 2019, respectively, no such termination costs were recognized.
Hotel
Property Revenues
Hotel
revenues (from the Hampton Inn Property and Clemson Best Western Property) are recognized as earned, which is generally defined
as the date upon which a guest occupies a room or utilizes the hotel’s services.
The
Hampton Inn Property and Clemson Best Western Property are 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 Hampton Inn Property
and Clemson Best Western Property have a legal obligation to act as a collection agent. The Hampton Inn Property and Clemson Best
Western Property do not retain these taxes and fees; therefore, they are not included in revenues. The Hampton Inn Property and
Clemson Best Western Property record a liability when the amounts are collected and relieves the liability when payments are made
to the applicable taxing authority or other appropriate governmental agency.
Hotel Property
Operating Expenses
All
personnel of the Hampton Inn Property and Clemson Best Western Property are directly or indirectly employees of Marshall Hotels
and Resorts, Inc. (“Marshall”), the Company’s hotel management firm. In addition to fees and services discussed
above, the Hampton Inn Property and Clemson Best Western Property reimburse Marshall for all employee related service costs, including
payroll salaries and wages, payroll taxes and other employee benefits paid by Marshall on behalf of the respective property. For
the Hampton Inn Property, total amounts incurred for payroll salaries and wages, payroll taxes and other employee benefits for
the years ended December 31, 2020 and 2019 were $642,760 and $897,421, respectively. For the Clemson Best Western Property,
total amounts incurred for payroll salaries and wages, payroll taxes and other employee benefits for the years ended December 31,
2020 and 2019 were $463,175 and $207,893, respectively. The amounts are included in hotel property operating expenses in the accompanying
consolidated statements of operations.
Rent and
other receivables
Rent
and other receivables include tenant receivables related to base rents and tenant reimbursements. (Rent and other receivables do
not include receivables attributable to recording rents on a straight-line basis, which are included in unbilled rent, discussed
above.) The Company determines an allowance for the uncollectible portion of accrued rents and accounts receivable based upon customer
credit worthiness (including expected recovery of a claim with respect to any tenants in bankruptcy), historical bad debt levels,
and current economic trends. The Company considers a receivable past due once it becomes delinquent per the terms of the lease.
A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease. As
of December 31, 2020 and 2019, the Company’s allowance for uncollectible rent totaled $4,693 and $8,615, 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 December 31, 2020 and
2019, 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 years ended
December 31, 2020 and 2019, respectively, the Company’s Hampton Inn TRS entity generated a tax loss, so no income tax
expense was recorded. During the years ended December 31, 2020 and 2019, respectively, the Company’s Clemson Best Western
TRS entity generated a tax loss, so no income tax expense was recorded.
Management
has evaluated the effect of the guidance provided by GAAP on Accounting for Uncertainty of Income Taxes and has
determined that the Company had no uncertain income tax positions.
Use of Estimates
The
Company has made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reported period.
The Company’s actual results could differ from these estimates.
Noncontrolling
Interests
There
are 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, noncontrolling interests have been reported in equity on the consolidated
balance sheets but separate from the Company’s equity. On the consolidated statements of operations the subsidiaries are
reported at the consolidated amount, including both the amount attributable to the Company and noncontrolling interests. Consolidated
statements of changes in stockholders’ equity include 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 2017, the noncontrolling owner of the Hampton Inn Property provided
$2.3 million as part of the acquisition of the Hampton Inn Property for a 36 percent tenancy in common ownership interest. The
Company acquired a 64 percent tenancy in common interest through its subsidiaries. Effective on January 1, 2020, the Company
entered into a transaction with the noncontrolling owner of the Hampton Inn Property by which the noncontrolling owner exchanged
(i) 7.55 percent of its tenant in common interest in the Hampton Inn Property for the settlement of $867,000 in advances made
by the Company to the Hampton Inn Property; and (ii) 3.45 percent of its tenant in common interest in the Hampton Inn Property
for 93,850 units of the Operating Partnership. As a result of this transaction, effective on January 1, 2020, the Company’s
tenant-in-common interest in the Hampton Inn Property increased from 64 percent to 75 percent, and the noncontrolling owner’s
tenant-in-common interest decreased from 36 percent to 25 percent. Effective on November 9, 2020, the noncontrolling owner
exchanged 3 percent of its tenant in common interest in the Hampton Inn Property for the settlement of $1,021,960 in advances made
by the Company to the Hampton Inn Property. As a result of this transaction, the Company’s tenant-in-common interest in the
Hampton Inn Property increased from 75 percent to 78 percent, and the noncontrolling owner’s tenant-in-common interest decreased
from 25 percent to 22 percent. These transactions did not have any impact on the Company’s total assets, liabilities or shareholder’s
equity or total equity as of December 31, 2020.
The Hampton Inn Property’s
net loss is allocated to the noncontrolling ownership interest based on its percent ownership. During the year ended December 31,
2020, a weighted average of 22.68 percent of the Hampton Inn’s net loss of $4,990,531, or $1,131,765, was allocated to the
noncontrolling partnership interest. During the year ended December 31, 2019, 36 percent of the Hampton Inn’s net loss
of $2,017,362, or $726,249 was allocated to the noncontrolling partnership interest.
The second noncontrolling
interest is in the Hanover Square Property in which the Company owns an 84 percent tenancy in common interest through its subsidiary
and an outside party owns a 16 percent tenancy in common interest. The Hanover Square Property’s net loss is allocated to
the noncontrolling ownership interest based on its 16 percent ownership. During the year ended December 31, 2020, 16 percent
of the Hanover Square Property’s net loss of $144,795 or $23,167 was allocated to the noncontrolling ownership interest.
During the year ended December 31, 2019, 16 percent of the Hanover Square Property’s net loss of $50,240 or $8,037 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 which owned the Hampton Inn Property who elected to participate
in a 721 exchange, which allows the exchange of interests in real property for shares in a real estate investment trust. These
members of the selling LLC invested $1,175,000 in the Operating Partnership in exchange for 125,000 Operating Partnership units.
Additionally, as discussed above, effective on January 1, 2020, 93,850 Operating Partnership units were issued in exchange
for approximately 3.45 percent of the noncontrolling owner’s tenant in common interest in the Hampton Inn Property. On August 31,
2020, a unitholder converted 5,319 Operating Partnership units into shares of Common Stock. As of December 31, 2020, there
were 213,531 Operating Partnership units outstanding.
The
Operating Partnership units not held by the REIT represent 4.26 percent and 2.70 percent of the outstanding Operating Partnership
units as of December 31, 2020 and 2019, respectively. The noncontrolling interest percentage is calculated at any point in
time by dividing the number of units not owned by the Company by the total number of units outstanding. The noncontrolling interest
ownership percentage will change as additional common or preferred shares are issued by the REIT, or additional Operating Partnerships
units are issued or as units are exchanged for the Company’s $0.01 par value per share Common Stock. During periods when
the Operating Partnership’s noncontrolling interest changes, the noncontrolling ownership interest is calculated based on
the weighted average Operating Partnership noncontrolling ownership interest during that period. The Operating Partnership’s
net loss is allocated to the noncontrolling unit holders based on their ownership interest.
During the year ended
December 31, 2020, a weighted average of 4.34 percent of the Operating Partnership’s net loss of $5,663,167, or $246,001,
was allocated to the noncontrolling unit holders. During the year ended December 31, 2019, a weighted average of 3.23 percent
of the Operating Partnership’s net loss of $1,685,001, or $54,490, was allocated to the noncontrolling unit holders.
Recent Accounting Pronouncements
For
each of the accounting pronouncements that affect the Company, the Company has elected or plans to elect to follow the rule that
allows companies engaging in an initial public offering as an Emerging Growth Company to follow the private company implementation
dates.
Accounting
for Leases
In
February 2016, the Financial Accounting Standards Board (“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 be recognized
as assets and liabilities, respectively, on the balance sheets. Other significant provisions of this standard include
(i) defining the “lease term” to include the non-cancelable period together with periods for which there is a
significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining the initial lease liability
to be recorded on the balance sheets to contemplate only those variable lease payments that depend on an index or that are in substance
“fixed,” (iii) a dual approach for determining whether lease expense is recognized on a straight-line or accelerated
basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased asset’s economic
benefits and (iv) a requirement to bifurcate certain lease and non-lease components. The lease standard was effective
for public companies for fiscal years beginning after December 15, 2018 (including interim periods within those fiscal years)
and for private companies, fiscal years beginning after December 15, 2019, with early adoption permitted. The FASB
subsequently deferred the effective date of ASU 2016-02 for private companies by one year, to fiscal years beginning after December 15,
2020, to provide those companies with additional time to address various implementation challenges and complexities. In June 2020,
the FASB further deferred the effective date due to the effects on private companies from business and capital market disruptions
caused by the novel coronavirus (“COVID-19”) pandemic. ASU 2016-02 is now effective for private companies for fiscal
years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022.
The Company plans to adopt the standard effective on January 1, 2022. The accounting for leases under which the Company is
the lessor remains largely unchanged and the Company is not currently a “lessee” under any lease agreements. Management
does not believe the adoption will have a material impact on the Company’s consolidated financial statements.
Due to the business
disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, lessors may provide rent deferrals
and other lease concessions to lessees. In April 2020, the FASB staff issued a question and answer document (the “Lease
Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result
of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease-by-lease basis, if a lease
concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework)
or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying
the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been
met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not,
with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected
the practical expedient and will not apply lease modification accounting on a lease-by-lease basis where applicable. As a result,
$228,345 and $0 of deferred rent is included in accounts receivable on the Company’s consolidated balance sheets as of December 31,
2020 and 2019, respectively. In addition, the Company abated rent payments totaling $346,897 from various tenants that would have
been paid during the year ended December 31, 2020. In the case of prospective rent abatements (those granted in advance of
the due date of the abated rental payments), these amounts are recorded as a reduction to retail center property revenues on the
Company’s consolidated statement of operations for the year ended December 31, 2020. In the case of retroactive rent
abatements (those granted for past due, unpaid rent that has already been recognized as rent revenue on the Company’s consolidated
statement of operations), these amounts are recorded as a bad debt expense on the Company’s consolidated statement of operations
for the year ended December 31, 2020. No such rent reductions were recorded for the year ended December 31, 2019. (See
“other risks and uncertainties” in Note 8, below).
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 to most financial assets measured at amortized cost
and certain other instruments, such as accounts receivable and loans. The guidance will require that the Company estimate the lifetime
expected credit loss with respect to these receivables and record allowances that, when deducted from the balance of the receivables,
represent the net amounts expected to be collected. The Company will also be required to disclose information about how it developed
the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the
reasons for those changes. The Company is continuing to evaluate the impact the adoption of the guidance will have on its consolidated
financial statements and has not yet determined if it will adopt the update effective on the required effective date of January 1,
2023, or whether it will elect earlier adoption.
Fair Value Disclosures
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement. This update eliminates or modifies certain existing disclosure requirements
for fair value measurements for all companies and also adds certain new disclosures for public companies. It is effective for all
companies for fiscal years beginning after December 15, 2019 (including interim periods within those fiscal years). The Company
adopted ASU 2018-13 effective January 1, 2020. The changes did not have a material impact on the Company’s consolidated
financial statements.
Effects of
Reference Rate Reform
In March 2020,
the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting. The London Interbank Offered Rate (LIBOR), which is widely used as a reference interest rate in debt
agreements and other contracts, is scheduled to be discontinued by the end of calendar year 2021. Financial market regulators in
certain jurisdictions throughout the world have undertaken reference rate reform initiatives to guide the transition and modification
of debt agreements and other contracts that are currently based on LIBOR to the successor reference rate that will replace it.
ASU 2020-04 was issued to provide companies that will be impacted by these changes with the opportunity to elect certain expedients
and exceptions that are intended to ease the potential burden of accounting for or recognizing the effects of reference rate reform
on financial reporting. Companies may generally elect to make use of the expedients and exceptions provided by ASU 2020-04 for
any reference rate contract modifications that occur in reporting periods that encompass the timeline from March 12, 2020
to December 31, 2022. The Company currently has two outstanding mortgage loans with corresponding interest rate protection
agreements and the line of credit, short term, which use USD LIBOR as the reference interest rate (see Note 5, below). The Hampton
Inn Property mortgage loan matures on May 9, 2022. The Clemson Best Western Property mortgage loan matures in October 2022.
The line of credit, short term, expires on March 31, 2021. The Company is currently evaluating the guidance in ASU 2020-04
and has not made any determination at this time on whether it will use the expedients and exceptions provided therein with respect
to the replacement of USD LIBOR as the reference rate in these agreements.
Debt With Conversion Options
In August 2020,
the FASB issued ASU 2020-06, Debt - Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts
in an Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity. The objective of ASU 2020-06 is to reduce the current complexity involved in accounting for convertible financial instruments
by reducing the number of accounting models applicable to those instruments in the existing guidance. Following the adoption of
ASU 2020-06, companies are expected to encounter fewer instances in which a convertible financial instrument must be separated
into a debt or equity component and a derivative component for accounting purposes due to the embedded conversion feature. As a
result of these revisions, debt instruments issued with a beneficial conversion feature will no longer require separation and thus
will be accounted for as a single debt instrument under the updated guidance. In addition to those changes, ASU 2020-06 adds several
incremental financial statement disclosures with respect to a company’s convertible financial instruments and makes certain
refinements with respect to calculating the effect of those instruments on a company’s diluted earnings per share. ASU 2020-06
is effective for public companies for fiscal years beginning after December 15, 2021 (including interim periods within those
fiscal years), and for private companies, fiscal years beginning after December 15, 2023. Early adoption of the guidance is
permitted, but no earlier than fiscal years beginning after December 15, 2020. As discussed in Note 5, below, during the period
from October 2020 to January 2021, the Company issued debentures that are convertible into shares of its common stock.
Those debentures are subject to the accounting guidance for convertible financial instruments. The Company is currently evaluating
the changes to that guidance under ASU 2020-06, but is not required to adopt the updated guidance before January 1, 2024.
No determination has been made at this time with respect to early adoption.
Evaluation of the Company’s Ability to Continue
as a Going Concern
Under the accounting
guidance related to the presentation of financial statements, the Company is required to evaluate, on a quarterly basis, whether
or not the entity’s current financial condition, including its sources of liquidity at the date that the 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 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
consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business.
In applying applicable
accounting guidance, management considered the Company’s current financial condition and liquidity sources, including current
funds available, forecasted future cash flows, the Company’s obligations due over the next twelve months as well as the Company’s
recurring business operating expenses.
The Company concludes
that it is probable that the Company will be able to meet its obligations arising within one year of the date of issuance of these
consolidated financial statements within the parameters set forth in the accounting guidance.
Investment properties
consist of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019 (1)
|
|
Land
|
|
$
|
12,281,693
|
|
|
$
|
13,242,593
|
|
Site improvements
|
|
|
3,751,212
|
|
|
|
4,058,394
|
|
Buildings and improvements (2)
|
|
|
45,137,682
|
|
|
|
59,879,175
|
|
Furniture, fixtures and equipment
|
|
|
825,147
|
|
|
|
2,122,317
|
|
Investment properties at cost (3)
|
|
|
61,995,734
|
|
|
|
79,302,479
|
|
Less accumulated depreciation
|
|
|
4,939,872
|
|
|
|
3,510,654
|
|
Investment properties, net
|
|
$
|
57,055,862
|
|
|
$
|
75,791,825
|
|
|
(1)
|
As of December 31, 2019, the Hampton Inn Property is recorded as an investment property. As of December 31, 2020, the Hampton Inn 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 $3,067,556 and $2,025,544 for the years ended December 31,
2020 and 2019, respectively.
Capitalized tenant improvements
The Company carries
two categories of capitalized tenant improvements on its 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,
|
|
|
|
2020
|
|
|
2019
|
|
Capitalized tenant improvements – acquisition cost allocation, net
|
|
$
|
1,155,505
|
|
|
$
|
1,504,483
|
|
Capitalized tenant improvements incurred subsequent to acquisition, net
|
|
|
179,919
|
|
|
|
165,762
|
|
During
the years ended December 31, 2020 and 2019, the Company recorded $60,000 and $31,284, 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.
Depreciation
of capitalized tenant improvements incurred subsequent to acquisition was $45,843 and $41,102 for the years ended December 31,
2020 and 2019, respectively.
Depreciation of capitalized
tenant improvements arising from the acquisition cost allocation was $267,118 and $229,101 for the years ended December 31,
2020 and 2019, 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:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Capitalized leasing commissions, net
|
|
$
|
346,437
|
|
|
$
|
339,269
|
|
During
the years ended December 31, 2020 and 2019, the Company recorded $56,746 and $56,475, respectively in capitalized leasing
commissions. Depreciation on capitalized leasing commissions was $49,578 and $40,067 for the years ended December 31, 2020
and 2019, respectively.
Capitalized
tenant inducements
During
May 2018, the Company paid $125,000 to induce a tenant in the Franklin Square Property to release a restriction in its lease
that prohibited the Company from leasing space to a similar user. During June 2020, the tenant to which the Company made this
tenant inducement payment notified the Company that it was abandoning its leased premises and defaulting on its lease. The Company
determined that the unamortized balance of the tenant inducement of $89,500 carried on the Company’s consolidated balance
sheets 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 was recorded for the year ended December 31, 2019.
During the period from
May 2018 until the tenant’s default in June 2020, capitalized tenant inducements were amortized over the term of
the tenant’s lease as a reduction of rental income. Amortization of the tenant inducement was $7,100 and $17,040 for the
years ended December 31, 2020 and 2019, respectively.
The balance of the
tenant inducement, net of amortization, is as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Capitalized tenant inducements, net
|
|
$
|
-
|
|
|
$
|
96,600
|
|
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.
Assets held for sale
As of December 31,
2020, the assets held for sale on the Company’s consolidated balance sheets include certain assets associated with the Hampton
Inn Property. 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 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 Hampton Inn Property. Accordingly, these amounts are excluded from the assets and related liabilities that
have been reclassified as assets held for sale and liabilities associated with assets held for sale as of December 31, 2020.
The impairment charge
on assets held for sale was $3,494,058 and $0 for the years ended December 31, 2020 and 2019, respectively. 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.
As of December 31,
2020 and 2019, assets held for sale and liabilities associated with assets held for sale consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Investment properties, net
|
|
$
|
12,410,250
|
|
|
$
|
-
|
|
Total assets held for sale
|
|
$
|
12,410,250
|
|
|
$
|
-
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Mortgages payable, net
|
|
$
|
10,352,000
|
|
|
$
|
-
|
|
Total liabilities associated with assets held for sale
|
|
$
|
10,352,000
|
|
|
$
|
-
|
|
Property Acquisitions
2019 Acquisitions
The Ashley Plaza Property
On
August 30, 2019, the Company completed its acquisition of the Ashley Plaza Property, a 160,356 square foot retail property
located in Goldsboro, North Carolina, through a wholly owned subsidiary. The Ashley Plaza Property, built in 1977 and fully renovated
in 2018, was 98 percent leased as of December 31, 2020 and is anchored by Hobby Lobby, Harbor Freight and Ashley Home Store.
The purchase price for the Ashley Plaza Property was $15,200,000 paid through a combination of cash provided by the Company, the
incurrence of new mortgage debt and funds from a line of credit, short term. The Company’s total investment, including $204,300
of loan issuance costs, was $15,885,444. The Company paid $357,823 of acquisition and closing costs which were capitalized and
added to the tangible assets acquired.
The Clemson
Best Western Property
On
September 27, 2019, the Company completed its acquisition of the Clemson Best Western Property, a 148 room hotel on 5.92 acres
located in Clemson, South Carolina, through a wholly owned subsidiary. The Clemson Best Western Property was built in 1982 and
substantially renovated in 2016 and 2017. The purchase price for the Clemson Best Western Property was $9,750,000 paid through
a combination of cash provided by the Company, the incurrence of new mortgage debt and funds from a line of credit, short term.
The Company’s total investment, including $269,254 of loan issuance costs, was $10,786,782. The Company paid $578,953 of
acquisition, closing costs and lease buy-out fees, which were capitalized and added to the tangible assets acquired.
The Brookfield
Center Property
On
October 3, 2019, the Company completed its acquisition of the Brookfield Center Property, a 64,880 square foot flex-industrial
property located in Greenville, South Carolina, through a wholly owned subsidiary. The Brookfield Center Property, built in 2007,
was 93.8 percent leased as of December 31, 2020. Major tenants include Gravitopia Trampoline Park and Summit Church. The purchase
price for the Brookfield Center Property was $6,700,000 paid through a combination of cash provided by the Company, the incurrence
of new mortgage debt and funds from related party notes payable, short term. The Company’s total investment, including $113,505
of loan issuance costs, was $7,102,643. The Company paid $207,957 of acquisition and closing costs which were capitalized and added
to the tangible assets acquired.
The
following summarizes the consideration paid and the fair values of the assets acquired and liabilities created or assumed in conjunction
with the acquisitions described above, along with a description of the methods used to determine fair value. Asset values presented
include allocated acquisition and closing costs.
|
|
Brookfield
Center
Property
|
|
|
Clemson
Best
Western
Property
|
|
|
Ashley Plaza
Property
|
|
|
Total
|
|
Fair value of assets acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment property (a)
|
|
$
|
6,407,367
|
|
|
$
|
10,328,953
|
|
|
$
|
14,199,028
|
|
|
$
|
30,935,348
|
|
Lease intangibles and other assets (b)
|
|
|
493,849
|
|
|
|
-
|
|
|
|
2,142,124
|
|
|
|
2,635,973
|
|
Restricted cash created (c)
|
|
|
81,181
|
|
|
|
188,575
|
|
|
|
123,321
|
|
|
|
393,077
|
|
Above market leases (b)
|
|
|
6,741
|
|
|
|
-
|
|
|
|
195,386
|
|
|
|
202,127
|
|
Below market leases (b)
|
|
|
-
|
|
|
|
-
|
|
|
|
(978,715
|
)
|
|
|
(978,715
|
)
|
Fair value of net assets acquired (d)
|
|
$
|
6,989,138
|
|
|
$
|
10,517,528
|
|
|
$
|
15,681,144
|
|
|
$
|
33,187,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration paid with cash (e)
|
|
$
|
1,876,138
|
|
|
$
|
1,767,528
|
|
|
$
|
3,281,144
|
|
|
$
|
6,924,810
|
|
Consideration paid with new line of credit, short term (f)
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
2,000,000
|
|
Consideration paid with new related party note payable, short term (g)
|
|
|
263,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
263,000
|
|
Consideration paid with new mortgage debt (h)
|
|
|
4,850,000
|
|
|
|
7,750,000
|
|
|
|
11,400,000
|
|
|
|
24,000,000
|
|
Total consideration (i)
|
|
$
|
6,989,138
|
|
|
$
|
10,517,528
|
|
|
$
|
15,681,144
|
|
|
$
|
33,187,810
|
|
a.
|
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 of $207,957 for the Brookfield Center Property, $578,953 for the Clemson Best Western Property and $357,823 for the Ashley Plaza Property 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 deposits paid by the Company at closing for real estate tax escrows and operating and capital reserves.
|
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), escrows, lease buy-out fees, and closing costs paid outside of closing or directly by the Company.
|
f.
|
Represents funds received from a line of credit, short term. See Note 5, below.
|
g.
|
Represents funds received from related party notes payable, short term. See Note 5, below.
|
h.
|
Issuance of new mortgage debt to fund the purchase of the properties. See Note 5, below.
|
i.
|
Represents the consideration paid for the fair value of the assets and liabilities acquired.
|
4.
|
Mandatorily Redeemable Preferred Stock
|
On
February 19, 2020, the Company issued and sold 200,000 shares of 8.0% Series A cumulative redeemable preferred stock
at $23.00 per share, resulting in gross proceeds of $4,600,000. Net proceeds from the issuance were $3,860,882, which includes
the impact of the underwriter’s discounts, selling commissions and legal, accounting and other professional fees, and is
presented on the Company’s consolidated balance sheets as mandatorily redeemable preferred stock. As part of this offering,
the Company granted the underwriters a 45-day option to purchase up to 30,000 additional shares of mandatorily redeemable preferred
stock at the public offering price, less the underwriting discount and commissions, to cover over-allotments, if any. This 45-day
period terminated on April 4, 2020, and the underwriters did not exercise any portion of this option. At issuance, the Company
created an escrow for $371,111 for the first year of dividends, which is reported as restricted cash on the Company’s consolidated
balance sheets. As of December 31, 2020 and 2019, respectively, the balance of the preferred dividend escrow was $97,632 and
$0, respectively.
The mandatorily redeemable
preferred stock has an aggregate liquidation preference of $5 million, plus any accrued and unpaid dividends thereon. The mandatorily
redeemable preferred stock is senior to the Company’s common stock and any class or series of capital stock expressly designated
as ranking junior to the mandatorily redeemable preferred stock as to distribution rights and rights upon liquidation, dissolution
or winding up (“Junior Stock”). The mandatorily redeemable preferred stock is on a parity with any class or series
of the Company’s capital stock expressly designated as ranking on a parity with the mandatorily redeemable preferred stock
as to distribution rights and rights upon liquidation, dissolution or winding up (“Parity Stock”).
If outstanding at on
February 19, 2025, the mandatorily redeemable preferred stock must be redeemed by the Company on that date, the fifth anniversary
of the date of issuance. Beginning on February 19, 2022, the second anniversary of the issuance, the Company may redeem the
outstanding mandatorily redeemable preferred stock for an amount equal to its aggregate liquidation preference, plus any accrued
but unpaid dividends. The holders of the mandatorily redeemable preferred stock may also require the Company to redeem the stock
upon a change of control of the Company for an amount equal to its aggregate liquidation preference plus any accrued and unpaid
dividends thereon.
Holders of the mandatorily
redeemable preferred stock generally have no voting rights. However, if the Company does not pay dividends on the mandatorily redeemable
preferred stock for six consecutive quarterly periods, the holders of that stock, voting together as a single class with the holders
of any outstanding Parity Stock having similar voting rights, will be entitled to vote for the election of two additional directors
to serve on the Company’s Board of Directors until the Company pays all dividends owed on the mandatorily redeemable preferred
stock. The affirmative vote of the holders of at least two-thirds of the outstanding shares of mandatorily redeemable preferred
stock, voting together as a single class with the holders of any other class or series of the Company’s preferred stock upon
which like voting rights have been conferred and are exercisable, is required for the Company to authorize, create or increase
the number of shares of any class or series of capital stock expressly designated as ranking senior to the mandatorily redeemable
preferred stock as to distribution rights and rights upon the Company’s liquidation, dissolution or winding up. In addition,
the affirmative vote of at least two-thirds of the outstanding shares of mandatorily redeemable preferred stock (voting as a separate
class) is required to amend the Company’s charter (including the articles supplementary designating the mandatorily redeemable
preferred stock) in a manner that materially and adversely affects the rights of the holders of mandatorily redeemable preferred
stock. Among other things, the Company may, without any vote of the holders of mandatorily redeemable preferred stock, issue additional
shares of mandatorily redeemable preferred stock and may authorize and issue additional shares of any class or series of any Junior
Stock or Parity Stock.
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 consolidated statements
of operations (see Note 5, below, for a discussion of interest expense associated with the mandatorily redeemable preferred stock).
For
all periods the mandatorily redeemable preferred stock has been outstanding, the Company has paid a cash dividend on the stock
equal to 8 percent per annum, paid quarterly, as follows:
Payment Date
|
|
Record Date
|
|
Amount per share
|
|
|
For the period
|
|
April 27, 2020
|
|
April 24, 2020
|
|
$
|
0.37
|
|
|
|
February 19, 2020 - April 27, 2020
|
|
July 24, 2020
|
|
July 22, 2020
|
|
|
0.50
|
|
|
|
April 28, 2020 - July 24, 2020
|
|
October 26, 2020
|
|
October 23, 2020
|
|
|
0.50
|
|
|
|
July 25, 2020 - October 26, 2020
|
|
February 1, 2021
|
|
January 29, 2021
|
|
|
0.50
|
|
|
|
October 27, 2020 - February 1, 2021
|
|
As
of December 31, 2020 and 2019, the Company reported $70,004 and $0, 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 consolidated
balance sheets.
The mandatorily redeemable
preferred stock was issued at $23.00 per share, a $2.00 per share discount. The total discount of $400,000 is being amortized over
the five-year life of the shares using the effective interest method. Additionally, the Company incurred $739,118 in legal, accounting,
other professional fees and underwriting discounts related to this offering. These costs were recorded as deferred financing costs
on the accompanying consolidated balance sheets as a direct deduction from the carrying amount of the mandatorily redeemable preferred
stock liability and are being amortized using the effective interest method over the term of the agreement.
Amortization of the
discount and deferred financing costs related to the mandatorily redeemable preferred stock totaling $162,375 and $0 were included
in interest expense for the years ended December 31, 2020 and 2019, respectively, in the accompanying consolidated statements
of operations. Accumulated amortization of the discount and deferred financing costs was $162,375 and $0 as of December 31,
2020 and 2019, respectively.
Mortgages
Payable
The
Company’s mortgages payables, net, consists of the following:
|
|
Monthly
|
|
|
Interest
|
|
|
|
|
|
December 31,
|
|
Property
|
|
Payment
|
|
|
Rate
|
|
|
Maturity
|
|
|
2020
|
|
|
2019
|
|
Franklin Square (a)
|
|
|
Interest only
|
|
|
|
4.70
|
%
|
|
|
October 2021
|
|
|
$
|
14,275,000
|
|
|
$
|
14,275,000
|
|
Hampton Inn (b)
|
|
|
Interest only
|
|
|
|
Variable
|
|
|
|
May 2022
|
|
|
|
-
|
|
|
|
10,600,000
|
|
Hanover Square (c)
|
|
$
|
56,882
|
|
|
|
4.25
|
%
|
|
|
December 2027
|
|
|
|
10,380,791
|
|
|
|
8,592,195
|
|
Ashley Plaza (d)
|
|
$
|
52,795
|
|
|
|
3.75
|
%
|
|
|
September 2029
|
|
|
|
11,349,518
|
|
|
|
11,400,000
|
|
Clemson Best Western (e)
|
|
|
Interest only
|
|
|
|
Variable
|
|
|
|
October 2022
|
|
|
|
7,750,000
|
|
|
|
7,750,000
|
|
Brookfield Center (f)
|
|
$
|
22,876
|
|
|
|
3.90
|
%
|
|
|
November 2029
|
|
|
|
4,842,887
|
|
|
|
4,850,000
|
|
Unamortized issuance costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(503,842
|
)
|
|
|
(766,293
|
)
|
Total mortgages payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,094,354
|
|
|
$
|
56,700,902
|
|
|
(a)
|
The mortgage loan for the Franklin Square
Property matures in October 2021. The Company will commence efforts in early 2021 to refinance this mortgage, but there is
no guarantee that the Company’s efforts will be successful.
|
|
(b)
|
As of December 31, 2020, the Company
reclassified the mortgage loan for the Hampton Inn property to mortgages payable, net, associated with assets held for sale (see
below).
|
|
(c)
|
On May 8, 2020, the Company entered
into a refinancing transaction with the mortgage lender for the Hanover Square Property which increased the mortgage amount and
reduced the interest rate. Under this transaction, the principal amount of the loan was increased to $10,500,000 and the
interest rate reduced to a fixed rate of 4.25 percent until January 1, 2023, when the interest rate will adjust to a new fixed
rate which will be determined by adding 3.00 percentage points to the daily average yield on United States Treasury securities
adjusted to a constant maturity of five years, as made available by the Federal Reserve Board, with a minimum of 4.25 percent.
The fixed monthly payment, which includes principal and interest, increased to $56,882. The Company has accounted for this
transaction as a loan modification in accordance with ASC 470. Under this accounting treatment, the Company recorded $1,500 in
capitalized loan issuance costs for loan fees paid to the lender and recorded $43,852 in third party costs associated with the
transaction as an expense under retail property operating expenses on the Company’s consolidated statement of operations
for the year ended December 31, 2020.
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 percent. As of December 31, 2020 and 2019, respectively,
the Company believes that it is compliant with these covenants.
|
|
(d)
|
The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75 percent and is 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.
|
|
(e)
|
The mortgage loan for the Clemson Best Western Property bears interest at a variable rate based on LIBOR with a minimum rate of 7.15 percent. The interest rate payable is the USD LIBOR one-month rate plus 4.9 percent. As of December 31, 2020 and 2019, respectively, the rate in effect for the Clemson Best Western Property mortgage was 7.15 percent.
|
|
(f)
|
The mortgage loan for the Brookfield Property bears interest at a fixed rate of 3.90 percent and is interest only for the first twelve months. Beginning on November 1, 2020, the monthly payment became $22,876 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty year amortization schedule.
|
Mortgages
payable, net, associated with assets held for sale
The
Company’s mortgages payables, net, associated with assets held for sale, consists of the following:
|
|
|
Monthly
|
|
|
|
Interest
|
|
|
|
|
|
|
|
December 31,
|
Property
|
|
|
Payment
|
|
|
|
Rate
|
|
|
|
Maturity
|
|
|
|
2020
|
|
|
2019
|
Hampton Inn (a)
|
|
|
Interest only
|
|
|
|
Variable
|
|
|
|
May 2022
|
|
|
|
10,400,000
|
|
|
-
|
Unamortized issuance costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,000
|
)
|
|
-
|
Total mortgages payable, net, associated with assets held for sale
|
|
|
|
|
|
|
$
|
10,352,000
|
|
$
|
-
|
|
(a)
|
As of December 31, 2020, the Company reclassified the mortgage
loan for the Hampton Inn property to mortgages payable, net, associated with assets held for sale. The mortgage loan for the Hampton
Inn property matured on November 9, 2020 and, on November 9, 2020 the Company entered into an amendment to extend the
loan until May 2022. The Company has accounted for this transaction as a loan modification in accordance with ASC 470. Under
this accounting treatment, the Company recorded $54,000 in capitalized loan issuance costs for loan fees paid to the lender and
recorded $22,784 in third party costs associated with the transaction as an expense under hotel property operating expenses on
the Company’s consolidated statement of operations for the year ended December 31, 2020.
The mortgage loan for the Hampton Inn Property
bears interest at a variable rate based on LIBOR with a minimum rate of 6.50 percent. The interest rate payable is the USD LIBOR
one-month rate plus 6.25 percent. As of December 31, 2020 and 2019, the rate in effect for the Hampton Inn Property
mortgage was 6.50 percent and 6.75 percent, respectively.
|
Convertible Debentures
On October 27,
2020, the Company entered into an agreement providing for the issuance of convertible debentures in the principal amount of $5
million to a financing entity. The debentures were issued at a 5 percent discount to the principal amount, accrue interest at a
rate of 5.00 percent per annum (payable at maturity), and were closed in three separate tranches as follows:
Tranche
|
|
Closing Date
|
|
Principal Amount
|
|
|
Discount
|
|
|
Debt
Issuance
Costs – Cash
|
|
|
Net
Proceeds
|
|
Tranche 1
|
|
October 27, 2020
|
|
$
|
1,500,000
|
|
|
$
|
(75,000
|
)
|
|
$
|
(155,555
|
)
|
|
$
|
1,269,445
|
|
Tranche 2
|
|
December 22, 2020
|
|
|
2,000,000
|
|
|
|
(100,000
|
)
|
|
|
(207,407
|
)
|
|
|
1,692,593
|
|
Tranche 3 – allocation of debt issuance costs (1)
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35,555
|
)
|
|
|
(35,555
|
)
|
Total for the year ended
December 31, 2020
|
|
|
|
$
|
3,500,000
|
|
|
$
|
175,000
|
|
|
$
|
398,517
|
|
|
$
|
2,926,483
|
|
Tranche 3
|
|
January 5, 2021
|
|
|
1,500,000
|
|
|
|
(75,000
|
)
|
|
|
(120,000
|
)
|
|
|
1,305,000
|
|
Total
|
|
|
|
$
|
5,000,000
|
|
|
$
|
250,000
|
|
|
$
|
518,517
|
|
|
$
|
4,231,483
|
|
|
(1)
|
A total of $398,517 in debt issuance costs was paid in cash during the year ended December 31,
2020. These costs reduce the net cash proceeds received during the year ended December 31, 2020, but are allocated to all
three tranches for purposes of determining amortization expense.
|
The principal amount
outstanding at December 31, 2020 was $3,500,000. During the year ended December 31, 2020, net cash proceeds from the
issuance of the debentures, after deducting the discount and cash issuance costs, totaled approximately $2,926,483. Including the
closing of the third tranche on January 5, 2021, the total principal amount outstanding was $5,000,000 and total net cash
proceeds were $4,231,483.
The 5 percent issue discount totaled $250,000
($175,000 for the first and second tranches issued through December 31, 2020) and is being amortized over the one-year term
of the debentures using the effective interest method. During the year ended December 31, 2020, the Company also paid a total
of $398,517 in issuance costs, including legal, accounting, other professional fees, and underwriting discounts. Including the
closing of the third tranche on January 5, 2021, total issuance costs paid in cash were $518,517. In addition to the closing
costs paid in cash, the Company paid $123,000 in debt issuance costs in common shares of the Company during the year ended December 31,
2020.These issuance costs were recorded as deferred debt issuance costs on the accompanying consolidated balance sheets as a direct
deduction from the carrying amount of the convertible debentures and are being amortized over the one-year term of the debentures
using the effective interest method.
Based on the terms
and relevant conversion details, the debt component and embedded conversion option of the debentures are not bifurcated for accounting
purposes under ASC 815, Derivative Instruments and Hedging Activities. Because the variable conversion price of the debentures
was lower than the market price of the Company’s common stock at the commitment date, the debentures have a beneficial conversion
feature as outlined in ASC 470, Debt. The intrinsic value of the beneficial conversion feature totaled $662,788 for the
1st and 2nd tranches issued during the year ended December 31, 2020 and was recorded as an increase
in additional paid-in capital and a corresponding incremental discount on the carrying value of the debentures.
Net of the beneficial
conversion feature, issue discount, and deferred debt issuance costs (cash and non-cash), the carrying amount of the $3,500,000
principal amount of debentures issued through December 31, 2020 was $2,260,565.
Tranche
|
|
Net Proceeds
|
|
|
Debt
Issuance
Costs –
Stock (1)
|
|
|
Beneficial
Conversion
Feature
|
|
|
Balance
December
31, 2020
|
|
Tranche 1
|
|
$
|
1,269,445
|
|
|
$
|
(36,900
|
)
|
|
$
|
(284,052
|
)
|
|
$
|
948,493
|
|
Tranche 2
|
|
|
1,692,593
|
|
|
|
(49,200
|
)
|
|
|
(378,736
|
)
|
|
|
1,264,657
|
|
Tranche 3 – allocation of debt issuance costs
|
|
|
(35,555
|
)
|
|
|
(36,900
|
)
|
|
|
-
|
|
|
|
(72,455
|
)
|
Convertible debentures
|
|
|
2,926,483
|
|
|
|
(123,000
|
)
|
|
|
(662,788
|
)
|
|
|
2,140,695
|
|
Accumulated amortization (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,870
|
|
Convertible debentures, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,260,565
|
|
|
(1)
|
A total of $123,000 in debt issuance costs was paid in common shares of the Company during the
year ended December 31, 2020. These costs are allocated to all three tranches for purposes of determining amortization expense.
|
|
(2)
|
Accumulated amortization for the year ended December 31, 2020 includes amortization of the
debt discount, debt issuance costs and beneficial conversion feature.
|
Each tranche of the
convertible debentures has a maturity date one year from its closing date. At its option, the holder at any time may elect to convert
any portion of the principal and accrued interest into shares of the Company’s common stock. Conversions into common stock
occur at the lower of (1) a fixed conversion price of $2.47, or (2) a variable conversion price equal to 88 percent of
the volume-weighted average price of the Company’s common shares for the ten consecutive trading days preceding the conversion
date, except that the conversion price cannot be lower than $0.6175. Based on securities and stock exchange regulations, the agreement
limits the percentage of the Company’s common shares that may be held at any time by the debenture holder, which effectively
limits the amount of principal and interest that the debenture holder may convert without disposing of shares received in earlier
conversions. The agreement includes customary representations and warranties, as well as provisions for conversion price adjustments
that prevent dilution of the holder’s conversion shares in the event the Company issues additional shares of its common stock
prior to the maturity or full conversion of the debentures. At its option, the Company may redeem all or any portion of the outstanding
principal and accrued interest prior to the maturity date at a 15% premium to the principal amount, provided that the trading price
of its common stock at that time is less than the $2.47 fixed conversion price and it provides the holder with ten business days’
written notice to allow the holder the opportunity to elect conversion of the debentures prior to the redemption.
Amortization of the
beneficial conversion feature, discount, and deferred debt issuance costs related to the convertible debentures totaled $119,870
for the year ended December 31, 2020, and was included in interest expense in the accompanying consolidated statement of operations.
Accumulated amortization of those items at December 31, 2020 also totaled $119,870.
As of March 10, 2021, subsequent to the December 31,
2020 effective date of the consolidated financial statements, the holder has elected to convert a total of $3,000,000 principal
of the debentures and $21,014 in accrued interest into common stock, receiving 1,577,075 conversion shares at an average conversion
price of $1.92 per share. (See Note 11, Subsequent Events, below.)
Line of
credit, short term and note payable, short term
As of December 31,
2020 and 2019, the Company had a line of credit, short term, outstanding in the principal amount of $325,000 and $2,000,000, respectively.
The line of credit, short term, was established on August 21, 2019 to provide short term funding for the Company’s acquisition
of the Ashley Plaza Property and the Clemson Best Western Property (see discussion of 2019 acquisitions in Note 3, above). On February 20,
2020, the Company repaid the line of credit, short term, in the amount of $2,000,000 plus accrued interest of $21,437. Effective
on February 21, 2020, the original maturity date of the line of credit, short term, the Company extended the line of credit,
short term, for 60 days until April 21, 2020. On March 3, 2020 the Company received $550,000 in funding from the line
of credit, short term, to fund working capital and dividend payments. On April 21, 2020, the Company extended the line of
credit, short term, for 40 days until May 31, 2020. On May 31, 2020, the Company extended the line of credit, short term,
for 90 days until August 31, 2020. On August 12, 2020, the Company extended the line of credit, short term, until September 30,
2020. On November 4, 2020, the Company made a $225,000 payment to reduce the balance of the line of credit, short term to
$325,000, and extended the line of credit, short term, until March 31, 2021.
The
line of credit, short term, bears interest at a variable rate calculated at 250 basis points over USD 1-Month LIBOR as published
in the Wall Street Journal. The rate adjusts on the first day of each month during which the loan is outstanding. As of December 31,
2020 and 2019, the rate in effect for the line of credit, short term, was 2.653 percent and 4.285 percent, respectively. Interest
expense for the year ended December 31, 2020, includes amortization of the capitalized issuance costs using the straight-line
method, which approximates to the effective interest method, over the initial, six-month term of the loan.
Related
party notes payable, short term
As
of December 31, 2020, and December 31, 2019, the Company had related party notes payable, short term, outstanding in
the principal amount of $0 and $852,000, respectively, payable to the Manager. These notes, which were due on demand, were issued
on September 30, 2019 in the principal amount of $183,000 and on October 2, 2019 in the principal amount of $80,000,
both to fund a portion of the Company’s acquisition of the Brookfield Center Property, which closed on October 3, 2019.
In addition, the Company issued a related party note payable in the principal amount of $589,000 on November 29, 2019 to fund
dividends and working capital requirements. The related party notes payable bore interest at a fixed rate of 5 percent annually.
On February 20, 2020, the Company repaid the related party notes payable, short term, in the principal amount of $852,000
plus accrued interest of $11,710.
Notes payable
As of December 31,
2020 and 2019, the Company had a note payable outstanding in the principal amount of $176,300 and $0, respectively, under the Small
Business Administration’s Paycheck Protection Program (the “SBA PPP Loan Program”). This note was issued on April 30,
2020, on behalf of a subsidiary, MDR PMI Greensboro TRS, LLC, the entity that operates the Hampton Inn Property. The Company used
these funds pursuant to the limitations established by the SBA PPP Loan Program for payroll and other eligible expenses for the
Hampton Inn Property. Under the terms of the loan, all, a portion or none of the loan may be forgiven, based on criteria established
by the SBA PPP Loan Program. The Company believes that it has expended the loan funds in accordance with the criteria required
for forgiveness and has submitted its forgiveness application to the SBA PPP Loan Program, but there is no assurance that all or
a portion of the loan will be forgiven. Any portion of the loan that is not forgiven will bear interest at a fixed rate of 1 percent
per annum and be repaid in 18 monthly installments of principal and interest of $9,923. Under the original terms of the SBA PPP
Loan Program, principal and interest payments would have commenced on November 1, 2020. However, due to changes in regulations
for the SBA PPP Loan Program, commencement of principal and interest payments were extended until ten months after the completion
of the borrower’s “Covered Period”, as defined by the SBA PPP Loan Program to provide borrowers sufficient time
to submit loan forgiveness applications. Under these guidelines, the Company’s principal and interest payments for the Hampton
Inn PPP loan would commence on August 15, 2021 if the Company does not qualify for loan forgiveness.
In addition, during
the year ended December 31, 2020, a second note payable in the principal amount of $129,600 that was issued on April 30,
2020 under the SBA PPP Loan Program to a wholly owned subsidiary, MDR Clemson TRS, LLC, the entity that operates the Clemson Best
Western Property, was forgiven by the SBA. The Company used these funds pursuant to the limitations established by the SBA PPP
Loan Program for payroll and other eligible expenses for the Clemson Best Western Property. On December 8, 2020, the Company
received confirmation that the note payable had been forgiven, in full, including $799 of accrued interest. The forgiven principal
and interest were recognized as a gain upon debt extinguishment and are recorded on the Company’s consolidated statement
of operations as other income.
Interest
expense
Interest
expense, including amortization of capitalized issuance costs and payments received from the Company’s interest rate protection
transactions for the Hampton Inn Property, consists of the following:
|
|
For the year ended December 31, 2020
|
|
|
|
Mortgage
Interest
Expense
|
|
|
Amortization
of discounts
and
capitalized
issuance
costs
|
|
|
Interest
rate
protection
transaction
payments
|
|
|
Other
interest
expense
|
|
|
Total
|
|
Franklin Square
|
|
$
|
682,105
|
|
|
$
|
16,237
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698,342
|
|
Hanover Square
|
|
|
433,007
|
|
|
|
12,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445,875
|
|
Hampton Inn
|
|
|
674,331
|
|
|
|
122,310
|
|
|
|
-
|
|
|
|
14,573
|
|
|
|
811,214
|
|
Ashley Plaza
|
|
|
434,305
|
|
|
|
17,436
|
|
|
|
-
|
|
|
|
-
|
|
|
|
451,741
|
|
Clemson Best Western
|
|
|
563,360
|
|
|
|
89,748
|
|
|
|
-
|
|
|
|
9,168
|
|
|
|
662,276
|
|
Brookfield Center
|
|
|
192,281
|
|
|
|
11,352
|
|
|
|
-
|
|
|
|
-
|
|
|
|
203,633
|
|
Amortization and preferred stock dividends on mandatorily redeemable preferred stock
|
|
|
-
|
|
|
|
162,375
|
|
|
|
-
|
|
|
|
344,444
|
|
|
|
506,819
|
|
Amortization and interest on convertible debentures
|
|
|
-
|
|
|
|
119,870
|
|
|
|
-
|
|
|
|
16,301
|
|
|
|
136,171
|
|
Line of credit, short term
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
26,699
|
|
|
|
36,699
|
|
Related party notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,835
|
|
|
|
5,835
|
|
Other interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,021
|
|
|
|
2,021
|
|
Total interest expense
|
|
$
|
2,979,389
|
|
|
$
|
562,196
|
|
|
$
|
-
|
|
|
$
|
419,041
|
|
|
$
|
3,960,626
|
|
|
|
For the year ended December 31, 2019
|
|
|
|
Mortgage
Interest
Expense
|
|
|
Amortization
of capitalized
issuance
costs
|
|
|
Interest
rate
protection
transaction
payments
|
|
|
Other
interest
expense
|
|
|
Total
|
|
Franklin Square
|
|
$
|
680,241
|
|
|
$
|
18,552
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
698,793
|
|
Hanover Square
|
|
|
426,635
|
|
|
|
12,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
439,367
|
|
Hampton Inn
|
|
|
783,517
|
|
|
|
139,560
|
|
|
|
(39,161
|
)
|
|
|
11,289
|
|
|
|
895,205
|
|
Ashley Plaza
|
|
|
147,251
|
|
|
|
5,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
153,063
|
|
Clemson Best Western
|
|
|
155,463
|
|
|
|
22,437
|
|
|
|
-
|
|
|
|
2,048
|
|
|
|
179,948
|
|
Brookfield Center
|
|
|
47,814
|
|
|
|
2,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,652
|
|
Amortization and preferred stock dividends on mandatorily redeemable preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Line of credit, short term
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
|
|
|
26,916
|
|
|
|
46,916
|
|
Related party notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,875
|
|
|
|
5,875
|
|
Other interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,809
|
|
|
|
2,809
|
|
Total interest expense
|
|
$
|
2,240,921
|
|
|
$
|
221,931
|
|
|
$
|
(39,161
|
)
|
|
$
|
48,937
|
|
|
$
|
2,472,628
|
|
Interest
accrued and accumulated amortization of capitalized issuance costs consist of the following:
|
|
As of December 31, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Accrued
interest
|
|
|
Accumulated
amortization
of
capitalized
issuance costs
|
|
|
Accrued
interest
|
|
|
Accumulated
amortization
of capitalized
issuance costs
|
|
Franklin Square
|
|
$
|
57,774
|
|
|
$
|
65,710
|
|
|
$
|
57,774
|
|
|
$
|
49,473
|
|
Hanover Square
|
|
|
35,820
|
|
|
|
34,088
|
|
|
|
35,085
|
|
|
|
21,220
|
|
Hampton Inn
|
|
|
58,211
|
|
|
|
424,691
|
|
|
|
61,613
|
|
|
|
302,381
|
|
Ashley Plaza
|
|
|
36,649
|
|
|
|
23,248
|
|
|
|
-
|
|
|
|
5,812
|
|
Clemson Best Western
|
|
|
47,716
|
|
|
|
112,185
|
|
|
|
47,716
|
|
|
|
22,437
|
|
Brookfield Center
|
|
|
16,264
|
|
|
|
14,190
|
|
|
|
-
|
|
|
|
2,838
|
|
Amortization and preferred stock dividends on mandatorily redeemable preferred stock
|
|
|
70,004
|
|
|
|
162,375
|
|
|
|
-
|
|
|
|
-
|
|
Amortization and interest on convertible debentures
|
|
|
16,301
|
|
|
|
119,870
|
|
|
|
-
|
|
|
|
-
|
|
Line of credit, short term
|
|
|
732
|
|
|
|
-
|
|
|
|
9,522
|
|
|
|
20,000
|
|
Related party notes payable, short term
|
|
|
-
|
|
|
|
-
|
|
|
|
5,875
|
|
|
|
-
|
|
Total
|
|
$
|
339,471
|
|
|
$
|
956,357
|
|
|
$
|
217,585
|
|
|
$
|
424,161
|
|
Debt Maturity
The
Company’s scheduled principal repayments on indebtedness as of December 31, 2020 are as follows:
|
|
|
Mortgages
Payable
|
|
|
Mortgages
Payable
Associated
with Assets
Held for Sale
|
|
|
Convertible
Debentures
|
|
|
Line of
Credit,
Short
Term
|
|
|
Notes
Payable,
Short
Term
|
|
|
Total
|
|
2021
|
|
|
$
|
14,805,180
|
|
|
$
|
-
|
|
|
$
|
3,500,000
|
|
|
$
|
325,000
|
|
|
$
|
176,300
|
|
|
$
|
18,806,480
|
|
2022
|
|
|
|
8,302,085
|
|
|
|
10,400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,702,085
|
|
2023
|
|
|
|
574,905
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
574,905
|
|
2024
|
|
|
|
595,838
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
595,838
|
|
2025
|
|
|
|
623,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
623,300
|
|
Thereafter
|
|
|
|
23,696,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,696,888
|
|
Total principal payments and debt maturities
|
|
|
|
48,598,196
|
|
|
|
10,400,000
|
|
|
|
3,500,000
|
|
|
|
325,000
|
|
|
|
176,300
|
|
|
|
62,999,496
|
|
Less unamortized issuance costs
|
|
|
|
(503,842
|
)
|
|
|
(48,000
|
)
|
|
|
(1,239,435
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,791,277
|
)
|
Net principal payments and debt maturities
|
|
|
$
|
48,094,354
|
|
|
$
|
10,352,000
|
|
|
$
|
2,260,565
|
|
|
$
|
325,000
|
|
|
$
|
176,300
|
|
|
$
|
61,208,219
|
|
6.
|
Rentals under Operating Leases
|
Future
minimum rentals (based on recognizing future rents on the straight-line basis) to be received under noncancelable tenant operating
leases for each of the next five years and thereafter, excluding common area maintenance and other expense pass-throughs, as of
December 31, 2020 are as follows:
2021
|
|
|
$
|
4,404,121
|
|
2022
|
|
|
|
3,946,592
|
|
2023
|
|
|
|
3,525,302
|
|
2024
|
|
|
|
2,816,405
|
|
2025
|
|
|
|
2,356,145
|
|
Thereafter
|
|
|
|
5,092,961
|
|
Total minimum rents
|
|
|
$
|
22,141,526
|
|
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 95.74% and 97.30% interest in the Operating Partnership as of December 31,
2020 and 2019, respectively. Limited partners in the Operating Partnership who have held their units for one year or longer have
the right to redeem their common units for cash or, at the REIT’s option, Common Shares at a ratio of one common unit for
one common share. Under the Agreement of Limited Partnership, distributions to unit holders are made at the discretion of the REIT.
The REIT intends to make distributions in a manner that will result in limited partners of the Operating Partnership receiving
distributions at the same rate per unit as dividends per share are paid to the REIT’s holders of Common Shares.
2019 Issuances
On May 8, 2019,
the Company issued and sold 1,666,667 Common Shares at an offering price of $4.80 per share. Net proceeds from the issuance totaled
$7,222,501, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions and
legal fees. On May 21, 2019, the company issued and sold 227,062 Common Shares at an offering price of $4.80 per share, pursuant
to its underwriter’s over-allotment option related to the May 8, 2019 offering. Net proceeds from the issuance totaled
$991,807, which includes the impact of discounts and offering costs, including the underwriter’s selling commissions. On
May 31, 2019, the Company issued and sold 270,833 shares pursuant to a private placement at an offering price of $4.80 per
share. Net proceeds from the issuance totaled $1,183,998, which includes the impact of discounts and offering costs, including
the underwriter’s selling commissions and legal fees. During the year ended December 31, 2019, our company also incurred
$116,632 and $887,465, respectively, in offering costs, including legal, accounting, advisory and other professional fees.
Common shares
and operating partnership units outstanding
As
of December 31, 2020 and 2019, respectively, there were 5,016,818 and 4,625,144 common units of the Operating Partnership
outstanding with the REIT owning 4,803,287 and 4,500,144, respectively, of these common units. As of December 31, 2020 and
2019, respectively, there were 4,803,287 and 4,500,144 Common Shares of the REIT outstanding. On August 31, 2020, 5,319 common
units of the Operating Partnership were converted to the Company’s Common Shares. As of December 31, 2020 and 2019,
respectively, there were 119,681 common units of the Operating Partnership that were eligible for conversion to the Company’s
Common Shares. Effective on January 1, 2021, the remaining 93,850 common units of the Operating partnership became eligible
for conversion to the Company’s Common Shares.
2018 Equity Incentive Plan
The Company’s
2018 Equity Incentive Plan (the “Plan”) was adopted by the Company’s Board of Directors on July 27, 2018
and approved by the Company’s shareholders on August 23, 2018. The Plan permits the grant of stock options, stock appreciation
rights, stock awards, performance units, incentive awards and other equity-based awards (including LTIP units of the Company’s
Operating Partnership) to its employees or an affiliate (as defined in the Plan) of the Company and for up to the greater of (i) 240,000
shares of common stock and (ii) eight percent (8%) of the number of fully diluted shares of the Company’s Common Shares
(taking into account interests in the Operating Partnership that may become convertible into Common Shares).
On
July 18, 2019, the Company’s Board of Directors approved a grant of 14,000 Common Shares to the Company’s five
independent directors. The effective date of the grants was July 18, 2019. The Common Shares granted vest immediately and
are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because the Common
Shares vest immediately, the fair value of the grants, or $61,600, was recorded to expense on the effective date of the grant.
The fair value of the grants was determined by the market price of the Company’s Common Shares on the effective date of the
grant.
On
March 11, 2020, the Company’s Board of Directors approved a grant of 156,522 shares of Common Shares to two employees
of the Manager who also serve as directors of the Company, a grant of 65,215 Common Shares to the Company’s five independent
directors, and a grant of 26,087 shares to an Affiliate of the Company (as defined by the Plan) who provides contract financial
and accounting services to the Company. The effective date of the grants was March 11, 2020. The Common Shares granted vest
immediately and are unrestricted. However, the Plan includes other restrictions on the sale of shares issued under the Plan. Because
the Common Shares vested immediately, the fair value of the grants, or $569,995, was recorded to share based compensation expense
on the effective date of the grant. The fair value of the grants was determined by the market price of the Company’s Common
Shares on the effective date of the grant.
On
each January 1 during the term of the Plan, the maximum number of shares of common stock that may be issued under the Plan
will increase by eight percent (8%) of any additional shares of common stock or interests in the Operating Partnership issued (i) after
the completion date the Company’s initial registered public offering of common stock, in the case of the January 1,
2019 adjustment, or (ii) in the preceding calendar year, in the case of any adjustment subsequent to January 1, 2020.
As of January 1, 2020, the shares available for issuance under the plan was adjusted to 313,165 shares. As of December 31,
2020, there were 65,341 shares available for issuance under the Plan. As of January 1, 2021, the shares available for issuance
under the plan will adjust to 76,849 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 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 December 31, 2020 and 2019, respectively, 119,681 of the Operating Partnership’s 213,531 common
units outstanding were eligible to be converted, on a one-to-one basis, into Common Shares. On January 1, 2021 the remaining
93,850 common units became eligible for conversion. In addition, the Company’s convertible debentures outstanding
at December 31, 2020 (tranches 1 and 2) were eligible to be converted at the option of the holder into Common Shares at the
prevailing variable conversion price. The Operating Partnership’s common units and the equivalent common shares attributable
to the convertible debentures have been excluded from the Company’s diluted earnings per share calculation because their
inclusion would be antidilutive.
The Company's loss
per common share is determined as follows:
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Basic and diluted shares outstanding
|
|
|
|
|
|
|
|
|
Weighted average Common Shares – basic
|
|
|
4,709,980
|
|
|
|
3,683,171
|
|
Effect of conversion of operating partnership units
|
|
|
119,681
|
|
|
|
125,000
|
|
Effect of conversion of convertible debentures (1)
|
|
|
1,843,022
|
|
|
|
-
|
|
Weighted average Common Shares – diluted
|
|
|
6,672,683
|
|
|
|
3,808,171
|
|
|
|
|
|
|
|
|
|
|
Calculation of earnings per share – basic and diluted
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(8,180,609
|
)
|
|
$
|
(3,015,718
|
)
|
Weighted average Common Shares – basic and diluted
|
|
|
4,709,980
|
|
|
|
3,683,171
|
|
Loss per share – basic and diluted
|
|
$
|
(1.74
|
)
|
|
$
|
(0.82
|
)
|
|
(1)
|
Represents the number of shares that would be issued if all outstanding convertible debentures
and accrued interest were converted into Common Shares on December 31, 2020 at a price equal to 88 percent of the lowest volume
weighted average price for the prior 10 trading days, or $1.9079 per share.
|
On January 5,
2021, the Company issued the third tranche of its convertible debentures (see Note 5), resulting in an additional 786,205 potentially-dilutive
Common Shares, which also would have been antidilutive if outstanding during the year ended December 31, 2020.
Dividends and Distributions
During the year ended
December 31, 2020, a dividend in the amount of $0.125 was paid on March 10, 2020 to shareholders of record on February 11,
2020.
During the year ended
December 31, 2019, dividends were paid as follows:
Declaration date
|
|
Record date
|
|
Payment date
|
|
Dividend per share
|
|
May 14, 2019
|
|
May 24, 2019
|
|
May 28, 2019
|
|
$
|
0.175
|
|
June 28, 2019
|
|
July 12, 2019
|
|
July 17, 2019
|
|
$
|
0.175
|
|
October 23, 2019
|
|
November 13, 2019
|
|
December 4, 2019
|
|
$
|
0.175
|
|
Total
dividends and distributions to noncontrolling interests paid during the years ended December 31, 2020 and 2019, respectively,
are as follows:
|
|
Year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Common shareholders (dividends)
|
|
$
|
562,537
|
|
|
$
|
2,310,363
|
|
Hanover Square Property noncontrolling interest (distributions)
|
|
|
327,840
|
|
|
|
60,115
|
|
Operating Partnership unit holders (distributions)
|
|
|
27,356
|
|
|
|
65,625
|
|
Total dividends and distributions
|
|
$
|
917,733
|
|
|
$
|
2,436,103
|
|
8.
|
Commitments and Contingencies
|
Insurance
The
Company carries comprehensive liability, fire, extended coverage, business interruption and rental loss insurance covering all
of the properties in its portfolio, in addition to other coverages that may be appropriate for certain of its properties. Additionally,
the Company carries a directors and officers liability insurance policy that covers such claims made against the Company and its
directors and officers. The Company believes the policy specifications and insured limits are appropriate and adequate for its
properties given the relative risk of loss, the cost of the coverage and industry practice; however, its insurance coverage may
not be sufficient to fully cover its losses.
Concentration
of Credit Risk
The
Company is subject to risks incidental to the ownership and operation of commercial real estate. These risks include, among others,
the risks normally associated with changes in the general economic climate, trends in the retail industry, creditworthiness of
tenants, competition for tenants and customers, changes in tax laws, interest rates, the availability of financing and potential
liability under environmental and other laws. The Company’s portfolio of properties is dependent upon regional and local
economic conditions and is geographically concentrated in the Mid-Atlantic, specifically in South Carolina, North Carolina and
Virginia, which represented 100 percent of the total annualized base revenues of the properties in its portfolio as of December 31,
2020. The Company’s geographic concentration may cause it to be more susceptible to adverse developments in those markets
than if it owned a more geographically diverse portfolio. Additionally, the Company’s retail shopping center properties depend
on anchor stores or major tenants to attract shoppers and could be adversely affected by the loss of, or a store closure by, one
or more of these tenants.
Mortgage
Maturity
The Company’s
Franklin Square Property mortgage in the principal amount of $14,275,000 matures during the year ending December 31, 2021.
While the Company anticipates being able to refinance the mortgage at reasonable market terms upon maturity, inability to do so
may materially impact the Company’s financial position and results of operations.
Convertible
Debt Maturity
The Company’s convertible debentures in the remaining
principal amount of $2,000,000 mature during the year ending December 31, 2021. While the Company anticipates that the debenture
holder will convert these debentures to common stock, the requirement to redeem the debentures for cash at maturity may materially
impact the Company’s financial position and results of operations.
Other Risks and Uncertainties
Since
March 2020, the Company’s investment properties have been significantly impacted by 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. While some of these measures have been relaxed by the
respective governmental authorities, with the uncertainty resulting from the continued spread of COVID-19 and its 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, the negative impact on room demand for our hotel properties
and consumer demand for the goods and services of our retail tenants within our portfolio could continue to be significant in the
coming months.
Retail Center and Flex Center Properties
As of the date of this
Annual Report on Form 10-K, all of the tenants in the Company’s retail properties (the Franklin Square Property, Hanover
Square Property and Ashley Plaza Property) and flex property (Brookfield Center) are open, with two exceptions. A tenant in the
Franklin Square Property defaulted on its lease and abandoned its premises, resulting in the recognition of the loss on impairment
discussed above. A second tenant in the Hanover Square Property which was operating under bankruptcy protection, did not renew
its lease upon its expiration. However, this space has been re-leased.
As
is the case with retail landlords across the U.S., the Company received a number of rent relief requests from tenants, which the
Company evaluated on a case-by-case basis. As of the date of this Annual Report on Form 10-K, the Company has granted lease
concessions in the form of (i) rent deferrals or (ii) rent abatements.
Under
the rent deferral agreements, the tenants have agreed to repay unpaid rent over a specified time period or before a certain date.
As of the date of this Annual Report on Form 10-K, the Company has agreed to defer base rent payments of $228,345 from various
tenants that were due during the year ended December 31, 2020. In addition, the Company has agreed to defer future rents of
$81,773 that would have been due during the period from January 1, 2021 through December 31, 2021. Such deferrals were
for various terms, but will be repaid by January 1, 2023.
|
|
Rent
Deferrals
|
|
|
Rent
Deferral Repayments
|
|
|
|
|
|
|
Year
ended
December 31,
|
|
|
|
|
|
Year
ended
December 31,
|
|
|
|
|
|
|
Number
of Tenants
|
|
|
2020
|
|
|
2021
|
|
|
Total
Deferrals
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Total
Repayments
|
|
Franklin
Square
|
|
1
|
|
|
$
|
56,250
|
|
|
$
|
-
|
|
|
$
|
56,250
|
|
|
$
|
-
|
|
|
$
|
53,581
|
|
|
$
|
2,669
|
|
|
$
|
56,250
|
|
Hanover
Square
|
|
1
|
|
|
|
26,833
|
|
|
|
-
|
|
|
|
26,833
|
|
|
|
26,833
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,833
|
|
Ashley
Plaza
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Brookfield
Center
|
|
1
|
|
|
|
145,262
|
|
|
|
81,773
|
|
|
|
227,035
|
|
|
|
-
|
|
|
|
227,035
|
|
|
|
-
|
|
|
|
227,035
|
|
Total
|
|
3
|
|
|
$
|
228,345
|
|
|
$
|
81,773
|
|
|
$
|
310,118
|
|
|
$
|
26,833
|
|
|
$
|
280,616
|
|
|
$
|
2,669
|
|
|
$
|
310,118
|
|
Under
the rent abatement agreements, the Company has agreed to permanently abate rent in exchange for lease extensions of between one
and three years, depending on the amount of the abatement. In one case, the Company has agreed to abate a portion of a tenant’s
base rent in exchange for future rent payments based on the tenant’s monthly sales. As of the date of this Annual Report
on Form 10-K, the Company has agreed to abate base rent payments of $346,897 from various tenants that would have been paid
during the year ended December 31, 2020. In addition, the Company has agreed to abate future rent payments totaling $439,271
that would have been due during the year ending December 31, 2021 and $174,330 that would have been due during the year ending
December 31, 2022.
Rent Abatements
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
|
|
|
Number of Tenants
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Total Rent Abated
|
|
Franklin Square
|
|
|
2
|
|
|
$
|
204,721
|
|
|
$
|
334,871
|
|
|
$
|
139,530
|
|
|
$
|
679,122
|
|
Hanover Square
|
|
|
2
|
|
|
|
71,971
|
|
|
|
104,400
|
|
|
|
34,800
|
|
|
|
211,171
|
|
Ashley Plaza
|
|
|
2
|
|
|
|
70,205
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,205
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
6
|
|
|
$
|
346,897
|
|
|
$
|
439,271
|
|
|
$
|
174,330
|
|
|
$
|
960,498
|
|
In
addition to the deferrals and abatements, two tenants in the Company’s retail property centers declared bankruptcy and one
tenant defaulted on its lease during the year ended December 31, 2020. While under bankruptcy protection, the first tenant’s
term expired on June 30, 2020 and the Company was unable to collect rent totaling $18,750. This rent was recognized and then
written off and is recorded as bad debt expense on the Company’s consolidated statement of operations for the year ended
December 31, 2020. A second tenant declared bankruptcy and then emerged from bankruptcy protection during the year ended December 31,
2020. As part of the bankruptcy proceeding, the tenant’s lease was restructured, resulting in a rent abatement of $77,653
for the year ended December 31, 2020. In addition, under the restructured lease, the Company granted rent reductions for the
year ended December 31, 2021 of $53,760, for the year ended December 31, 2022 of $22,760 and for the year ended December 31,
2023 of $7,300. Under the restructured lease, the Tenant’s lease term, which originally expired in 2023, was extended for
one five-year period.
A
third tenant defaulted on its lease and abandoned its premises. During the year ended December 31, 2020, the Company wrote
off a total of $34,556 in rent and CAM. Of this amount, $16,842 was initially recorded as retail center property revenues, $8,817
was initially recorded as retail property tenant reimbursements on the Company’s consolidated statement of operations during
the year ended December 31, 2020 and $8,897 was initially recorded as retail center property revenues and retail property
tenant reimbursements on the Company’s consolidated statement of operations during the year ended December 31, 2019.
These amounts were then recorded as bad debt expense on the Company’s consolidated statement of operations for the year ended
December 31, 2020. In addition, the Company was not able to collect rent totaling $61,055 for the year ending December 31,
2020 and will not collect future rents of $530,544 under this lease.
|
|
Rent Losses and Reductions Due to Bankruptcies,
Bankruptcy Restructuring and Tenant Default
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
Number of
Tenants
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Total Rent Reductions
|
|
Franklin Square
|
|
|
1
|
|
|
$
|
77,898
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
113,688
|
|
|
$
|
75,792
|
|
|
$
|
608,442
|
|
Hanover Square
|
|
|
1
|
|
|
|
14,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,563
|
|
Ashley Plaza
|
|
|
1
|
|
|
|
77,653
|
|
|
|
53,760
|
|
|
|
22,760
|
|
|
|
7,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
161,473
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
3
|
|
|
$
|
170,114
|
|
|
$
|
167,448
|
|
|
$
|
136,448
|
|
|
$
|
120,988
|
|
|
$
|
113,688
|
|
|
$
|
75,792
|
|
|
$
|
784,478
|
|
In
return for (i) granting abatements and (ii) restructuring the lease of the tenant under bankruptcy protection, the Company
received lease extension agreements of between one and five years, resulting in additional future rents payable under these leases
as follows.
|
|
Additional Rent Under Term Extensions (1)
|
|
|
|
For the year ended December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Franklin Square
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
161,849
|
|
|
$
|
277,456
|
|
|
$
|
333,039
|
|
|
$
|
360,830
|
|
|
$
|
111,165
|
|
|
$
|
1,244,339
|
|
Hanover Square
|
|
|
-
|
|
|
|
-
|
|
|
|
242,069
|
|
|
|
259,306
|
|
|
|
76,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
577,925
|
|
Ashley Plaza
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
124,993
|
|
|
|
125,000
|
|
|
|
128,333
|
|
|
|
744,858
|
|
|
|
1,123,184
|
|
Brookfield Center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
403,918
|
|
|
$
|
661,755
|
|
|
$
|
534,589
|
|
|
$
|
489,163
|
|
|
$
|
856,023
|
|
|
$
|
2,945,448
|
|
|
(1)
|
Excludes future rent payments based on tenant’s monthly sales revenues.
|
There
is no assurance that the Company will receive these future rent payments.
While the Company’s
rent collections from its retail and flex center properties stabilized during the last six months of the year, the continued impact
of COVID-19 on revenues from the Company’s retail and flex center properties and tenants remains uncertain. Revenues will
be impacted by the deferral and abatement agreements (discussed above) that the Company has granted to various tenants. Additionally,
revenues could continue to be negatively impacted until consumer demand for the goods and services of the Company’s retail
and flex center tenants returns to levels prior to the virus outbreak. However, there is significant uncertainty about when this
could occur and (i) whether restrictions will continue to be re-imposed or extended, (ii) whether tenants’ business
activity will return to pre-COVID-19 levels, and (iii) when customers will re-engage with tenants as they have in the past.
Until such time as the virus is contained or eradicated and room demand for the Company’s hotel properties and consumer demand
for the goods and services of the Company’s retail and flex center tenants returns to more customary levels, the Company
may continue to experience material reductions in its operating revenue.
Hotel Properties
The Company’s
hotel properties (the Hampton Inn Property and the Clemson Best Western Property), which depend on leisure and business travel,
experienced significant declines in occupancy rates and revenues that began in March and continued throughout the year ending
December 31, 2020.
Operating statistics
for the years ended December 31, 2020 and 2019, respectively, for the Hampton Inn Property were as follows:
|
|
Occupancy
|
|
|
Average Daily Rate
|
|
Hampton Inn Property
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
January
|
|
|
41.6
|
%
|
|
|
43.9
|
%
|
|
$
|
100.41
|
|
|
$
|
94.57
|
|
February
|
|
|
72.0
|
%
|
|
|
51.9
|
%
|
|
|
102.73
|
|
|
|
105.15
|
|
March
|
|
|
33.3
|
%
|
|
|
64.1
|
%
|
|
|
106.98
|
|
|
|
109.11
|
|
April
|
|
|
25.7
|
%
|
|
|
62.3
|
%
|
|
|
65.15
|
|
|
|
149.33
|
|
May
|
|
|
41.5
|
%
|
|
|
55.8
|
%
|
|
|
67.87
|
|
|
|
111.37
|
|
June
|
|
|
49.6
|
%
|
|
|
72.1
|
%
|
|
|
73.40
|
|
|
|
103.89
|
|
July
|
|
|
65.1
|
%
|
|
|
60.8
|
%
|
|
|
71.34
|
|
|
|
110.57
|
|
August
|
|
|
50.3
|
%
|
|
|
75.7
|
%
|
|
|
77.73
|
|
|
|
107.29
|
|
September
|
|
|
59.8
|
%
|
|
|
65.0
|
%
|
|
|
80.27
|
|
|
|
105.22
|
|
October
|
|
|
41.8
|
%
|
|
|
75.0
|
%
|
|
|
99.43
|
|
|
|
160.01
|
|
November
|
|
|
28.8
|
%
|
|
|
66.6
|
%
|
|
|
83.02
|
|
|
|
106.43
|
|
December
|
|
|
24.4
|
%
|
|
|
48.7
|
%
|
|
|
75.67
|
|
|
|
99.43
|
|
Full Year
|
|
|
44.4
|
%
|
|
|
60.6
|
%
|
|
$
|
84.10
|
|
|
$
|
113.41
|
|
From
April 2020 through September 2020, the Hampton Inn Property had a contract with the City of Greensboro to house homeless
families. During this period, this contract resulted in 5,704 room nights of occupancy, or approximately 28 percent of the total
occupied rooms during the year ended December 31, 2020. Additionally, during September 2020, High Point University rented
1,241 rooms for quarantined students.
Operating statistics
for the years ended December 31, 2020 and 2019, respectively, for the Clemson Best Western Property were as follows:
|
|
Occupancy
|
|
|
Average Daily Rate
|
|
Clemson Best Western Property
|
|
2020
|
|
|
2019 (1)
|
|
|
2020
|
|
|
2019 (1)
|
|
January
|
|
|
24.8
|
%
|
|
|
27.4
|
%
|
|
$
|
77.04
|
|
|
$
|
98.10
|
|
February
|
|
|
31.9
|
%
|
|
|
34.8
|
%
|
|
|
94.07
|
|
|
|
92.03
|
|
March
|
|
|
26.7
|
%
|
|
|
67.3
|
%
|
|
|
90.58
|
|
|
|
92.61
|
|
April
|
|
|
24.5
|
%%
|
|
|
47.4
|
%
|
|
|
68.97
|
|
|
|
103.92
|
|
May
|
|
|
19.9
|
%%
|
|
|
37.5
|
%
|
|
|
61.54
|
|
|
|
109.69
|
|
June
|
|
|
24.0
|
%%
|
|
|
38.4
|
%
|
|
|
61.24
|
|
|
|
93.80
|
|
July
|
|
|
22.7
|
%
|
|
|
31.6
|
%
|
|
|
56.13
|
|
|
|
85.34
|
|
August
|
|
|
27.0
|
%
|
|
|
47.2
|
%
|
|
|
64.35
|
|
|
|
111.60
|
|
September
|
|
|
65.0
|
%
|
|
|
38.5
|
%
|
|
|
67.59
|
|
|
|
161.11
|
|
October
|
|
|
100.0
|
%
|
|
|
38.3
|
%
|
|
|
58.99
|
|
|
|
143.35
|
|
November
|
|
|
100.0
|
%
|
|
|
39.3
|
%
|
|
|
58.48
|
|
|
|
121.87
|
|
December
|
|
|
99.7
|
%
|
|
|
28.4
|
%
|
|
|
26.94
|
|
|
|
83.12
|
|
Full Year
|
|
|
47.2
|
%
|
|
|
34.9
|
%
|
|
$
|
59.08
|
|
|
$
|
118.64
|
|
|
(1)
|
January through August 2019 data for the Clemson Best Western Property is from the prior owner. September 2019 data is from the September 2019 STR report for the Clemson Best Western Property.
|
Occupancy
rates in October, November and December, 2020 were a result of an agreement by which the leased the entire Clemson Best Western
Property to Clemson University from September 14, 2020 through December 15, 2020. In January 2021, this agreement
was amended to extend the agreement through May 5, 2020.
While
intense efforts to reduce operating costs resulted in expense reductions during the year ended December 31, 2020, the Company
cannot be certain as to what level of savings can continue to be achieved overall to mitigate the material decline in hotel revenues
we may experience. The federal government has provided assistance to the industries negatively affected by the virus, including
the hospitality industry, and our two hotel properties have received loans under one of these programs (see Note 5), but the aid
has not mitigated the material reduction in revenue resulting from COVID-19 travel impacts. The Company was not eligible to participate
in the new Payroll Protection Program loans announced in December 2020.
The anticipated negative
impact on revenues, discussed above, from the Company’s retail, flex center and hotel properties has also, and will continue,
to impact the Company’s liquidity, resulting in reduced cash flow to meet the Company’s obligations and to fund dividend
distribution payments.
Due
to the depressed outlook for leisure and business travel, on which both of the Company’s hotel properties rely significantly,
the Company committed to a plan to sell the Hampton Inn Property, as discussed above, and in Note 11, below. Also as discussed
in Note 11, below, on February 5, 2021, the Company committed to a plan to sell the Clemson Best Western Property. There is
no assurance that the Company will be able to complete the sales of the two hotel properties.
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 April/May and 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. Occupancy rates and hotel revenues for the Company’s
Clemson Best Western Property are highest in the spring and fall months, due to sporting events at Clemson University. 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.
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 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 years ended December 31, 2020 and 2019, the Company incurred $605,414 and $486,042, in asset management fees, respectively.
Asset management fees are recorded on the Company’s consolidated statements of operations as either (i) retail center
property operating expenses, (ii) hotel property operating expenses or (iii) legal, accounting and other professional
fees, depending on the basis on which the asset management fee is determined.
The
Manager also receives an acquisition fee of 2.0% of the purchase price plus transaction costs, for each property acquired or investment
made on the Company’s behalf at the closing of the acquisition of such property or investment, in consideration for the Manager’s
assistance in effectuating such acquisition. Acquisition fees are allocated and added to the fair value of the tangible assets
acquired and recorded as part of investment properties, net, on the Company’s consolidated balance sheets. No acquisition
fees were earned or paid during the year ending December 31, 2020. During the year ended December 31, 2019, the Company
paid $512,171 in acquisition fees associated with the Ashley Plaza Property and Clemson Best Western Property acquisitions.
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 year ended December 30, 2020 and 2019.
The Company entered
into a series of related party notes payable, short term with the Manager by which the Manager advanced funds for acquisitions,
dividends and working capital. On September 30, 2019 and October 2, 2019, the Manager advanced $183,000 and $80,000 respectively,
to fund a portion of the Company’s acquisition of the Brookfield Center Property which closed on October 3, 2019. On
November 29, 2019, the Manager advanced $589,000 to the Company to fund dividends and working capital requirements. The notes
are due on demand and bears interest at a rate of 5 percent annually. Interest accrued on the related party notes payable, short
term was $5,875 as of December 31, 2019. On February 20, 2020, the Company repaid the related party notes payable, short
term, in the principal amount of $852,000 plus accrued interest of $11,710. As of December 31, 2020, the Company had no related
party notes payable, short term, outstanding.
Other related
parties
The
Company pays Shockoe Properties, LLC, a subsidiary of Dodson Properties, an entity in which one of the owners of the Manager holds
a 6.32 percent interest, an annual property management fee of up to three percent of the monthly gross revenues of the Franklin
Square, Hanover Square, Ashley Plaza and Brookfield properties. These fees are paid in arrears on a monthly basis. During the years
ended December 31, 2020 and 2019, the Company paid Shockoe Properties, LLC property management fees of $146,417 and $130,620,
respectively.
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 December 31, 2020, the Company had the following reportable segments:
retail center properties, flex center properties and hotel properties. During the periods presented, there have been no material
intersegment transactions.
Although
the Company’s flex center property has tenants that are similar to tenants in its retail center properties, the Company considers
its flex center properties as a separate reportable segment. Flex properties are considered by the real estate industry as a distinct
subset of the industrial market segment. Flex properties contain a mix of industrial/warehouse and office spaces. Warehouse space
that is not air conditioned can be used flexibly by building office or showroom space that is air conditioned, depending on tenants’
needs.
Net
operating income ("NOI") is a non-GAAP financial measure and is not considered a measure of operating results or cash
flows from operations under GAAP. NOI is the primary performance measure reviewed by management to assess operating performance
of properties and is calculated by deducting operating expenses from operating revenues. Operating revenues include rental income,
tenant reimbursements, hotel income, and other property income; and operating expenses include retail center property and hotel
operating costs. The NOI performance metric consists of only revenues and expenses directly related to real estate rental operations.
NOI reflects property acquisitions and dispositions, occupancy levels, rental rate increases or decreases, and the recoverability
of operating expenses. NOI, as the Company calculates it, may not be directly comparable to similarly titled, but differently calculated,
measures for other REITs.
Asset
information and capital expenditures by segment are not reported because the Company does not use these measures
to assess performance. Depreciation and amortization expense, along with other expense and income items, are not allocated
among segments.
The following table presents property operating
revenues, expenses and NOI by product type:
|
|
For
the year ended December 31,
|
|
|
|
Hotel
properties
|
|
|
Retail
center properties
|
|
|
Flex
center property
|
|
|
Total
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
3,337,176
|
|
|
$
|
3,898,254
|
|
|
$
|
5,152,150
|
|
|
$
|
4,186,745
|
|
|
$
|
786,834
|
|
|
$
|
183,769
|
|
|
$
|
9,276,160
|
|
|
$
|
8,268,768
|
|
Operating
expenses
|
|
|
3,164,646
|
|
|
|
3,156,664
|
|
|
|
1,362,532
|
|
|
|
1,134,718
|
|
|
|
231,209
|
|
|
|
55,266
|
|
|
|
4,758,387
|
|
|
|
4,346,648
|
|
Bad
debt expense
|
|
|
-
|
|
|
|
-
|
|
|
|
431,143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
431,143
|
|
|
|
-
|
|
Net
operating income
|
|
$
|
172,530
|
|
|
$
|
741,590
|
|
|
$
|
3,358,475
|
|
|
$
|
3,052,027
|
|
|
$
|
555,625
|
|
|
$
|
128,503
|
|
|
$
|
4,086,630
|
|
|
$
|
3,922,120
|
|
As of March 10, 2021, the following events have occurred subsequent
to the December 31, 2020 effective date of the consolidated financial statements:
Closing on the Third Tranche of Convertible
Debentures
As discussed above
in Note 4, on October 27, 2020, the Company entered into a definitive agreement with a financing entity to issue and sell
convertible debentures in an aggregate principal amount of up to $5.0 million pursuant to a private offering exempt from registration
under the Securities Act of 1933, as amended. The convertible debentures were to be issued and purchased in separate closings according
to the following schedule: (i) convertible debenture of $1.5 million issued and purchased on October 27, 2020 upon the
signing of the definitive agreement, (ii) convertible debenture of $2.0 million to be issued and purchased upon the filing
of a registration statement with the U.S. Securities and Exchange Commission (“SEC”) relating to the shares of common
stock that may be issued upon the conversion of the convertible debentures, which closing occurred on December 23, 2020 and
(iii) convertible debenture of $1.5 million to be issued and purchased on or about the date the registration statement is
declared effective by the SEC. The second and third closings of the convertible debentures were subject to the Company successfully
obtaining approval from its common stockholders for the issuance of shares of common stock that may be issued upon the conversion
of the convertible debentures. On January 5, 2021, the Company closed on the third tranche of the convertible debentures and
received $1,305,000 in net proceeds.
Conversions of Convertible Debentures
As of March 10, 2021, subsequent to the December 31, 2020
effective date of the consolidated financial statements, the convertible debenture holder has elected to convert a total of $3,000,000
in principal of the debentures and $21,014 in accrued interest to the Company’s common shares, receiving 1,577,075 common
shares at an average conversion price of $1.92, as set forth in the table below.
Conversion Date
|
|
Principal Amount
Converted
|
|
|
Accrued and
Unpaid Interest
Converted
|
|
|
Total Conversion
Amount
|
|
|
Conversion
Price
|
|
|
Common Shares
Issued
|
|
January 6, 2021
|
|
$
|
100,000
|
|
|
$
|
411
|
|
|
$
|
100,411
|
|
|
$
|
1.9079
|
|
|
|
52,629
|
|
January 14, 2021
|
|
|
200,000
|
|
|
|
1,534
|
|
|
|
201,534
|
|
|
|
1.9079
|
|
|
|
105,631
|
|
January 15, 2021
|
|
|
300,000
|
|
|
|
164
|
|
|
|
300,164
|
|
|
|
1.9079
|
|
|
|
157,327
|
|
January 21, 2021
|
|
|
300,000
|
|
|
|
740
|
|
|
|
300,740
|
|
|
|
2.0060
|
|
|
|
149,920
|
|
January 26, 2021
|
|
|
500,000
|
|
|
|
411
|
|
|
|
500,411
|
|
|
|
2.0060
|
|
|
|
249,457
|
|
February 9, 2021
|
|
|
100,000
|
|
|
|
192
|
|
|
|
100,192
|
|
|
|
2.0078
|
|
|
|
49,901
|
|
February 9, 2021
|
|
|
400,000
|
|
|
|
13,699
|
|
|
|
413,699
|
|
|
|
2.0078
|
|
|
|
206,046
|
|
February 10, 2021
|
|
|
500,000
|
|
|
|
219
|
|
|
|
500,219
|
|
|
|
2.0078
|
|
|
|
249,138
|
|
February 17, 2021
|
|
|
200,000
|
|
|
|
1,055
|
|
|
$
|
201,055
|
|
|
|
2.0193
|
|
|
|
99,567
|
|
March 10, 2021
|
|
|
400,000
|
|
|
|
2,589
|
|
|
|
402,589
|
|
|
|
1.5637
|
|
|
|
257,459
|
|
Total Conversions
|
|
$
|
3,000,000
|
|
|
$
|
21,014
|
|
|
$
|
3,021,014
|
|
|
|
|
|
|
|
1,577,075
|
|
Contract to Acquire the Lancer Center Shopping Center
On January 18,
2021, the Company entered into an agreement with an unrelated party to acquire a retail center commonly referred to as the Lancer
Center property. On February 17, 2021, the Company and the Lancer Seller entered into an amendment by which the closing
of the acquisition is contingent upon the Company obtaining a final, approved and firm commitment for a loan to be used by the
Company to acquire Lancer Center.
Mandatorily Redeemable Preferred Stock Dividend
On February 1,
2021, a dividend in the amount of $0.50 was paid to mandatorily redeemable preferred stock shareholders of record on January 29,
2021 for the period from October 24, 2020 through January 29, 2021.
Plan for Sale of the Clemson Best Western Property
On February 5,
2021, the Company committed to a plan to sell the Clemson Best Western Hotel Property. The Company records properties 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. Management believes that its plans to sell the Clemson Best Western
Hotel Property meet these criteria and, as of February 5, 2021, the Company will reclassify certain assets and liabilities
related to the Clemson Best Western Hotel Property as assets held for sale and liabilities associated with assets held for sale
on the Company’s consolidated balance sheets.
Contract for the Sale of the Hampton Inn Property
On February 17, 2021, the Company entered
into a contract with an unrelated party to sell the Hampton Inn Property for $12,650,000.
Medalist Diversified REIT, Inc. and Subsidiaries
Schedule III - Real Estate Properties and Accumulated Depreciation
December 31, 2020
|
|
|
|
Initial
Cost to Company
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount at Which Carried at Close of Period
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Encum-brances
|
|
Land
|
|
|
Buildings,
Improvements
and Furniture,
Fixtures &
Equipment
|
|
|
Costs
Capitalized
Subsequent
to Acquisition
|
|
|
Costs
Written
Off Due to
Impairment
and Loss on
Disposition
|
|
|
Fully
Amortized
Improvements
|
|
|
Land
|
|
|
Buildings
and
Improvements
|
|
|
Total
|
|
|
Accumulated
Depreciation
|
|
|
Date
of
Construction
|
|
|
Date
Acquired
|
|
Life
on Which Depreciation
in Latest Income Statements
is Computed
|
Retail
properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Shops at Franklin Square
|
|
$
|
14,275,000
|
|
$
|
3,343,164
|
|
|
$
|
15,418,158
|
(1)
|
|
$
|
807,681
|
|
|
$
|
(309,435
|
)
|
|
$
|
(7,742
|
)
|
|
$
|
3,343,164
|
|
|
$
|
15,908,662
|
|
|
$
|
19,251,826
|
|
|
$
|
2,181,039
|
|
|
|
2006
|
|
|
April 28,
2017
|
|
Building
- 38 years
|
Gastonia,
North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 13 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanover
North Shopping Center
|
|
|
10,380,791
|
|
|
3,158,882
|
|
|
|
8,334,478
|
(1)
|
|
|
124,496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,158,882
|
|
|
|
8,458,974
|
|
|
|
11,617,856
|
|
|
|
909,211
|
|
|
|
2007
|
|
|
May 8,
2018
|
|
Building
- 39 years
|
Mechanicsville,
Virginia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 12 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashley
Plaza Shopping Center
|
|
|
11,349,518
|
|
|
3,007,721
|
|
|
|
11,191,307
|
(1)
|
|
|
83,736
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,007,721
|
|
|
|
11,275,043
|
|
|
|
14,282,764
|
|
|
|
808,059
|
|
|
|
1977
|
|
|
August 30,
2019
|
|
Building
- 26.7 years
|
Goldsboro,
North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
retail properties
|
|
|
36,005,309
|
|
|
9,509,767
|
|
|
|
34,943,943
|
|
|
|
1,015,913
|
|
|
|
(309,435
|
)
|
|
|
(7,742
|
)
|
|
|
9,509,767
|
|
|
|
35,642,679
|
|
|
|
45,152,446
|
|
|
|
3,898,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel
properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro
Airport Hampton Inn
|
|
|
10,400,000
|
|
|
960,900
|
|
|
|
14,798,479
|
|
|
|
3,182,549
|
|
|
|
(4,969,837
|
)(2)
|
|
|
-
|
|
|
|
960,900
|
|
|
|
13,011,191
|
|
|
|
13,972,091
|
|
|
|
1,561,841
|
|
|
|
1996
|
|
|
November 3,
2017
|
|
Building
- 51 years
|
Greensboro,
North Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clemson
Best Western Inn
|
|
|
7,750,000
|
|
|
2,057,706
|
|
|
|
8,271,247
|
|
|
|
76,902
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,057,706
|
|
|
|
8,348,149
|
|
|
|
10,405,855
|
|
|
|
722,300
|
|
|
|
1982
|
|
|
September 27,
2019
|
|
Building
- 30 years
|
Clemson,
South Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 6.4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
hotel properties
|
|
$
|
18,150,000
|
|
$
|
3,018,606
|
|
|
$
|
23,069,726
|
|
|
$
|
3,259,451
|
|
|
$
|
(4,969,837
|
)
|
|
$
|
-
|
|
|
$
|
3,018,606
|
|
|
$
|
21,359,340
|
|
|
$
|
24,377,946
|
|
|
$
|
2,284,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex
property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookfield
Center
|
|
|
4,842,887
|
|
|
714,220
|
|
|
|
5,693,147
|
(1)
|
|
|
30,066
|
|
|
|
-
|
|
|
|
-
|
|
|
|
714,220
|
|
|
|
5,723,213
|
|
|
|
6,437,433
|
|
|
|
319,263
|
|
|
|
2007
|
|
|
October 3,
2019
|
|
Building
- 40 years
|
Greenville,
South Carolina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Site
Improvements - 4.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
investment properties and assets held for sale
|
|
$
|
58,998,196
|
|
$
|
13,242,593
|
|
|
$
|
63,706,816
|
|
|
$
|
4,305,430
|
|
|
$
|
(5,279,272
|
)
|
|
$
|
(7,742
|
)
|
|
$
|
13,242,593
|
|
|
$
|
62,725,232
|
|
|
$
|
75,967,825
|
|
|
$
|
6,501,713
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes
intangible assets
|
|
(2)
|
Total
loss, prior to reduction for accumulated depreciation
|
|
|
Franklin
|
|
|
Hanover
|
|
|
Hampton
|
|
|
Ashley
|
|
|
Clemson
|
|
|
Brookfield
|
|
|
|
|
|
|
Square
|
|
|
Square
|
|
|
Inn
|
|
|
Plaza
|
|
|
Best
Western
|
|
|
Center
|
|
|
Total
|
|
Investments
in real estate - 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period - January 1, 2020
|
|
$
|
19,467,626
|
|
|
$
|
11,502,073
|
|
|
$
|
17,343,770
|
|
|
$
|
14,217,764
|
|
|
$
|
10,333,813
|
|
|
$
|
6,437,433
|
|
|
$
|
79,302,479
|
|
Additions
during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Capitalized
leasing commissions
|
|
|
39,157
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,157
|
|
Capitalized
tenant improvements
|
|
|
-
|
|
|
|
12,589
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,589
|
|
Capitalized
tenant inducements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Building
and site improvements
|
|
|
-
|
|
|
|
103,194
|
|
|
|
62,087
|
|
|
|
-
|
|
|
|
67,516
|
|
|
|
-
|
|
|
|
232,797
|
|
Impairment
write-offs
|
|
|
(254,957
|
)
|
|
|
-
|
|
|
|
(3,494,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,749,015
|
)
|
Fully
amortized tenant improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Furniture,
Fixtures and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
60,292
|
|
|
|
|
|
|
|
4,526
|
|
|
|
|
|
|
|
64,818
|
|
Balance
at end of period - December 31, 2020
|
|
$
|
19,251,826
|
|
|
$
|
11,617,856
|
|
|
$
|
13,972,091
|
|
|
$
|
14,282,764
|
|
|
$
|
10,405,855
|
|
|
$
|
6,437,433
|
|
|
$
|
75,967,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation - 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
1,646,374
|
|
|
$
|
572,300
|
|
|
$
|
884,281
|
|
|
$
|
200,544
|
|
|
$
|
143,603
|
|
|
$
|
63,552
|
|
|
$
|
3,510,654
|
|
Additions
charged to costs and expenses
|
|
|
618,262
|
|
|
|
336,911
|
|
|
|
677,560
|
|
|
|
607,515
|
|
|
|
578,697
|
|
|
|
255,711
|
|
|
|
3,074,656
|
|
Impairment
write-offs
|
|
|
(83,597
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(83,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
2,181,039
|
|
|
$
|
909,211
|
|
|
$
|
1,561,841
|
|
|
$
|
808,059
|
|
|
$
|
722,300
|
|
|
$
|
319,263
|
|
|
$
|
6,501,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investments in real estate - December 31, 2020
|
|
$
|
17,070,787
|
|
|
$
|
10,708,645
|
|
|
$
|
12,410,250
|
|
|
$
|
13,474,705
|
|
|
$
|
9,683,555
|
|
|
$
|
6,118,170
|
|
|
$
|
69,466,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate - 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period - January 1, 2019
|
|
$
|
19,391,848
|
|
|
$
|
11,499,475
|
|
|
$
|
16,399,910
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,291,233
|
|
Additions
during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,199,028
|
|
|
|
10,328,953
|
|
|
|
6,407,367
|
|
|
|
30,935,348
|
|
Capitalized
leasing commissions
|
|
|
5,075
|
|
|
|
2,598
|
|
|
|
-
|
|
|
|
18,736
|
|
|
|
-
|
|
|
|
30,066
|
|
|
|
56,475
|
|
Capitalized
tenant improvements
|
|
|
31,284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,284
|
|
Capitalized
tenant inducements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Building
and site improvements
|
|
|
47,161
|
|
|
|
-
|
|
|
|
1,375,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,422,598
|
|
Impairment
write-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,475,779
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,475,779
|
)
|
Fully
amortized tenant improvements
|
|
|
(7,742
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,742
|
)
|
Furniture,
Fixtures and Equipment
|
|
|
|
|
|
|
|
|
|
|
1,044,202
|
|
|
|
|
|
|
|
4,860
|
|
|
|
|
|
|
|
1,049,062
|
|
Balance
at end of period - December 31, 2019
|
|
$
|
19,467,626
|
|
|
$
|
11,502,073
|
|
|
$
|
17,343,770
|
|
|
$
|
14,217,764
|
|
|
$
|
10,333,813
|
|
|
$
|
6,437,433
|
|
|
$
|
79,302,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation - 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
1,006,272
|
|
|
$
|
229,238
|
|
|
$
|
732,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,967,736
|
|
Additions
charged to costs and expenses
|
|
|
640,102
|
|
|
|
343,062
|
|
|
|
643,979
|
|
|
|
200,544
|
|
|
|
143,603
|
|
|
|
63,552
|
|
|
|
2,034,842
|
|
Impairment
write-offs
|
|
|
-
|
|
|
|
-
|
|
|
|
(491,924
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(491,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
1,646,374
|
|
|
$
|
572,300
|
|
|
$
|
884,281
|
|
|
$
|
200,544
|
|
|
$
|
143,603
|
|
|
$
|
63,552
|
|
|
$
|
3,510,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investments in real estate - December 31, 2019
|
|
$
|
17,821,252
|
|
|
$
|
10,929,773
|
|
|
$
|
16,459,489
|
|
|
$
|
14,017,220
|
|
|
$
|
10,190,210
|
|
|
$
|
6,373,881
|
|
|
$
|
75,791,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate - 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period - January 1, 2018
|
|
$
|
18,959,453
|
|
|
$
|
-
|
|
|
$
|
15,769,254
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,728,707
|
|
Additions
during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
11,493,360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,493,360
|
|
Capitalized
leasing commissions
|
|
|
299,533
|
|
|
|
6,115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
305,648
|
|
Capitalized
tenant improvements
|
|
|
62,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,340
|
|
Capitalized
tenant inducements
|
|
|
125,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
Building
and site improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Building
improvements - construction in progress
|
|
|
-
|
|
|
|
-
|
|
|
|
575,830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
575,830
|
|
Impairment
write-offs
|
|
|
(54,478
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(54,478
|
)
|
Furniture,
Fixtures and Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
54,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,826
|
|
Balance
at end of period - December 31, 2018
|
|
$
|
19,391,848
|
|
|
$
|
11,499,475
|
|
|
$
|
16,399,910
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
47,291,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation - 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
394,746
|
|
|
$
|
-
|
|
|
$
|
104,073
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
498,819
|
|
Additions
charged to costs and expenses
|
|
|
615,599
|
|
|
|
229,238
|
|
|
|
628,153
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,472,990
|
|
Impairment
write-offs
|
|
|
(4,073
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,073
|
)
|
Balance
at end of period
|
|
$
|
1,006,272
|
|
|
$
|
229,238
|
|
|
$
|
732,226
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,967,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investments in real estate - December 31, 2018
|
|
$
|
18,385,576
|
|
|
$
|
11,270,237
|
|
|
$
|
15,667,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,323,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
in real estate - 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period - 1/1/17
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions
during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
18,761,322
|
|
|
|
-
|
|
|
|
15,759,379
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,520,701
|
|
Capitalized
leasing commissions
|
|
|
43,321
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
43,321
|
|
Capitalized
tenant improvements
|
|
|
154,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
154,810
|
|
Building
improvements - CIP
|
|
|
-
|
|
|
|
-
|
|
|
|
9,875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,875
|
|
Balance
at end of period - 12/31/17
|
|
$
|
18,959,453
|
|
|
$
|
-
|
|
|
$
|
15,769,254
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,728,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation - 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions
charged to costs and expenses
|
|
|
394,746
|
|
|
|
-
|
|
|
|
104,073
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498,819
|
|
Balance
at end of period
|
|
$
|
394,746
|
|
|
$
|
-
|
|
|
$
|
104,073
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
498,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investments in real estate - end of period
|
|
$
|
18,564,707
|
|
|
$
|
-
|
|
|
$
|
15,665,181
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
34,229,888
|
|