UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549










FORM 10-K










(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31,
2018



OR



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



For the transition period from 
to



Commission file
no: 001-38719










MEDALIST DIVERSIFIED REIT, INC.












|Maryland                                               |  | 47-5201540                               
|------------------------------------------------------ |  | -----------------------------------------
|(State or other jurisdiction
        of incorporation) |  | (IRS Employer
        Identification No.)
|                                                      



11 S. 12th Street, Suite 401

Richmond, Virginia 23219

(Address of principal executive offices)
(Zip Code)



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

Securities registered pursuant to Section 12(b) of
the Act:



|Title
        of Each Class   |  | Name
        of Each Exchange on Which Registered
|----------------------------- |  | -------------------------------------------------
|Common Stock, $0.01 par value |  | Nasdaq Capital Market                            



Securities registered pursuant to Section 12(g) of
the Act: None










Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ̈    No x



Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ̈    No x



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



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



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):



|Large accelerated filter |  |  ̈ |  | Accelerated filter        |  |  ̈
|------------------------ |  | - |  | ------------------------- |  | -
|Non-accelerated filter   |  | x |  | Smaller reporting company |  | x
|                         |  |   |  | Emerging Growth Company   |  | x



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



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



As of June 30,
2018, 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 $19,710,420, based on the public offering price
of $10.00 per share of common stock in our Regulation A offering which was terminated on June 19, 2018.



As of March
8, 2019, the registrant had 2,321,582 shares of common stock outstanding.



Documents incorporated by reference: Portions
of the registrant’s Definitive Proxy Statement for the 2019 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.


















MEDALIST DIVERSIFIED REIT, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2018



Table of contents



|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS |                                                                                                             
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------
|                                                          |                                                                                                             
|PART I                                                    |                                                                                                             
|                                                          |                                                                                                             
|ITEM  1.                                                  | BUSINESS                                                                                                    
|ITEM 1A.                                                  | RISK FACTORS                                                                                                
|ITEM 1B.                                                  | UNRESOLVED STAFF COMMENTS                                                                                   
|ITEM  2.                                                  | PROPERTIES                                                                                                  
|ITEM  3.                                                  | LEGAL PROCEEDINGS                                                                                           
|ITEM  4.                                                  | MINE SAFETY DISCLOSURES                                                                                     
|                                                          |                                                                                                             
|PART II                                                   |                                                                                                             
|                                                          |                                                                                                             
|ITEM  5.                                                  | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|ITEM  6.                                                  | SELECTED FINANCIAL DATA                                                                                     
|ITEM  7.                                                  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       
|ITEM 7A.                                                  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                  
|ITEM  8.                                                  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                 
|ITEM  9.                                                  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        
|ITEM 9A.                                                  | CONTROLS AND PROCEDURES                                                                                     
|ITEM 9B.                                                  | OTHER INFORMATION                                                                                           
|                                                          |                                                                                                             
|PART III                                                  |                                                                                                             
|                                                          |                                                                                                             
|ITEM 10.                                                  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                      
|ITEM 11.                                                  | EXECUTIVE AND DIRECTOR COMPENSATION                                                                         
|ITEM 12.                                                  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS              
|ITEM 13.                                                  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                   
|ITEM 14.                                                  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                      
|                                                          |                                                                                                             
|PART IV                                                   |                                                                                                             
|                                                          |                                                                                                             
|ITEM 15.                                                  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                  











CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS



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 competitive
environment in which we operate;
| | - | ------------------------------------------------



| | · | national,
international, regional and local economic conditions;
| | - | ----------------------------------------------------------------



| | · | capital expenditures;
| | - | ---------------------



| | · | the availability, terms and deployment of capital;
| | - | --------------------------------------------------



| | · | financing risks;
| | - | ----------------



| | · | the general level of interest rates;                                          
| | - | ------------------------------------------------------------------------------
| |   |                                                                               
| | · | changes in our business or strategy;                                          
| |   |                                                                               
| | · | fluctuations in interest rates and increased operating costs;                 
| |   |                                                                               
| | · | our limited operating history;                                                
| |   |                                                                               
| | · | the degree and nature of our competition;                                     
| |   |                                                                               
| | · | our dependence upon our Manager and key personnel;                            
| |   |                                                                               
| | · | defaults on or non-renewal of leases by tenants;                              
| |   |                                                                               
| | · | decreased rental rates or increased vacancy rates;                            
| |   |                                                                               
| | · | our ability to make distributions on shares of our common stock;              
| |   |                                                                               
| | · | difficulties in identifying properties to acquire and completing acquisitions;
| |   |                                                                               
| | · | our ability to operate as a public company;                                   
| |   |                                                                               
| | · | potential natural disasters such as hurricanes;                               



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



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



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



1







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



ITEM 1. BUSINESS



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, and (ii) multi-family
residential 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
company currently has three Investments: (i) the Shops at Franklin Square, a 134,239 square foot retail property located at 3940
East Franklin Boulevard in Gastonia, North Carolina 28056, or the Franklin Square Property, which we acquired on April 28, 2017,
(ii) an undivided 64% tenant-in-common interest in the property commonly referred to as the Greensboro Airport Hampton Inn located
at 7802 National Service Road in Greensboro, North Carolina, or the Greensboro Hampton Inn, which we acquired on November 3, 2017,
and (iii) an undivided 84% tenant-in-common interest in the Shops at Hanover Square North, consisting of two parcels of land containing
a 73,440 square foot retail center located at 7230 Bell Creek Road in Mechanicsville, Virginia 23111, or Hanover Square North,
which we acquired on May 8, 2018.



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.



2







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.



Background and Corporate Information



We were incorporated
in 2015 for the purpose of raising capital and acquiring a diverse portfolio of real estate assets. On October 5, 2015, we filed
an offering statement on Form 1-A, or the Offering Statement, with the SEC to offer a maximum of $50,000,000 in shares of our common
stock in an exempt public offering pursuant to Section 3(b)(2) of the Securities Act of 1933, as amended,
or our 2018 Exempt Offering, at an offering price of $10.00 per share, which Offering Statement was qualified by the SEC
on July 28, 2016. We terminated our 2018 ExemptOffering on June 19, 2018, having received
aggregate gross proceeds of $18,758,452 from the sale of 1,995,580 shares of our common stock.



In addition, on November
30, 2018, we issued 240,000 shares of our common stock pursuant to our Registration Statement on Form S-11 which was declared effective
by the SEC on November 27, 2018. We issued the shares at an offering price of $10.00 per share for aggregate gross proceeds of
$2,400,000.



The principal executive
offices of the company and our Manager are located at 11 S. 12th Street, Suite 401, 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 and retail
properties located primarily in the southeastern United States. To date, we have acquired the Franklin Square Property, an undivided
64% tenant-in-common interest in the Greensboro Hampton Inn, and an undivided 84% tenant-in-common interest in Hanover Square North.For further information on properties and our tenant base, see “Item 2—Properties.”



3







Our Competitive Strengths



We
believe the experience of our Manager and its affiliates, which we refer to as the Medalist companies, as well as our investment
strategies, distinguish us from other real estate companies. Specifically, our competitive strengths include the following:



| | § | Experienced
and Dedicated Management Team. The Medalist companies consist of a committed management team with experience in all phases
of commercial real estate investment, management and disposition. The Medalist management team has 50+ years combined experience
in commercial real estate and fixed income capital markets. The Medalist management team has also established a robust infrastructure
of service providers, including longstanding relationships with two fully-staffed property managers for assets under management.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Strong Investment Track Record. Our Manager and its affiliates have a strong track record of success. The Medalist companies have acquired and managed an over $152 million commercial real estate portfolio since 2003. Medalist Fund I, LLC, our Manager’s first multi-property investment fund, invested in three properties, representing retail, flex-industrial and multifamily. Those properties were sold in May of 2017, August of 2017, and January of 2018. Medalist Fund I, LLC, paid out its required 8% annualized cash distribution in each consecutive quarter (Q3 of 2013 through Q1 of 2018) out of operating cash flow and paid distributions resulting from the sales of the properties. After taking into account all contributions to and distributions from Medalist Fund I, LLC, Medalist Fund I, LLC had a fund-level IRR of 12.8%. Medalist Fund I, LLC paid approximately 4.9% of its offering proceeds in sales commissions, offering expenses and fees. Medalist Fund I, LLC wound up its investments in late 2018 and is no longer in existence. Medalist Fund II, LLC, our Manager’s second multi-property investment fund has acquired two properties. Medalist Fund II, LLC has paid out its required 7.5% annualized cash distribution in each consecutive quarter (Q1 of 2016 through Q4 of 2018) out operating cash flow. Medalist Fund II’s offering closed on December 31, 2016 and it paid approximately 10.15% of its offering proceeds in sales commissions, offering expenses and fees. Medalist Fund II pays market property management fees.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Strategy of Opportunistic Investing. The Medalist companies have an extensive deal flow network in target markets due to long-standing relationships with brokers and lenders. The Medalist companies focus on value creation through a “hands on” management approach to previously neglected properties and a thorough knowledge of the geographic target area.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Highly Disciplined Investing Approach. The Medalist companies take a time-tested and thorough approach to analysis, management and investor reporting. The Medalist companies also adhere to a rigorous due diligence process, strict acquisition price discipline and prudent leverage levels.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Market Opportunity. The Medalist companies have identified market opportunities in the secondary and tertiary commercial real estate markets and the availability of debt financing at historically low rates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



4







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.



ITEM 1A. RISK FACTORS



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



ITEM 1B. UNRESOLVED STAFF COMMENTS



None.



ITEM 2. PROPERTIES



As
of December 31, 2018, we owned the Franklin Square Property, an undivided 64% tenant-in-common interest in the Greensboro Hampton
Inn, and an undivided 84% tenant-in-common interest in Hanover Square North:



|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 92.5% occupied, as of December 31, 2018, and anchored by Ashley Furniture, Monkey Joe’s and Altitude.
|                         |  |        |  |                                                                                                                                                                                                                                                                       
|Greensboro Hampton Inn   |  | 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 North     |  | Retail |  | 73,440 square foot retail center located at 7230 Bell Creek Road in Mechanicsville, Virginia 23111, on 9.630 acres, built in 2007, that is 96.7% occupied, as of December 31, 2018 and anchored by a Marshalls store and an Old Navy store.                           



5







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.



On May 10, 2018, we
entered into a lease with Altitude, a national tenant, for 30,000 square feet of rentable space. Altitude’s occupancy commenced
in November, 2018 and rent will commence on August 1, 2019. On October 18, 2018, we entered into a lease with Allen Tate, Inc.
for 4,156 square feet. Allen Tate’s occupancy commenced on December 1, 2018, and rent will commence on March 1, 2019. Allen
Tate’s and Altitude’s occupancy brought the Franklin Square Property’s occupancy rate to 92.5 percent as of December
31, 2018.



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 on March 6, 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.



As of December 31, 2018,
the following are 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       | % |  | $                | 612,327 |                
|Altitude Trampoline Park |  |          | Entertainment |  |                       |  | 30,000 |                                       |  |  | 22.35       | % |  | $                | 270,000 |                



The
average effective annual rent per square foot for the Franklin Square Property for the year ended December 31, 2018 was $11.98.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.



Lease expirations in the
next 10 years:



|                                    |  | 2019 |         |   | 2020 |   |         | 2021 |  |   | 2022   |   |  | 2023 |         |   | 2024 |   |        | 2025 |  |   | 2026   |   |  | 2027 |         |   | 2028 |  
|----------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------- | - | ---- | -
|                                    |  |      |         |   |      |   |         |      |  |   |        |   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |      |  
|Leases Expiring                     |  |      | 5       |   |      |   | 4       |      |  |   | 1      |   |  |      | 3       |   |      |   | 1      |      |  |   | 1      |   |  |      | 2       |   |      |  
|                                    |  |      |         |   |      |   |         |      |  |   |        |   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |      |  
|Square Footage                      |  |      | 8,900   |   |      |   | 12,034  |      |  |   | 4,260  |   |  |      | 38,338  |   |      |   | 4,235  |      |  |   | 4,156  |   |  |      | 16,008  |   |      |  
|                                    |  |      |         |   |      |   |         |      |  |   |        |   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |      |  
|Annual Rent                         |  | $    | 211,525 |   |      | $ | 246,958 |      |  | $ | 89,460 |   |  | $    | 688,007 |   |      | $ | 93,170 |      |  | $ | 83,120 |   |  | $    | 164,951 |   |      | $
|                                    |  |      |         |   |      |   |         |      |  |   |        |   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |         |   |      |  
|Percentage of Aggregate Annual Rent |  |      | 10.7    | % |      |   | 12.5    | %    |  |   | 4.5    | % |  |      | 34.7    | % |      |   | 4.7    | %    |  |   | 4.2    | % |  |      | 8.3     | % |      |  



6







Greensboro Hampton Inn



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 7802 National Service Road in Greensboro, North Carolina, or the Greensboro Hampton Inn. The purchase price for
the Greensboro Hampton Inn was $15,100,000. The Greensboro Hampton Inn 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 Greensboro Hampton Inn 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 Greensboro Hampton Inn 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
Greensboro Senior Loan has an initial 36-month term, maturing on November 9, 2020. The borrowers, however, have extension options,
which if exercised, could extend the maturity date of the Greensboro Senior Loan for two (2) successive 12-month periods. The Greensboro
Senior Loan requires monthly interest only payments during the 36-month term. The Greensboro Senior Loan bears interest at the
greater of (i) 5.0% 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) 6.1%. The Greensboro Senior Loan may be prepaid,
subject to certain conditions and payments. The Greensboro Senior Loan is secured by the Greensboro Hampton Inn.



The Virginia Commonwealth Bank Loan carried
interest at the rate of 4.223%.  The Virginia Commonwealth Bank Loan was repaid on January 24, 2018, including interest and
loan fees, using $1,537,456 in proceeds from the 2018 Exempt Offering.



The Fund I Loan, the
Fund II Loan, the Seller Loan, the K&R Loan and the Fund I-B Loan were repaid on January 31, 2018, including interest, with
$705,138 in proceeds from the 2018 Exempt Offering.  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 Greensboro Hampton Inn, 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 Greensboro Hampton Inn, (ii) any sale or exchange of the Greensboro Hampton Inn, or (iii) any indebtedness
or loan, and any negotiation or refinancing thereof, secured by a lien on the Greensboro Hampton Inn. 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.



7







The Greensboro Hampton
Inn’s average occupancy rate, average daily rate, or ADR and RevPAR for the year ended December 31, 2018:



|Period                       |  | Average Occupancy Rate |       |   | ADR |   |        | RevPAR | 
|---------------------------- |  | ---------------------- | ----- | - | --- | - | ------ | ------ | 
|                             |  |                        |       |   |     |   |        |        | 
|Year Ended December 31, 2018 |  |                        | 67.62 | % |     | $ | 117.83 |        | 



Hanover Square North



On May 8, 2018, we
acquired an undivided 84% tenant-in-common interest in the Shops at Hanover Square North from COF North, LLC, a Virginia limited
liability company. The property is comprised of (i) an approximately 73,440 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 Hanover Square North. The contract purchase price for Hanover Square North was $12,173,000.
We acquired Hanover Square North 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 North Loan. In connection with the acquisition, we paid our Manager an acquisition fee of $252,451.
Our company purchased Hanover Square North as a tenant-in-common with PMI Hanover Square, LLC, an unaffiliated party. Our company
acquired an 84% interest in Hanover Square North, and PMI Hanover Square, LLC owns the remaining 16% interest. The retail center
forming a part of Hanover Square North was built in 2007 and, as of December 31, 2018, was 96.7% occupied.



We assumed the
Hanover Square North Loan as of the closing of the acquisition. The Hanover Square North Loan matures on December 1, 2027. The
Hanover Square North Loan requires monthly payments of principal, on a 25-year amortization schedule, and interest during the term.
The Hanover Square North Loan bears interest at 4.90% through January 1, 2023, at which time the interest rate will be adjusted
to the daily average yield on US Treasury securities adjusted to a constant maturity of five years, plus 3.10% with an interest
rate floor of 4.90%. The Hanover Square North Loan is secured by the developed parcel of Hanover Square North.



In
connection with our acquisition of Hanover Square North, 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 Hanover Square North, (ii) any sale or exchange of Hanover Square North, or (iii) any indebtedness or loan,
and any negotiation or refinancing thereof, secured by a lien on Hanover Square North. 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 North TIC Agreement.



As of December 31, 2018,
the following are 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
|---------- |  | -------- | ------ |  | --------------------- |  | ------ | ------------------------------------- |  |  | ----------- | - |  | ---------------- | ------- | ---------------
|Old Navy   |  |          | Retail |  |                       |  | 15,000 |                                       |  |  | 20.42       | % |  | $                | 208,800 |                
|Marshall’s |  |          | Retail |  |                       |  | 28,000 |                                       |  |  | 38.13       | % |  | $                | 322,000 |                



The
average effective annual rent per square foot for the Hanover Square North property for the year ended December 31, 2018 was $14.71.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 Hanover Square North for eight months, the period on which the average annual rent per square foot is based.
Lease expirations in the next 10 years:



8









|                                    |  | 2019 |        |   | 2020 |   |        | 2021 |  |   | 2022 |   |  | 2023 |         |   | 2024 |   |         | 2025 |  |   | 2026 |   |  | 2027 |   |   | 2028 |  
|----------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ---- | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ---- | - |  | ---- | - | - | ---- | -
|                                    |  |      |        |   |      |   |        |      |  |   |      |   |  |      |         |   |      |   |         |      |  |   |      |   |  |      |   |   |      |  
|Leases Expiring                     |  |      | 1      |   |      |   | 2      |      |  |   | 0    |   |  |      | 6       |   |      |   | 2       |      |  |   | 0    |   |  |      | 0 |   |      |  
|                                    |  |      |        |   |      |   |        |      |  |   |      |   |  |      |         |   |      |   |         |      |  |   |      |   |  |      |   |   |      |  
|Square Footage                      |  |      | 1,940  |   |      |   | 5,200  |      |  |   | 0    |   |  |      | 57,900  |   |      |   | 6,000   |      |  |   | 0    |   |  |      | 0 |   |      |  
|                                    |  |      |        |   |      |   |        |      |  |   |      |   |  |      |         |   |      |   |         |      |  |   |      |   |  |      |   |   |      |  
|Annual Rent                         |  | $    | 39,898 |   |      | $ | 97,915 |      |  | $ | 0    |   |  | $    | 855,486 |   |      | $ | 125,952 |      |  | $ | 0    |   |  | $    | 0 |   |      | $
|                                    |  |      |        |   |      |   |        |      |  |   |      |   |  |      |         |   |      |   |         |      |  |   |      |   |  |      |   |   |      |  
|Percentage of Aggregate Annual Rent |  |      | 2.6    | % |      |   | 7.1    | %    |  |   | 0    | % |  |      | 78.8    | % |      |   | 8.2     | %    |  |   | 0    | % |  |      | 0 | % |      |  



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 8, 2019, the closing sale price
of our common stock on the Nasdaq Capital Market was $7.30. On February 14, 2019, we had 398 holders of record of our
common stock. This figure may 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.



We intend to continue to declare quarterly
distributions on our common stock. The actual amount and timing of distributions, however, 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.



9







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.



On October 4, 2018,
our company issued warrants to purchase 49,890 shares of our common stock at a price of $0.001 per warrant. The warrants are exercisable
from October 9, 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.



Use of Proceeds from Initial Public
Offering



We completed our initial
registered public offering on Form S-11 (File No. 333-227098) on November 30, 2018, or our IPO, pursuant to which we issued an
aggregate of 240,000 shares of our common stock and received approximately $1,838,727 in net proceeds, inclusive of $192,000 in
underwriter discounts and $345,273 in expenses paid by us in connection with the IPO. Maxim Group LLC served as the sole underwriter
in our IPO. We utilized $250,176 of such proceeds to pay a cash dividend and $732,730 for general working capital purposes, including
short-term advances to the Greensboro Hampton Inn to fund property improvements, with the remaining $855,821 kept as cash on hand.



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. as of and for the years ended December 31, 2018 and December 31, 2017.



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 REIT, and we have elected to be taxed as a REIT for federal income
tax purposes. Our company serves as the general partner of Medalist Diversified Holdings, LP which was formed as a Delaware limited
partnership on September 29, 2015.



Our company was formed
to acquire, reposition, renovate, lease and manage income-producing properties, with a primary focus on (i) commercial properties,
including flex-industrial, limited service hotels, and retail properties, and (ii) multi-family residential properties 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,
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 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. The Company’s stockholders are not involved in its day-to-day
affairs.



10







As of December
31, 2018, our company owned and operated three 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) a hotel
with 125 rooms on 2.162 acres in Greensboro, North Carolina and the Hanover North Shopping Center (“Hanover Square North”),
a 73,440 square foot retail property located in Mechanicsville, Virginia. As of December 31, 2018, we owned 64% of the Greensboro
Hampton Inn as a tenant in common with a noncontrolling owner which owned the remaining 36% interest. The tenants in common lease
the Greensboro Hampton Inn to a taxable REIT subsidiary that is also owned 64% by us and 36% by the noncontrolling owner. As of
December 31, 2018, we owned 84% of Hanover Square North as a tenant in common with a noncontrolling owner which owned the remaining
16% interest.



Recent Trends and Activities



There have been several
significant events in 2017 and 2018 that have impacted our company. These events are summarized below.





Equity Issuances



During 2017 our company
issued 1,148,000 shares of common stock at $10.00 per share subject to issuance costs and discounts. The net funds after issuance
costs were used for the acquisition of our company’s first two investment properties. In addition, our company issued 125,000
operating partnership units, or OP Units, in exchange for $1,175,000 in contributions of equity in the Greensboro Hampton Inn.



In January 2018, our
company issued and sold 775,460 shares of common stock, and in February 2018, our Company issued and sold 63,620 shares of common
stock at an offering price of $10.00 per share. Net proceeds from the issuances totaled $7,684,167, which includes the impact of
discounts and offering costs, including the underwriters' selling commissions and legal, accounting and other professional fees.
The net funds after issuance costs were used to (i) retire the short-term notes payable used to finance the purchase of the Greensboro
Hampton Inn and (ii) fund our company’s acquisition of Hanover Square North, which closed on May 8, 2018.



On June 6, 2018, our
company issued and sold 8,500 shares of common stock at an offering price of $10.00 per share. Net proceeds from the issuances
totaled $65,825, which includes the impact of discounts and offering costs, including the underwriters' selling commissions and
legal, accounting and other professional fees.



On November 30, 2018,
our company issued and sold 240,000 shares of common stock at an offering price of $10.00 per share. Net proceeds from the issuances
totaled $1,838,727, which includes the impact of discounts and offering costs, including the underwriters' selling commissions
and legal, accounting and other professional fees.



On August 31, 2018,
the Company’s Board of Directors approved a grant of 80,000 shares of Common Shares to two employees of the Manager who also
serve as directors of the Company and a grant of 6,000 Common Shares to the Company’s three independent directors. The effective
date of the grants was December 4, 2018, the date on which the registration of the Plan shares was effective. The Common Shares
granted vest immediately, but will be restricted for six months by a lock-up agreement associated with the Company’s sale
of its Common Shares on November 27, 2018. In addition, 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 $790,340, 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.



Our Company also incurred
$299,624 in other issuance costs during the year ended December 31, 2018.





11







2017 Acquisitions



The Shops at Franklin
Square



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



On May 10, 2018, we
entered into a lease with Altitude Trampoline Park, or Altitude, a national tenant, for 30,000 square feet of rentable space. Altitude’s
occupancy commenced in November 2018 and rent will commence on August 1, 2019. On October 18, 2018, we entered into a lease with
Allen Tate, Inc. for 4,156 square feet. Allan Tate’s occupancy commenced on December 1, 2018, and rent will commence on March
1, 2019. Allen Tate’s and Altitude’s occupancy brought the Franklin Square Property’s occupancy rate to 92.5
percent as of December 31, 2018.



Greensboro Airport
Hampton Inn



On November 3, 2017
we completed our acquisition of an undivided 64 percent tenant-in-common interest in the Greensboro Hampton Inn through a wholly
owned subsidiary. The total purchase price for the Greensboro Hampton Inn was $15,100,000, paid through a combination of cash provided
by our company, the issuance of 125,000 OP Units, the incurrence of new mortgage debt in the original principal amount of $10,600,000
and approximately $2,300,000 in cash provided by PMI Greensboro. The total investment, including acquisition, closing costs, escrow
deposits and a reserve for property improvements required under the Greensboro Hampton Inn’s franchise agreement, was $18,004,621.
The hotel has 125 rooms and was built in 1996.



2018 Acquisition



Hanover North Shopping
Center



On May 8, 2018 we completed
our acquisition of an undivided 84 percent tenant-in-common interest in Hanover Square North through a wholly owned subsidiary.
The contract purchase price for Hanover Square North was $12,173,000. We acquired Hanover Square North with $3,291,404 in cash,
$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 (the “Hanover Square North Loan”). Hanover
Square North is located in Mechanicsville, Virginia and consists of approximately 73,440 square feet of improvements located on
an 8.766 acre parcel of land (the “Developed Parcel”) and a contiguous, undeveloped parcel of land totaling 0.864 acres.
As of December 31, 2018, Hanover Square North was approximately 96.7% occupied.



Financing Activities



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



|                   |  |               |  |          |          |   |          |               |  | Balance      |  
|------------------ |  | ------------- |  | -------- | -------- | - | -------- | ------------- |  | ------------ | -
|                   |  | Monthly       |  | Interest |          |   |          |               |  | December 31, |  
|Property           |  | Payment       |  | Rate     |          |   | Maturity |               |  | 2018         |  
|Franklin Square    |  | Interest only |  |          | 4.7      | % |          | October 2021  |  |              | $
|Hampton Inn (a)    |  | Interest only |  |          | Variable |   |          | November 2020 |  |              |  
|Hanover Square (b) |  | $      51,993 |  |          | 4.9      | % |          | December 2027 |  |              |  



| | (a) | The mortgage loan for the Greensboro Hampton Inn bears interest at a variable rate based on LIBOR with a minimum rate of 6.1%. The interest rate payable is the USD LIBOR one-month rate plus 5%. For the years ended December 31, 2018 and 2017, respectively, the rates in effect for the Greensboro Hampton Inn mortgage loan were 7.5 percent and 6.5 percent.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



12







On November 3, 2017,
our company entered into an Interest Rate Protection Transaction to limit our company’s exposure to increases in interest
rates on the variable rate mortgage loan on the Greensboro Hampton Inn. Under this agreement, our company’s interest rate
exposure is capped at 7 percent if USD 1-Month LIBOR BBA exceeds 2 percent. As of December 31, 2018, USD 1-Month LIBOR was 2.51988
percent. In accordance with the guidance on derivatives and hedging, our company records all derivatives on the balance sheet at
fair value. Our company reports the changes in the fair value of the derivative in other income.



Beginning in July 2018,
the USD 1-Month LIBOR BBA rate exceeded two percent and remained in excess of two percent on each subsequent monthly valuation
date from July 2018 through December 31, 2018. Accordingly, the Company received the following payments under the Interest Rate
Protection Transaction, all of which were recorded as a reduction to interest expense:





|Period         |  |  | Payment Received |       |  | Period |               |  | Payment Received |  
|-------------- |  |  | ---------------- | ----- |  | ------ | ------------- |  | ---------------- | -
|July 2018      |  |  | $                | 1,104 |  |        | October 2018  |  |                  | $
|August 2018    |  |  | $                | 1,141 |  |        | November 2018 |  |                  | $
|September 2018 |  |  | $                | 1,141 |  |        | December 2018 |  |                  | $



In addition, our company
issued the following short-term loans on November 3, 2017 to finance the purchase of the Greensboro Hampton Inn. These loans remained
outstanding as of December 31, 2017:



|Loan payable to Virginia Commonwealth Bank |  | $ | 1,500,000 | 
|------------------------------------------ |  | - | --------- | 
|Loan payable to Medalist Fund I            |  |   | 252,000   | 
|Loan payable to Medalist Fund II           |  |   | 150,000   | 
|Loan payable to Medalist Properties 8      |  |   | 125,538   | 
|Loan payable to K&R Automotive             |  |   | 100,000   | 
|Loan payable to Medalist Fund I-B          |  |   | 50,000    | 
|                                           |  | $ | 2,177,538 | 



On January 29, 2018,
the Company repaid the following short-term note payable, with interest:



Loan payable to Virginia Commonwealth Bank
(a)             $1,500,000



Interest paid on this
loan totaled $37,456, including a loan fee due of $22,500 which was paid at the time of the principal repayment and which was recorded
as interest during the year ended December 31, 2018, and $4,985 and $9,971 of interest accrued during the years ended December
31, 2018 and 2017, respectively.



On January 29, 2018,
the Company repaid the following related party short-term notes payable, with interest:



|                                          |  | Principal |         |  | Interest |  
|----------------------------------------- |  | --------- | ------- |  | -------- | -
|Loan payable to Medalist Fund I (b)       |  | $         | 252,000 |  |          | $
|Loan payable to Medalist Fund II (b)      |  |           | 150,000 |  |          |  
|Loan payable to Medalist Properties 8 (c) |  |           | 125,538 |  |          |  
|Loan payable to K&R Automotive (b)        |  |           | 100,000 |  |          |  
|Loan payable to Medalist Fund I-B (b)     |  |           | 50,000  |  |          |  
|                                          |  | $         | 677,538 |  |          | $



| | (a) | Interest rate of 4.223
percent per annum
| | --- | ----------------------------------------



| | (b) | Interest rate of 5 percent for the term of the loan
| | --- | ---------------------------------------------------



| | (c) | Short term loan from seller of the Greensboro Hampton Inn which did not bear interest.
| | --- | --------------------------------------------------------------------------------------



13







On a weighted average
basis, the effective interest rate on the short-term loans payable was 8.0 percent per annum. Each loan was issued on November
2, 2017 and the proceeds were used to fund the purchase of the Greensboro Hampton Inn.



As of December 31,
2018, the Company had no notes payable, short term or related party notes payable, short term outstanding.



Off-Balance Sheet Arrangements



As of December 31,
2018, we have no off-balance sheet arrangements.



Summary of Critical Accounting Policies



The preparation of consolidated
financial statements in conformity with 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 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.



Rents and Other
Tenant Receivables



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, the 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.



14







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.



The Company also reviews
its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of its intangible
assets may not be recoverable, but at least annually.



REIT Status



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



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 through our offering with proceeds being used to acquire additional target
properties.



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



Internal
liquidity will be provided solely by the rental receipts from our real properties. The only external liquidity source we have currently
identified is our ongoing efforts to raise capital by the issuance of shares of common stock. During 2017 our company issued 1,148,000
shares of common stock at $10 per share, subject to issuance costs and discounts. The net funds after offering costs were used
for the acquisition of our company’s first two investment properties. During January and February 2018 our company issued
839,080 shares of common stock at $10 per share subject to issuance costs and discounts. The net funds after issuance costs were
used to (i) retire the short term notes payable used to finance the purchase of the Greensboro Hampton Inn and (ii) fund our company’s
acquisition of Hanover Square North, which closed on May 8, 2018. On June 6, 2018, our company issued 8,500 shares of common stock
at an offering price of $10 per share.



We completed our initial
registered public offering on Form S-11 on November 30, 2018, or our IPO, pursuant to which we issued an aggregate of 240,000 shares
of our common stock and received approximately $1,838,727 in net proceeds. We have contributed the net proceeds of our IPO for
OP Units. We utilized $250,176 of such proceeds to pay a cash dividend and $732,730 for working capital purposes, including short-term
advances to the Greensboro Hampton Inn to fund property improvements. with the remaining $855,821 kept as cash on hand.



15







Cash Flows



Comparison of Year Ended December 31, 2018 to Year Ended
December 31, 2017



At December 31, 2018,
our consolidated cash on hand totaled $1,327,424 compared to consolidated cash on hand of $263,002 at December 31, 2017. Cash flows
from operating activities, investing activities and financing activities for the years ended December 31, 2018 and 2017 are as
follows:



Operating Activities



During 2017 the Company
acquired and commenced operations of its first two operating properties, the Franklin Square Property in May 2017 and the Greensboro
Hampton Inn in November 2017. During 2018 the Company acquired and commenced operations of its third property, Hanover Square North
in May 2018.



During the year ended
December 31, 2018 our cash flows used in operating activities increased to $450,766 from $43,847 during the year ended December
31, 2017. Our net loss increased from $968,548 for the year ended December 31, 2017 to $2,991,153 for the year ended December 31,
2018, but this was driven by increases in non-cash items, including an increase in depreciation and amortization of $1,300,177,
share based compensation costs of $790,340 and a loss on impairment of $191,578. Excluding these non-cash items, our net cash provided
by operating activities was $305,057 for the year ended December 31, 2018, an increase of $481,228 over the net cash, as adjusted
for non-cash items, used in operating activities of $176,171 for the year ended December 31, 2017. Changes in assets and liabilities,
net of acquisitions (working capital) used $755,823 in cash for the year ended December 31, 2018, compared to providing $132,324
in cash for the year ended December 31, 2017, a decrease of $888,147. This was driven primarily by the Company’s payment
of accounts payable and accrued liabilities.



Investing Activities



During the year ended
December 31, 2018, our cash flows used in investing activities were $5,153,863 compared to cash flows used in investing activities
of $23,923,247 during the year ended December 31, 2017. During the year ended December 31, 2018, cash used in investing activities
included $4,312,209 for the acquisition of Hanover Square North, $349,699 in capital expenditures for leasing commissions and tenant
improvements for the Franklin Square Property, $6,115 in leasing commissions for the Hanover Square Property, and $630,656 for
interior and exterior renovations at the Greensboro Hampton Inn. Additionally, $423,747 in advance deposits for furniture and fixtures
was incurred and paid related to the Greensboro Hampton Inn renovation. Funds released from property capital reserves offset some
of these capital expenditures. During the year ended December 31, 2017, investing activities were related to the acquisition of
the Greensboro Hampton Inn and capital expenditures were related to tenant improvements for the Franklin Square Property.



Financing Activities



During the year
ended December 31, 2018, our cash flows provided by financing activities were $6,669,051 compared to $24,230,014 during the
year ended December 31, 2017. During the year ended December 31, 2018, our company generated net proceeds, after offering
costs, from its common stock issuances, of $9,289,095. Additionally, we repaid short term notes payable of $2,177,538, paid
dividends and distributions of $1,213,840, and incurred new mortgage debt associated with Hanover Square North of $372,685
which payable proceeds were $250,652 after deducting loan issuance costs that were incurred and capitalized of $122,033.
The Company made $127,438 in principal payments on the Hanover Square North mortgage payable. During the year ended December
31, 2017, our company generated net proceeds, after offering costs, from our common stock issuances of $9,993,822 and paid
dividends and distributions of $422,686. Additionally, our company issued notes payables and related party payables which
generated proceeds of $2,177,538, incurred new mortgage debt associated with the purchase of the Greensboro Hampton Inn of
$10,181,309, and accepted $2,300,031 in investment of noncontrolling interests associated with the purchase of the Greensboro
Hampton Inn.



16







Non-cash financing
activities that did not affect our cash flows provided by financing activities include the assumption of mortgage debt of $8,527,315
associated with Hanover Square North and $14,275,000 associated with the purchase of the Franklin Square Property,



Future Liquidity
Needs



Liquidity for general
operating needs and our company’s investment properties is provided solely by the rental receipts from those properties.
Liquidity for growth (acquisition of new investment properties) will be provided by additional equity issuances, net of issuance
costs.



In addition to the
funding of our ongoing operations, our primary liquidity needs at December 31, 2018 were to provide funding for the ongoing costs
associated with our company’s continuing efforts to raise capital through the issuance of additional shares of common stock.
We anticipate that these costs will be funded by proceeds from the future issuances of common stock.



Results of Operations



Comparison of Year Ended December 31, 2018 to Year Ended
December 31, 2017



Total Revenue



Total revenue was $6,589,951
for the year ended December 31, 2018, consisting of $2,049,580 in revenues from the Franklin Square Property, $864,202 in revenues
from Hanover Square North (which was owned by our company for eight months during 2018) and $3,676,169 in revenues from the Greensboro
Hampton Inn. Total revenue was $1,724,657 for the year ended December 31, 2017, consisting of
$1,325,155 in revenues from the Franklin Square Property (which was owned by our company for eight months during 2017) and $399,502
in revenues from the Greensboro Hampton Inn (which was owned by our company for two months during 2017).



Total
revenues for the year ended December 31, 2018 increased by $4,865,294 over the year ended December 31, 2017. This increase was
a result of owning the two properties acquired in 2017 for a full year in 2018 and new revenues from the acquisition of Hanover
Square North.



Total Operating
Expenses



Total operating expenses
for the year ended December 31, 2018 were $7,654,864, consisting of $758,232 in expenses for the Franklin Square Property,
$218,236 for Hanover Square North, $2,608,825 for the Greensboro Hampton Inn, $790,340 of share based compensation expenses, $938,049
of legal, accounting and other professional fees, $106,281 in corporate general and administrative expenses, a $191,478 loss on
impairment and $2,043,323 in depreciation and amortization expenses.



Total operating expenses
for the year ended December 31, 2017 were $2,009,784, consisting of $602,970 in expenses for the Franklin Square Property,
$356,427 for the Greensboro Hampton Inn, $253,056 of legal, accounting and other professional fees, $54,185 of corporate general
and administrative expenses, and $743,146 in depreciation and amortization expenses.



Total operating expenses
for the year ended December 31, 2018 increased by $5,645,080 over the year ended December 31, 2017. This
increase was a result of owning the two properties acquired in 2017 for a full year in 2018, owning Hanover Square North for eight
months during 2018, the share based compensation costs incurred during 2018 and the loss on impairment recognized during 2018.



Interest Expense



Interest expense for
the year ended December 31, 2018 was $1,917,183. This consisted of (i) $680,242 in mortgage interest and $18,552 in amortization
of loan issuance costs for the Franklin Square Property, (ii) $761,544 in mortgage interest, $139,560 in amortization of loan issuance
costs and $12,330 in payments (recorded as a reduction in interest expense) from the interest rate cap transaction for the Greensboro
Hampton Inn, (iii) $280,377 in mortgage interest and $8,488 in amortization of loan issuance costs for Hanover Square North and
(iv) other interest of $40,750.



17







Interest expense for
the year ended December 31, 2017 was $766,857. This consisted of (i) $512,482 in mortgage interest, $12,369 in amortization of
loan issuance costs and $43,681 in interest on an acquisition bridge loan for the Franklin Square Property, (ii) $137,726 in mortgage
interest and $23,261 in amortization of loan issuance costs for the Greensboro Hampton Inn, (iii) $18,400 in interest on related
party short-term notes payable, (iv) $9,971 in interest on a short term note payable and (v) $8,967 in miscellaneous interest.



Total interest expense
for the year ended December 31, 2018 increased by $1,150,326 over the year ended December 31, 2017. This
increase was a result of owning two of our properties for a full year in 2018 and new interest expense from the acquisition of
Hanover Square North in 2018.



Other Income



On November 3, 2017,
our company entered into an Interest Rate Protection Transaction to limit our company’s exposure to increases in interest
rates on the variable rate mortgage loan on the Greensboro Hampton Inn. Under this agreement, our company’s interest rate
exposure is capped at 7% if USD 1-Month LIBOR BBA exceeds 2%. As of December 31, 2018, USD 1-Month LIBOR was 2.51988%. In accordance
with the guidance on derivatives and hedging, our company records all derivatives on the balance sheet at fair value. Our company
reports the changes in the fair value of the derivative in other income. As of December 31, 2018, the fair value of the Interest
Rate Protection Transaction was $126,797, an increase of $43,361 over the December 31, 2017 fair value. This increase in fair value
was recognized as other income during the year ended December 31, 2018.



Beginning in July 2018,
the USD 1-Month LIBOR BBA rate exceeded 2 percent and remained in excess of 2 percent on each monthly valuation date during the
period ended December 31, 2018. Accordingly, the Company received the following payments under the Interest Rate Protection Transaction,
all of which were recorded as a reduction to interest expense:



|Period         |  |  | Payment Received |       |  | Period |  |               | Payment Received | 
|-------------- |  |  | ---------------- | ----- |  | ------ |  | ------------- | ---------------- | 
|July 2018      |  |  | $                | 1,104 |  |        |  | October 2018  |                  | 
|August 2018    |  |  | $                | 1,141 |  |        |  | November 2018 |                  | 
|September 2018 |  |  | $                | 1,141 |  |        |  | December 2018 |                  | 



The Company also recognized
$733 and $0 in interest income on cash balances held in a money market account for the years ended December 31, 2018 and 2017,
respectively.



Net Loss



Total net loss was $2,991,153
for the year ended December 31, 2018, before adjustments for net loss attributable to noncontrolling interests. After adjusting
for noncontrolling interests, the net loss attributable to our common shareholders was $2,743,323. Total
net loss was $968,548 for the year ended December 31, 2017, before adjustments for net loss attributable to noncontrolling
interests. After adjusting for noncontrolling interests, the net loss attributable to our common shareholders was $847,919.



Total net loss for
the year ended December 31, 2018 increased by $2,022,605 over the year ended December 31, 2017, before adjustments for net loss
attributable to noncontrolling interests. After adjusting for noncontrolling interests, total net loss for the year ended December
31, 2018 increased by $1,895,404 over the year ended December 31, 2017. This increase was primarily
a result of owning two of our properties for a full year in 2018 and owning Hanover Square North for eight months during 2018.



18







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% of depreciation and amortization are “added back” without reduction to reflect the noncontrolling owners’
interest in such items), the Company believes that the appropriate starting point for the calculation is the net income (loss)
before allocation to noncontrolling interests.  This allows the Company to use FFO as a tool to measure the overall performance
of its investment properties, as a whole, not just the portion of the investment properties controlled by Company shareholders.



Below is our company’s
FFO, which is a non-GAAP measurement, for the year ended December 31, 2018:



|Net income (loss)                                 |  | $ | (2,991,153 | )
|------------------------------------------------- |  | - | ---------- | -
|Depreciation of tangible real property assets (1) |  |   | 1,243,385  |  
|Depreciation of tenant improvements (2)           |  |   | 193,170    |  
|Amortization of leasing commissions (3)           |  |   | 25,075     |  
|Amortization of tenant inducements (4)            |  |   | 11,360     |  
|Amortization of intangible assets (5)             |  |   | 581,693    |  
|Loss on impairment (6)                            |  |   | 191,578    |  
|Funds from operations                             |  | $ | (744,892   | )



| | (1) | Depreciation expense for
buildings, site improvements and furniture and fixtures.
| | --- | ---------------------------------------------------------------------------------



| | (2) | Depreciation of tenant improvements, including those acquired as part of the purchase of the Franklin Square Property and Hanover Square North and those constructed during the years ended December 31, 2018 and 2017.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Amortization of leasing commissions paid for the Franklin Square Property and Hanover Square North during the year ended December 31, 2018.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Amortization of tenant inducements paid for the Franklin Square Property during the year ended December 31, 2018.
| | --- | -----------------------------------------------------------------------------------------------------------------



| | (5) | Amortization of intangible assets acquired as part of the purchase of the Franklin Square Property and Hanover Square North, including leasing commissions, leases in place and legal and marketing costs.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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).”
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19







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, 2018 was as follows:



|Funds from operations                                  |  | $ | (744,892 | )
|------------------------------------------------------ |  | - | -------- | -
|Amortization of above market leases (1)                |  |   | 214,415  |  
|Amortization of below market leases (2)                |  |   | (78,045  | )
|Straight line rent (3)                                 |  |   | (207,432 | )
|Capital expenditures, net of escrow reimbursements (4) |  |   | (878,157 | )
|Increase in fair value of interest rate cap (5)        |  |   | (43,361  | )
|Amortization of loan issuance costs (6)                |  |   | 166,600  |  
|Share-based compensation (7)                           |  |   | 790,340  |  
|Adjusted funds from operations (AFFO)                  |  | $ | (780,532 | )



| | (1) | Adjustment to FFO resulting from non-cash amortization of intangible assets recorded as part of the purchase of the Franklin Square Property and Hanover Square North.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Adjustment to FFO resulting from non-cash amortization of intangible liabilities recorded as part of the purchase of the Franklin Square Property and Hanover Square North.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Adjustment to FFO resulting from non-cash revenues recognized as a result of applying straight line revenue recognition for the Franklin Square Property and Hanover Square North.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Adjustment to FFO for capital expenditures made during the year ended December 31, 2018 for the Franklin Square Property, Hanover Square North and Greensboro Hampton Inn that will not be reimbursed by property escrow accounts.  During the year ended December 31, 2018, the Company paid $1,547,391 in costs for leasing commissions, tenant inducements and tenant improvements at the Franklin Square Property and Hanover Square North and interior and exterior renovations and advance deposits for furniture and fixtures at the Greensboro Hampton Inn.  During 2018, the Company received $604,290 in funds from property capital reserves held by the Greensboro Hampton Inn mortgage holder and $64,944 from the Franklin Square Property mortgage holder.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Adjustment to FFO resulting from non-cash revenues recognized as a result of increase in fair value of interest rate cap.
| | --- | -------------------------------------------------------------------------------------------------------------------------



| | (6) | Adjustment to FFO for amortization of non-cash expenses recognized as a result of amortizing loan issuance costs over the terms of the respective mortgages.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Adjustment to FFO resulting from non-cash expenses recorded for share based compensation.
| | --- | -----------------------------------------------------------------------------------------



| | 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.



20







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, 2018, the end of the period covered by this Annual Report. Based
on the foregoing, our Chief Executive Officer has concluded, as of December 31, 2018, 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



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.



PART III



ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The information required by Item 10
is incorporated by reference to our definitive Proxy Statement for our 2019 annual stockholders’ meeting.



21









ITEM 11. EXECUTIVE
AND DIRECTOR COMPENSATION



The information required by Item 11
is incorporated by reference to our definitive Proxy Statement for our 2019 annual stockholders’ meeting.



ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information required by Item 12
is incorporated by reference to our definitive Proxy Statement for our 2019 annual stockholders’ meeting.



ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



The information required by Item 13
is incorporated by reference to our definitive Proxy Statement for our 2019 annual stockholders’ meeting.



ITEM 14. PRINCIPAL ACCOUNTANT FEES
AND SERVICES



Fees Paid to Independent
Registered Public Accounting Firm



The information required by Item 14
is incorporated by reference to our definitive Proxy Statement for our 2019 annual stockholders’ meeting.



PART IV



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



22







MEDALIST DIVERSIFIED REIT, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31,
2018



INDEX TO FINANCIAL STATEMENTS AND SCHEDULE



|                                                                                                   | Page 
|-------------------------------------------------------------------------------------------------- | -----
|                                                                                                   |      
|Report of Independent Registered Public Accounting Firm                                            | FS-1 
|                                                                                                   |      
|Consolidated Balance Sheets as of December 31, 2018 and December 31, 2017                          | FS-2 
|                                                                                                   |      
|Consolidated Statements of Operations for the Years Ended December 31, 2018 and December 31, 2017  | FS-3 
|                                                                                                   |      
|Consolidated Changes in Stockholders’ Equity for the Years December 31, 2018 and December 31, 2017 | FS-4 
|                                                                                                   |      
|Consolidated Statements of Cash Flows for the Years December 31, 2018 and December 31, 2017        | FS-5 
|                                                                                                   |      
|Notes to Consolidated Financial Statements                                                         | FS-6 
|                                                                                                   |      
|Schedule III – Real Estate Properties and Accumulated Depreciation                                 | FS-28





23







Report of Independent Registered Public
Accounting Firm



To
the Board of Directors and Stockholders of

Medalist
Diversified REIT, Inc. and Subsidiaries



Opinion on the Consolidated Financial
Statements

We have audited the accompanying consolidated
balance sheets of Medalist Diversified REIT, Inc. and Subsidiaries (collectively, the “Company”) as of December 31,
2018 and 2017, the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of
the years in the two-year period ended December 31, 2018, and the related notes and financial statement schedule III (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results
of its operations and their cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States of America.



Basis for Opinion

These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.



Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.



/s/
Cherry Bekaert LLP



We have served as the Company’s
auditors since 2017.



Richmond, VA

March 11, 2019



FS-1







Medalist Diversified
REIT, Inc. and Subsidiaries

Consolidated
Balance Sheets

December 31,
2018 and 2017





|                                                                                                                                                                                |  | 2018 |            |   | 2017 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                                                                                                                                |  |      |            |   |      |  
|ASSETS                                                                                                                                                                          |  |      |            |   |      |  
|Investment properties, net                                                                                                                                                      |  | $    | 45,323,497 |   |      | $
|Cash                                                                                                                                                                            |  |      | 1,327,424  |   |      |  
|Rent and other receivables, net of allowance of  $15,194
    and $38,628, as of December 31, 2018 and 2017, respectively                                                        |  |      | 108,478    |   |      |  
|Unbilled rent                                                                                                                                                                   |  |      | 259,216    |   |      |  
|Security deposits                                                                                                                                                               |  |      | 71,022     |   |      |  
|Advance deposits                                                                                                                                                                |  |      | 423,747    |   |      |  
|Escrows and operating property reserves                                                                                                                                         |  |      | 719,588    |   |      |  
|Property capital reserves                                                                                                                                                       |  |      | 2,002,762  |   |      |  
|Intangible assets, net                                                                                                                                                          |  |      | 2,585,834  |   |      |  
|Interest rate cap, at fair value                                                                                                                                                |  |      | 126,797    |   |      |  
|Prepaid expenses                                                                                                                                                                |  |      | 158,687    |   |      |  
|Total Assets                                                                                                                                                                    |  | $    | 53,107,052 |   |      | $
|                                                                                                                                                                                |  |      |            |   |      |  
|LIABILITIES                                                                                                                                                                     |  |      |            |   |      |  
|Accounts payable and accrued liabilities                                                                                                                                        |  | $    | 826,336    |   |      | $
|Intangible liabilities, net                                                                                                                                                     |  |      | 439,726    |   |      |  
|Notes payable, short term                                                                                                                                                       |  |      | -          |   |      |  
|Related party notes payable, short term                                                                                                                                         |  |      | -          |   |      |  
|Mortgages payable, net                                                                                                                                                          |  |      | 33,236,397 |   |      |  
|Total Liabilities                                                                                                                                                               |  | $    | 34,502,459 |   |      | $
|                                                                                                                                                                                |  |      |            |   |      |  
|EQUITY                                                                                                                                                                          |  |      |            |   |      |  
|Preferred stock, $.01 par value, 250,000,000
    shares authorized, none issued and outstanding                                                                                 |  | $    | -          |   |      | $
|Common stock, $.01 par value, 750,000,000 shares
    authorized, 2,321,582 and 1,148,002 shares issued and outstanding at Common stock December 31, 2018 and 2017, respectively |  |      | 23,216     |   |      |  
|Additional paid-in capital                                                                                                                                                      |  |      | 22,077,827 |   |      |  
|Offering costs                                                                                                                                                                  |  |      | (1,835,291 | ) |      |  
|Accumulated deficit                                                                                                                                                             |  |      | (5,229,760 | ) |      |  
|Total Shareholders' Equity                                                                                                                                                      |  |      | 15,035,992 |   |      |  
|Noncontrolling interests - Hampton Inn Property                                                                                                                                 |  |      | 2,009,031  |   |      |  
|Noncontrolling interests - Hanover Square Property                                                                                                                              |  |      | 608,943    |   |      |  
|Noncontrolling interests - Operating Partnership                                                                                                                                |  |      | 950,627    |   |      |  
|Total Equity                                                                                                                                                                    |  | $    | 18,604,593 |   |      | $
|Total Liabilities and Equity                                                                                                                                                    |  | $    | 53,107,052 |   |      | $



See notes to
consolidated financial statements



FS-2







Medalist Diversified
REIT, Inc. and Subsidiaries

Consolidated
Statements of Operations

For the years
ended December 31, 2018 and 2017



|                                                                                    |  | 2018 |            |   | 2017 |  
|----------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|                                                                                    |  |      |            |   |      |  
|REVENUE                                                                             |  |      |            |   |      |  
|Retail center property revenues                                                     |  | $    | 2,372,666  |   |      | $
|Retail center property tenant reimbursements                                        |  |      | 541,116    |   |      |  
|Hotel property room revenues                                                        |  |      | 3,636,485  |   |      |  
|Hotel property other revenues                                                       |  |      | 39,684     |   |      |  
|Total Revenue                                                                       |  | $    | 6,589,951  |   |      | $
|                                                                                    |  |      |            |   |      |  
|OPERATING EXPENSES                                                                  |  |      |            |   |      |  
|Retail center property operating expenses                                           |  |      | 976,468    |   |      |  
|Hotel property operating expenses                                                   |  |      | 2,608,825  |   |      |  
|Share based compensation expenses                                                   |  |      | 790,340    |   |      |  
|Legal, accounting and other professional fees                                       |  |      | 924,651    |   |      |  
|Corporate general and administrative expenses                                       |  |      | 119,679    |   |      |  
|Loss on impairment                                                                  |  |      | 191,578    |   |      |  
|Depreciation and amortization                                                       |  |      | 2,043,323  |   |      |  
|Total Operating Expenses                                                            |  |      | 7,654,864  |   |      |  
|Operating Loss                                                                      |  |      | (1,064,913 | ) |      |  
|Interest expense                                                                    |  |      | 1,917,183  |   |      |  
|Net Loss from Operations                                                            |  |      | (2,982,096 | ) |      |  
|Other income                                                                        |  |      | 44,094     |   |      |  
|Net Loss before Income Taxes                                                        |  |      | (2,938,002 | ) |      |  
|Income tax expense                                                                  |  |      | 53,151     |   |      |  
|Net Loss                                                                            |  |      | (2,991,153 | ) |      |  
|Less: Net loss attributable to Hampton Inn Property noncontrolling interests        |  |      | (166,314   | ) |      |  
|Less: Net loss attributable to Hanover Square Property noncontrolling
    interests |  |      | (15,177    | ) |      |  
|Less: Net loss attributable to Operating Partnership
    noncontrolling interests   |  |      | (66,339    | ) |      |  
|Net Loss Attributable to Medalist Common Shareholders                               |  | $    | (2,743,323 | ) |      | $
|                                                                                    |  |      |            |   |      |  
|Loss per share from operations - basic and diluted                                  |  | $    | (1.39      | ) |      | $
|                                                                                    |  |      |            |   |      |  
|Weighted-average number of shares - basic and diluted                               |  |      | 1,967,980  |   |      |  
|                                                                                    |  |      |            |   |      |  
|Dividends declared per common share                                                 |  | $    | 0.525      |   |      | $



See notes to consolidated financial
statements



FS-3







Medalist Diversified
REIT, Inc. and Subsidiaries

Consolidated
Statements of Changes in Stockholders’ Equity

For the years
ended December 31, 2018 and 2017





|                            |  |  | Common
                                         Stock |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   | Noncontrolling
                                         Interests |   |  |   |                                                              |  
|--------------------------- |  |  | ----------------------------------------------------- |  |  | - | -------------------------------------------------- |  |  | - | ------------------------- |  |  | - | ------------- | - |  | - | ------------------ | - |  | - | ----------------------------------------------------------------- | - |  | - | ------------------------------------------------------------ | -
|                            |  |  | Shares                                                |  |  |   | Par
                                         Value |  |  |   | AdditionalPaid in Capital |  |  |   | OfferingCosts |   |  |   | AccumulatedDeficit |   |  |   | TotalShareholders'Equity                                          |   |  |   | Hampton
                                         InnProperty |  
|                            |  |  |                                                       |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   |                                                                   |   |  |   |                                                              |  
|Balance, December 31, 2016  |  |  | 2                                                     |  |  | $ | -                                                  |  |  | $ | 250                       |  |  | $ | (107,755      | ) |  | $ | (188,083           | ) |  | $ | (295,588                                                          | ) |  | $ | -                                                            |  
|                            |  |  |                                                       |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   |                                                                   |   |  |   |                                                              |  
|Common stock issuances      |  |  | 1,148,000                                             |  |  |   | 11,480                                             |  |  |   | 11,086,647                |  |  |   | -             |   |  |   | -                  |   |  |   | 11,098,127                                                        |   |  |   | -                                                            |  
|Offering costs              |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | (804,305      | ) |  |   | -                  |   |  |   | (804,305                                                          | ) |  |   | -                                                            |  
|Net loss                    |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | (847,919           | ) |  |   | (847,919                                                          | ) |  |   | (50,095                                                      | )
|Dividends and distributions |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | (362,220           | ) |  |   | (362,220                                                          | ) |  |   | (38,591                                                      | )
|Non-controlling interests   |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | -                  |   |  |   | -                                                                 |   |  |   | 2,300,031                                                    |  
|                            |  |  |                                                       |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   |                                                                   |   |  |   |                                                              |  
|Balance, December 31, 2017  |  |  | 1,148,002                                             |  |  | $ | 11,480                                             |  |  | $ | 11,086,897                |  |  | $ | (912,060      | ) |  | $ | (1,398,222         | ) |  | $ | 8,788,095                                                         |   |  | $ | 2,211,345                                                    |  
|                            |  |  |                                                       |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   |                                                                   |   |  |   |                                                              |  
|Common stock issuances      |  |  | 1,087,580                                             |  |  |   | 10,876                                             |  |  |   | 10,151,560                |  |  |   | -             |   |  |   | -                  |   |  |   | 10,162,436                                                        |   |  |   | -                                                            |  
|Share based compensation    |  |  | 86,000                                                |  |  |   | 860                                                |  |  |   | 789,480                   |  |  |   | -             |   |  |   | -                  |   |  |   | 790,340                                                           |   |  |   | -                                                            |  
|Offering costs              |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | (873,341      | ) |  |   | -                  |   |  |   | (873,341                                                          | ) |  |   | -                                                            |  
|Warrants issued             |  |  | -                                                     |  |  |   | -                                                  |  |  |   | 49,890                    |  |  |   | (49,890       | ) |  |   | -                  |   |  |   | -                                                                 |   |  |   | -                                                            |  
|Net loss                    |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | (2,743,323         | ) |  |   | (2,743,323                                                        | ) |  |   | (166,314                                                     | )
|Dividends and distributions |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | (1,088,215         | ) |  |   | (1,088,215                                                        | ) |  |   | (36,000                                                      | )
|Non-controlling interests   |  |  | -                                                     |  |  |   | -                                                  |  |  |   | -                         |  |  |   | -             |   |  |   | -                  |   |  |   | -                                                                 |   |  |   | -                                                            |  
|                            |  |  |                                                       |  |  |   |                                                    |  |  |   |                           |  |  |   |               |   |  |   |                    |   |  |   |                                                                   |   |  |   |                                                              |  
|Balance, December 31, 2018  |  |  | 2,321,582                                             |  |  | $ | 23,216                                             |  |  | $ | 22,077,827                |  |  | $ | (1,835,291    | ) |  | $ | (5,229,760         | ) |  | $ | 15,035,992                                                        |   |  | $ | 2,009,031                                                    |  



See notes to consolidated financial
statements



FS-4







Medalist Diversified
REIT, Inc. and Subsidiaries

Consolidated
Statements of Cash Flows

For the years
ended December 31, 2018 and 2017





|                                                                                            |  | 2018 |            |   | 2017 |  
|------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |  |      |            |   |      |  
|                                                                                            |  |      |            |   |      |  
|Net Loss                                                                                    |  | $    | (2,991,153 | ) |      | $
|                                                                                            |  |      |            |   |      |  
|Adjustments to reconcile consolidated net loss to net cash used in operating
    activities |  |      |            |   |      |  
|Depreciation                                                                                |  |      | 1,461,630  |   |      |  
|Amortization                                                                                |  |      | 581,693    |   |      |  
|Loan cost amortization                                                                      |  |      | 166,600    |   |      |  
|Amortization of tenant inducements                                                          |  |      | 11,360     |   |      |  
|Increase in fair value - interest rate cap                                                  |  |      | (43,361    | ) |      |  
|Above (below) market lease amortization, net                                                |  |      | 136,370    |   |      |  
|Share-based compensation                                                                    |  |      | 790,340    |   |      |  
|Loss on impairment                                                                          |  |      | 191,578    |   |      |  
|                                                                                            |  |      |            |   |      |  
|Changes in assets and liabilities, net of acquisitions                                      |  |      |            |   |      |  
|Rent and other receivables, net                                                             |  |      | 13,539     |   |      |  
|Unbilled rent                                                                               |  |      | (207,432   | ) |      |  
|Prepaid expenses                                                                            |  |      | (107,885   | ) |      |  
|Cash restricted for operating property security deposits                                    |  |      | (16,903    | ) |      |  
|Cash restricted for escrows and operating property reserves                                 |  |      | (13,187    | ) |      |  
|Accounts payable and accrued liabilities                                                    |  |      | (423,955   | ) |      |  
|Net cash used in operating activities                                                       |  |      | (450,766   | ) |      |  
|                                                                                            |  |      |            |   |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |  |      |            |   |      |  
|                                                                                            |  |      |            |   |      |  
|Investment property acquisitions, net of cash acquired                                      |  |      | (4,312,209 | ) |      |  
|Capital expenditures                                                                        |  |      | (986,470   | ) |      |  
|Advance deposits                                                                            |  |      | (423,747   | ) |      |  
|Decrease in property capital reserves                                                       |  |      | 568,563    |   |      |  
|Net cash used in investing activities                                                       |  |      | (5,153,863 | ) |      |  
|                                                                                            |  |      |            |   |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |  |      |            |   |      |  
|                                                                                            |  |      |            |   |      |  
|Dividends and distributions paid                                                            |  |      | (1,213,840 | ) |      |  
|Investment of noncontrolling interests                                                      |  |      | 648,120    |   |      |  
|Issuance of notes payable and related party notes payable                                   |  |      | -          |   |      |  
|Repayment of notes payable and related party notes payable                                  |  |      | (2,177,538 | ) |      |  
|Proceeds from mortgages payable, net                                                        |  |      | 250,652    |   |      |  
|Repayment of mortgages payable                                                              |  |      | (127,438   | ) |      |  
|Proceeds from sales of common stock, net                                                    |  |      | 9,289,095  |   |      |  
|Net cash provided by financing activities                                                   |  |      | 6,669,051  |   |      |  
|                                                                                            |  |      |            |   |      |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                                       |  |      | 1,064,422  |   |      |  
|CASH AND CASH EQUIVALENTS, beginning of period                                              |  |      | 263,002    |   |      |  
|CASH AND CASH EQUIVALENTS, end of period                                                    |  | $    | 1,327,424  |   |      | $
|                                                                                            |  |      | -          |   |      |  
|Supplemental Disclosures and Non-Cash Activities:                                           |  |      |            |   |      |  
|                                                                                            |  |      |            |   |      |  
|Other cash transactions:                                                                    |  |      |            |   |      |  
|Interest paid                                                                               |  | $    | 1,850,615  |   |      | $
|                                                                                            |  |      |            |   |      |  
|Non-cash transactions:                                                                      |  |      |            |   |      |  
|Mortgage payable assumed for acquisition of Hanover Square Property                         |  | $    | 8,527,315  |   |      | $
|Mortgage payable assumed for acquisition of Franklin Square Property                        |  |      | -          |   |      |  
|Noncontrolling interests resulting from issuance of operating partnership
    units         |  |      | -          |   |      |  
|Issuance of common stock related to Hampton Inn Property acquisition                        |  |      | -          |   |      |  
|Warrants issued                                                                             |  |      | 49,890     |   |      |  
|Capital expenditures recorded but not yet paid                                              |  |      | 137,174    |   |      |  



See notes to consolidated financial
statements





FS-5









Medalist Diversified REIT, Inc.
and Subsidiaries

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, 2018, the REIT, through the Operating
Partnership, owned and operated three 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”), and the Shops at Hanover Square North
(the “Hanover Square Property”), a 73,440 square foot retail property located in Mechanicsville, Virginia. The Company
owns 64 percent of the Hampton Inn Property as a tenant in common with a noncontrolling owner which owns the remaining 36 percent
interest. The Company owns 84 percent 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 subsidiary which operates the Hampton Inn Property. As a REIT, certain tax laws limit the amount
of “non-qualifying” income that Company can earn, including income derived directly from the operation of hotels.
As a result, the Company and the tenant in common (“TIC”) noncontrolling owner, lease its consolidated hotel property
to a taxable REIT subsidiary (“TRS”) for federal income tax purposes. The TRS is subject to income tax and is not
limited as to the amount of nonqualifying income it can generate, but it is limited in terms of its value as a percentage of the
total value of the Company’s assets. The TRS enters into an agreement 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”). All material balances and transactions between the consolidated
entities of the Company have been eliminated.







FS-6







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-today affairs.



| | 2. | Summary
of Significant Accounting Policies
| | -- | ------------------------------------------



Investment Properties



As of January
1, 2017, the Company 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, the acquisitions that occurred in 2017 and 2018 qualified as asset acquisitions and most of the Company’s
future acquisitions of operating properties will qualify as asset acquisitions. Accordingly, third-party transaction costs associated
with these acquisitions have been and will be capitalized, while internal acquisition costs will continue to be expensed.



Accounting Standards
Codification (“ASC”) 805 mandates that “an acquiring entity shall allocate the cost of an acquired entity to
the assets acquired and liabilities assumed based on their estimated fair values at date of acquisition.” ASC 805 results
in an allocation of acquisition costs to both the tangible and intangible assets associated with income producing real estate.
Tangible assets include land, buildings, site improvements, tenant improvements and furniture and fixtures, 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), 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.



FS-7







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 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.



During 2018,
a tenant in the Company’s Franklin Square Property was evicted. The Company determined that the carrying value of the tenant
improvements associated with this lease that were recorded as part of the purchase of the Franklin Square Property should be written
off. As a result, the Company recorded a loss on impairment of $50,405 for the year ended December 31, 2018. The Company did not
record any impairment adjustments to its investment properties during the year ended December 31, 2017.



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.



During 2017,
the Company recorded certain intangible assets and liabilities as part of its purchase of the Franklin Square Property. In May,
2018, the Company recorded certain intangible assets and liabilities as part of its purchase of the Hanover Square Property.



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 2018, a tenant in the Company’s Franklin Square
Property was evicted. The Company determined that the book value of the intangible assets associated with this lease that were
recorded as part of the purchase of the Franklin Square Property should be written off. As a result, the Company recorded a loss
on impairment of intangible assets of $141,173 for the year ended December 31, 2018. The Company did not record any impairment
adjustments to its intangible assets during the year ended December 31, 2017.



Details of these
deferred costs, net of amortization and the impact of the impairment adjustment, are as follows:



|                          |  | December 31, |          
|------------------------- |  | ------------ | ---------
|                          |  | 2018         |          
|Intangible Assets         |  |              |          
|Leasing commissions       |  | $            | 305,646  
|Legal and marketing costs |  |              | 95,950   
|Above market leases       |  |              | 648,409  
|Leases in place           |  |              | 1,535,829
|                          |  | $            | 2,585,834
|                          |  |              |          
|Intangible Liabilities    |  |              |          
|Below market leases, net  |  | $            | (439,726 



FS-8







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, 2018 and 2017 were as follows:



|                                    |  | For the years ended
    December 31, |        
|----------------------------------- |  | ------------------------------------ | -------
|                                    |  | 2018                                 |        
|Amortization of above market leases |  | $                                    | 214,415
|Amortization of below market leases |  |                                      | (78,045
|                                    |  | $                                    | 136,370



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, 2018 and 2017 were as follows:



|                          |  | For the years ended
    December 31, |         
|------------------------- |  | ------------------------------------ | --------
|                          |  | 2018                                 |         
|Leasing commissions       |  | $                                    | (82,306 
|Legal and marketing costs |  |                                      | (31,660 
|Leases in place           |  |                                      | (467,727
|                          |  | $                                    | (581,693



As of December
31, 2018 and 2017, the Company’s accumulated amortization of lease origination costs, leases in place and legal and marketing
costs totaled $821,014 and $244,327, 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:



|                          |  | 2019 |         |   | 2020 |   |         | 2021 |  |   | 2022    |   |  | 2023 |         |   | 2024-
    2027 |   |         | Total | 
|------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | -------------- | - | ------- | ----- | 
|                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |                |   |         |       | 
|Intangible Assets         |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |                |   |         |       | 
|Leasing commissions       |  | $    | 88,331  |   |      | $ | 75,332  |      |  | $ | 67,721  |   |  | $    | 36,661  |   |                | $ | 17,855  |       | 
|Legal and marketing costs |  |      | 30,054  |   |      |   | 20,736  |      |  |   | 16,127  |   |  |      | 11,739  |   |                |   | 8,126   |       | 
|Above market leases, net  |  |      | 212,864 |   |      |   | 180,650 |      |  |   | 173,712 |   |  |      | 81,183  |   |                |   | -       |       | 
|Leases in place           |  |      | 490,184 |   |      |   | 404,455 |      |  |   | 365,252 |   |  |      | 157,418 |   |                |   | 54,354  |       | 
|                          |  | $    | 821,433 |   |      | $ | 681,173 |      |  | $ | 622,812 |   |  | $    | 287,001 |   |                | $ | 80,335  |       | 
|                          |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |                |   |         |       | 
|Intangible Liabilities    |  |      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |                |   |         |       | 
|Below market leases, net  |  | $    | (94,045 | ) |      | $ | (88,558 | )    |  | $ | (85,321 | ) |  | $    | (63,749 | ) |                | $ | (48,840 | )     | 



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, 2018 and 2017, respectively.



FS-9







Cash and Cash Equivalents



The Company
considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash and cash equivalents.
Cash equivalents are carried at cost, which approximates fair value. Cash equivalents consist primarily of bank operating accounts
and money markets. Financial instruments that potentially subject the Company to concentrations of credit risk include its cash
and cash equivalents and its trade accounts receivable. The Company places its cash and cash equivalents 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, 2018, the Company held a cash account with a balance of $900,669, which
exceeded the FDIC limit by $650,699. As of December 31, 2017, the Company did not hold cash accounts with balances greater than
$250,000.



Escrow Deposits and Property Reserves



Escrow deposits
are restricted cash balances held by lenders for real estate taxes, insurance and other operating reserves. The Company presents
changes in escrow deposits as operating activities in the consolidated statement of cash flows. As of December 31, 2018 and 2017,
the Company reported $719,588 and $406,401, respectively, in escrow deposits.



Property capital
reserves are restricted cash balances held by lenders for capital improvements, leasing commissions and tenant improvements. The
Company presents changes in property capital reserves as investing activities in the consolidated statement of cash flows. As
of December 31, 2018 and 2017, the Company reported $2,002,762 and $2,571,325, respectively, as a capital property reserve. These
funds are being held in reserve for improvements to the Hampton Inn Property ($1,601,809 and $2,206,099 as of December 31, 2018
and 2017 respectively) and tenant improvements and leasing commissions for the Franklin Square Property ($400,953 and $365,226
as of December 31, 2018 and 2017 respectively). During the years ended December 31, 2018 and 2017, respectively, $604,290 and
$0 in funds were released from the Hampton Inn Property capital reserve to fund costs associated with improvements to the Hampton
Inn Property and $64,944 and $0 were released from the Franklin Square Property capital reserve to fund leasing costs.



Security Deposits



Security deposits
are restricted cash balances held by the Company to offset potential damages, unpaid rent or other unmet conditions of its tenant
leases. The Company presents changes in security deposits as operating activities in the consolidated statement of cash flows.
As of December 31, 2018 and 2017, the Company reported $71,022 and $54,119, respectively in security deposits.



Revenue Recognition



Retail Property
Revenues



The Company
recognizes minimum rents from its retail center properties (the Franklin Square and Hanover Square properties) on a straight-line
basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded
on the consolidated balance sheet. At December 31, 2018 and 2017, there were and $259,216 and $51,784, 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, under the consolidated statements of operations caption "Retail 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 escrow payments for these reimbursements from substantially all its tenants
throughout the year.



FS-10







The Company
recognizes differences between previously estimated recoveries and the final billed amounts in the year in which the amounts become
final. During the year ended December 31, 2018, the Company recognized $67,726 in revenues for CAM reimbursements related to 2017
for the Franklin Square Property, $16,457 in revenues for CAM reimbursements related to 2018 for the Franklin Square Property
and $35,941 in revenues for CAM reimbursements related to 2018 for the Hanover Square Property. 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, 2018
and 2017, no such termination costs were recognized.



Hotel Property
Revenues



Hotel revenues
(from the Hampton Inn Property) are recognized as earned, which is generally defined as the date upon which a guest occupies a
room or utilizes the hotel’s services.



Tenant receivables and unbilled
rent



Tenant receivables
include base rents, tenant reimbursements and receivables attributable to recording rents on a straight-line basis. 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, 2018
and 2017, the Company’s allowance for uncollectible accounts totaled $15,194 and $38,628, 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, 2018 and 2017, 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.



During the
year ended December 31, 2018, the REIT’s Hampton Inn TRS entity generated taxable income and an expense and accrual of
$53,151 has been recorded for federal and state income taxes. During the year ended December 31, 2017, the REIT’s
Hampton Inn TRS entity generated a tax loss, so no accrual was recorded. 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. Management has evaluated the effect of the guidance provided by GAAP
on Accounting for Uncertainty of Income Taxesand 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.



FS-11







Assets Held for Sale



The Company
records assets 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. The Company does not currently have plans
to sell any of its properties.



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 the Hampton Inn Property in which the Company owns a 64 percent tenancy in common interest through its subsidiaries
and an outside party owns a 36 percent tenancy in common interest. The second is 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 third noncontrolling ownership interest are the units in the Operating Partnership that are not held by the REIT
and represent 5.11 percent and 9.82 percent of the outstanding Operating Partnership units as of December 31, 2018 and December
31, 2017, respectively.



The noncontrolling
interest in the Operating Partnership is the portion of equity in the majority owned and consolidated Operating Partnership not
attributable to the REIT. The noncontrolling interest of the Operating Partnership common unit holders is calculated by multiplying
the noncontrolling interest ownership percentage at the balance sheet date by the Operating Partnership’s net assets (total
assets less total liabilities). 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 Hampton
Inn Property’s net income (loss) is allocated to the noncontrolling ownership interest based on its 36 percent ownership.
During the year ended December 31, 2018, 36 percent of the Hampton Inn’s net loss of $461,982, or $166,314 was allocated
to the noncontrolling partnership interest. During the year ended December 31, 2017, 36 percent of the Hampton Inn’s net
loss of $139,152, or $50,095, was allocated to the noncontrolling ownership 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, 2018, 16 percent of the Hanover Square Property’s net loss of $94,858, or $15,177, was allocated
to the noncontrolling ownership interest. The Company did not own the Hanover Square Property during 2017.



The Operating
Partnership’s net loss is allocated to the noncontrolling unit holders based on their ownership interest. During the year
ended December 31, 2018, a weighted average of 5.98 percent of the Operating Partnership’s net loss of $1,108,614 or $66,339,
was allocated to the noncontrolling unit holders. During the year ended December 31, 2017, a weighted average of 9.82 percent
of the Operating Partnership’s net loss of $718,314, or $70,534, was allocated to the noncontrolling unit holders.



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. In this
transaction, members of the selling LLC exchanged their membership interests for units in the Operating Partnership. These members
of the selling LLC invested $1,175,000 in the Operating Partnership in exchange for 125,000 Operating Partnership units. Also
in 2017, the noncontrolling owner of the Hampton Inn Property provided $2.3 million as part of the acquisition of the Hampton
Inn Property.



FS-12







Recent Accounting Pronouncements



For each of
the accounting pronouncements that affect the Company, the Company elected 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.



Revenue
Recognition



In May 2014,
the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts
with Customers.  The objective of ASU No. 2014-09 is to establish a single, comprehensive, five-step model
for entities to use in accounting for revenue arising from contracts with customers that will supersede most of the existing revenue
recognition guidance, including industry-specific guidance.  The core principle of this standard is that an entity recognizes
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services.  ASU No. 2014-09 applies to all
contracts with customers except those that are within the scope of other topics in the FASB ASC.  The new guidance is
effective for public companies for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017.  Entities
have the option of using either a full retrospective or modified retrospective approach to adopt ASU No. 2014-09. The
Company plans 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, which has allowed the Company to adopt the standard effective on January 1, 2019.



Most significantly
for the real estate industry, leasing transactions are not within the scope of the new standard.  A majority of the
Company’s tenant-related revenue is recognized pursuant to lease agreements and will be governed by the leasing guidance
discussed below.  The Company completed its assessment of ASU No. 2014-09 and has concluded that the guidance
will not have a material impact on the Company’s method of revenue recognition.



Accounting
for Leases



In February
2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  The amendments in this update govern a
number of areas including, but not limited to, accounting for leases, replacing the existing guidance in ASC No. 840, Leases.  Under
this standard, among other changes in practice, a lessee’s rights and obligations under most leases, including existing
and new arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet.  Other significant
provisions of this standard include (i) defining the “lease term” to include the non-cancelable period together
with periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining
the initial lease liability to be recorded on the balance sheet 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 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those fiscal
years), with early adoption permitted.  The Company plans 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, which allows the Company to
adopt the standard effective on January 1, 2020. Management does not believe the adoption will have a material impact on the Company’s
consolidated financial statements.



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 guidance would be effective for interim and annual reporting periods beginning
after December 15, 2020. The Company is currently in the process of evaluating the impact the adoption of the guidance will have
on its consolidated financial statements.



FS-13







Cash Flows



In August 2016,
the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This ASU amends
guidance to either add or clarify the classification of certain cash receipts and payments in the statement of cash flows. Eight
specific issues were identified for further clarification and include: debt prepayment or extinguishment costs, settlement of
zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement
of insurance claims, proceeds from the settlement of company-owned life insurance policies, distributions received from equity
method investees, beneficial interests in securitization transactions and the classification of cash flows that have aspects of
more than one class of cash flows. The provisions of ASU No. 2016-15 were effective for the Company as of January 1, 2018. The
Company adopted the standard using the modified retrospective approach, and the adoption did not have any impact to the consolidated
financial statements.



In November
2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging
Issues Task Force).” The ASU provides guidance on the presentation of restricted cash or restricted cash equivalents
in the statement of cash flows in an effort to reduce diversity in practice. The standard requires a reconciliation of total cash,
cash equivalents and restricted cash, such as escrows and operating property reserves and property capital reserves, in the cash
flow statement or in the notes to the financial statements. This ASU is effective for annual and interim reporting periods beginning
after December 15, 2017 and early adoption is permitted. The new standard is to be applied retrospectively for all periods presented.
The Company plans to adopt the rule that allows companies engaging in an initial public offering as an Emerging Growth Company
to follow the private company implementation dates, which has allowed the Company to adopt the standard effective January 1, 2019.



Related
Parties Under Common Control and Business Combinations



In October 2016,
the FASB issued ASU No. 2016-17, "Interests Held through Related Parties That Are Under Common Control." This
ASU amends the consolidation guidance on how a reporting entity that is a single decision maker of a Variable Interest Entity
(“VIE”) should treat indirect interests in the entity held through related parties that are under common control when
determining whether it is the primary beneficiary of that VIE. The provisions of ASU No. 2016-17 were effective for the Company
as of January 1, 2017. The Company has adopted this update, and the adoption did not have any impact to the consolidated financial
statements.



In January 2017,
the FASB issued ASU No. 2017-01, "Business Combinations." This ASU narrows the definition of a business and provides
a framework for evaluating whether a transaction is an acquisition of a business or an asset. The amendment provides a screen
to evaluate whether a transaction is a business and requires that when substantially all of the fair value of the acquired assets
can be concentrated in a single asset or identifiable group of similar assets, then the assets acquired are not a business. If
the screen is not met, then to be considered a business, the assets must have an input and a substantive process to create outputs.
The Company early adopted the provisions of ASU No. 2017-01 as of January 1, 2017; this adoption had a material impact on the
presentation of the Company’s consolidated financial statements. Specifically, as discussed above, acquisitions of integrated
sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. The Company’s
property acquisitions to date have been accounted for as asset acquisitions.



| | 3. | Investment
Properties
| | -- | ---------------------



Investment properties
consist of the following:



|                                  |  | December 31, |           
|--------------------------------- |  | ------------ | ----------
|                                  |  | 2018         |           
|Land                              |  | $            | 7,462,946 
|Site improvements                 |  |              | 2,341,547 
|Buildings and improvements (a)    |  |              | 35,753,467
|Furniture and fixtures (b)        |  |              | 1,733,273 
|Investment properties at cost (c) |  |              | 47,291,233
|Less accumulated depreciation     |  |              | 1,967,736 
|Investment properties, net        |  | $            | 45,323,497



| | (a) | 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



FS-14







| | (b) | Excludes
    $423,747 in pre-payments recorded during 2018 as advance deposits for furniture and fixtures not yet received as part of the
    renovations of the Hampton Inn Property.  Upon completion of the renovation and the placement into service of the
    furniture and fixtures, the Company will reclassify the amounts recorded as advance deposits to a furniture and fixtures account.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Excludes
    intangible assets and liabilities (see note, below), escrow deposits and property reserves.
| | --- | --------------------------------------------------------------------------------------------------------



The Company’s depreciation
expense on investment properties was $1,461,630 and $498,819 for the years ended December 31, 2018 and 2017, respectively. The
accumulated depreciation totals, in the table above, include the impact of the recognition of the loss on impairment related to
the Franklin Square Property tenant. Specifically, during the year ended December 31, 2018, $54,478 of gross capitalized tenant
improvements recorded as part of the acquisition of the Franklin Square Property and $4,073 of related accumulated amortization
were written off as part of the recognition of loss impairment. During the year ended December 31, 2017, the Company did not record
a loss on impairment.



The Company
generally records depreciation of capitalized tenant improvements and amortization of capitalized leasing commissions on a straight-line
basis over the terms of the related leases. Details of these deferred costs, net of depreciation and amortization as of December
31, 2018 and 2017, respectively, are as follows:



|                                     |  | December 31, |        
|------------------------------------ |  | ------------ | -------
|                                     |  | 2018         |        
|Capitalized tenant improvements, net |  | $            | 175,580
|Capitalized leasing commissions, net |  |              | 322,861



Depreciation
on capitalized tenant improvements was $22,850 and $18,720 for the years ended December 31, 2018 and 2017, respectively. Amortization
of capitalized leasing commissions was $25,075 and $1,033 for the years ended December 31, 2018 and 2017, respectively.



In 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. Capitalized tenant inducements are amortized as a reduction of rental income
over the term of the respective lease. Details of these deferred costs, net of depreciation and amortization as of December 31,
2018 and 2017, respectively, are as follows:



|                                    |  | December 31, |        
|----------------------------------- |  | ------------ | -------
|                                    |  | 2018         |        
|Capitalized tenant inducements, net |  | $            | 113,640



Amortization
of the tenant inducement was $11,360 and $0 for the years ended December 31, 2018 and 2017, respectively.



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



Property Acquisitions



2018 Acquisitions



The Shops
at Hanover Square North



On May 8, 2018,
the Company completed its acquisition of an 84 percent interest in The Shops at Hanover Square North, a 73,440 square foot retail
property located in Mechanicsville, Virginia, (the “Hanover Square Property”) through a wholly owned subsidiary. The
purchase price for the Hanover Square Property was $12,173,000 paid through a combination of cash provided by the Company, assumed
secured debt which amount was increased by additional debt and cash provided by the 16 percent noncontrolling investor. The Company’s
total investment, including acquisition and closing costs, escrows and lease reserves was $12,961,557, including $122,033 of loan
issuance costs and $648,120 in cash provided by a non-controlling investor. The Hanover Square Property, built in 2007, was 97
percent leased as of the acquisition date and is anchored by Marshalls and an Old Navy store.



FS-15







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



|                                                      |  | Hanover Square |           
|----------------------------------------------------- |  | -------------- | ----------
|Fair value of assets acquired                         |  |                |           
|Investment property (a)                               |  | $              | 11,493,360
|Lease intangibles and other assets (b)                |  |                | 1,093,057 
|Escrows and property reserves created or acquired (c) |  |                | 300,000   
|Above market leases (b)                               |  |                | 170,154   
|Below market leases (b)                               |  |                | (217,047  
|Fair value of net assets acquired (d)                 |  | $              | 12,839,524
|                                                      |  |                |           
|Purchase consideration                                |  |                |           
|Consideration paid with cash (e)                      |  | $              | 3,291,404 
|Consideration paid with assumed mortgage debt (f)     |  |                | 8,527,315 
|Consideration paid with new mortgage debt (g)         |  |                | 372,685   
|Consideration paid by noncontrolling interest (h)     |  |                | 648,120   
|Total consideration (i)                               |  | $              | 12,839,524



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



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



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



| | 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 and closing costs paid outside of
    closing or directly by the Company.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Assumption
    of mortgage debt related to the purchase of the Hanover Square Property.
| | -- | ---------------------------------------------------------------------------------------



| | g. | Issuance
    of new mortgage debt (an increase in the amount of the assumed mortgage) to fund the purchase of the Hanover Square Property.
    See mortgages payable.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | Represents
    investment of noncontrolling interest paid at closing for the Hanover Square Property.
| | -- | -----------------------------------------------------------------------------------------------------



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



FS-16







2017 Acquisitions



The Shops
at Franklin Square



On April 28,
2017, the Company completed its acquisition of The Shops at Franklin Square, a 134,239 square foot retail property located in
Gastonia, North Carolina, (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. The Company’s
total investment, including acquisition and closing costs, escrows and lease reserves was $22,054,071. The Franklin Square Property,
built in 2006 and 2007, was 68 percent leased as of the acquisition date and is anchored by Ashley Furniture. As of December 31,
2018, the Franklin Square Property was 92.4 percent occupied.



Greensboro
Airport Hampton Inn



On November
3, 2017 the Company completed its acquisition of a 64 percent interest in the Greensboro Airport Hampton Inn (the “Hampton
Inn Property”) through a wholly owned subsidiary. The total purchase price for the Hampton Inn Property was $15.1 million
paid through a combination of cash provided by the Company, operating partnership units (“OP Units”), the incurrence
of new mortgage debt and cash provided by the 36 percent non-controlling investor. The total investment, including acquisition,
closing costs, escrow deposits and a reserve for property improvements required under the Hampton Inn Property’s franchise
agreement, was $18,004,621. The hotel has 125 rooms and was built in 1996.



The following summarizes
the consideration paid and the fair values of assets acquired and liabilities assumed in conjunction with the 2017 acquisitions
described above, along with a description of the methods used to determine fair value. Asset values presented include allocated
acquisition and closing costs.



|                                                        |  | 2017 Acquisitions |           
|------------------------------------------------------- |  | ----------------- | ----------
|                                                        |  | Franklin Square   |           
|Fair value of assets acquired:                          |  |                   |           
|Investment property (a)                                 |  | $                 | 18,761,322
|Lease intangibles and other assets (b)                  |  |                   | 1,732,375 
|Escrows and property reserves created or acquired (c)   |  |                   | 919,534   
|Above market leases (b)                                 |  |                   | 899,589   
|Below market leases (b)                                 |  |                   | (331,420  
|Capitalized loan fees (d)                               |  |                   | 72,671    
|Fair value of net assets acquired (e)                   |  | $                 | 22,054,071
|                                                        |  |                   |           
|Purchase Consideration:                                 |  |                   |           
|Consideration paid with cash (f)                        |  | $                 | 7,779,071 
|Consideration paid with new mortgage debt (g)           |  |                   | -         
|Consideration paid with assumed mortgage debt (h)       |  |                   | 14,275,000
|Consideration paid with Company shares (i)              |  |                   | -         
|Consideration paid with Operating Partnership Units (j) |  |                   | -         
|Consideration paid by noncontrolling interest (k)       |  |                   | -         
|Total consideration (l)                                 |  | $                 | 22,054,071



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



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



| | c. | Escrow deposits
    are restricted cash balances held by lenders for real estate taxes, insurance and reserves for capital improvements. These
    are generally created at closing. For the Franklin Square Property, existing reserves were purchased at closing from the Seller
    as part of the loan assumption (see (f) below).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Represents cash
    paid for loan fees for the Franklin Square Property mortgage which are capitalized and amortized over the term of the loan.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------



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



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





FS-17







| | g. | Issuance of new
    mortgage debt of $10,600,000 to fund the purchase of the Hampton Inn Property, net of loan fees. See mortgages payable.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------



| | h. | Assumption of
    mortgage debt related to the purchase of the Franklin Square Property.
| | -- | ----------------------------------------------------------------------------------------



| | i. | Represents non-cash
    consideration paid by exchanging an ownership interest in the selling entity for 3,000 shares of the Company’s common
    stock as part of the Hampton Inn Property acquisition.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j. | Represents non-cash
    consideration paid by exchanging an ownership interest in the selling entity for 125,000 Operating Partnership units as part
    of the Hampton Inn Property acquisition.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k. | Represents investment
    of noncontrolling interest paid at closing for the Hampton Inn Property.
| | -- | --------------------------------------------------------------------------------------------------



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



| | 4. | Mortgages
Payable
| | -- | -----------------



The Company’s
mortgages payables were $33,236,397 and $24,419,268 as of December 31, 2018 and December 31, 2017, respectively.



|                                |  |         |                                                        |  |          |  |          |          |  | Balance       | 
|------------------------------- |  | ------- | ------------------------------------------------------ |  | -------- |  | -------- | -------- |  | ------------- | 
|                                |  | Monthly |                                                        |  | Interest |  |          |          |  | December 31,  | 
|Property                        |  | Payment |                                                        |  | Rate     |  |          | Maturity |  | 2018          | 
|                                |  |         |                                                        |  |          |  |          |          |  |               | 
|Franklin Square                 |  |         | Interest
                                         only |  |          |  | 4.7      | %        |  | October 2021  | 
|Hampton Inn (a)                 |  |         | Interest
                                         only |  |          |  | Variable | (b)      |  | November 2020 | 
|Hanover Square (c)              |  | $       | 51,993                                                 |  |          |  | 4.9      | %        |  | December 2027 | 
|                                |  |         |                                                        |  |          |  |          |          |  |               | 
|Unamortized issuance costs, net |  |         |                                                        |  |          |  |          |          |  |               | 
|Total mortgages payable, net    |  |         |                                                        |  |          |  |          |          |  |               | 



| | (a) | Certain
    of the Company’s obligation under the mortgage loan for the Hampton Inn Property to complete a property improvement
    plan (PIP) are guaranteed by individual members of the Manager and by an individual member of the noncontrolling owner. This
    guarantee is irrevocable and unconditional and requires the PIP work to be completed on schedule and free of all liens.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | The
    mortgage loan for the Hampton Inn Property bears interest at a variable rate based on LIBOR with a minimum rate of 6.1 percent.
    The interest rate payable is the USD LIBOR one-month rate plus 5 percent.  As of December 31, 2018 and 2017, the
    rate in effect for the Hampton Inn Property mortgage was 7.50 percent and 6.50 percent, respectively.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The
    mortgage loan for the Hanover Square property bears interest at a fixed rate of 4.9% until January 2023, when the interest
    rate adjusts to a fixed rate which will be determined by adding 3.10 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 4.9%. The fixed monthly payment includes principal and interest. The mortgage loan agreement for the Hanover Square property
includes covenants to (i) maintain a Debt Service Coverage Ratio (“DSCR”) in excess of 1.35 to 1.00 and (ii) maintain
a loan-to-value of real estate ratio of 75%. As of December 31, 2018, the Company believes that it is complaint with these covenants.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the Franklin
Square Property mortgage payable, interest expense was $680,242 and $512,482 for the years ended December 31, 2018 and 2017, respectively.
Amortization of capitalized issuance costs was $18,552 and $12,369 for the years ended December 31, 2018 and 2017, respectively.
Interest accrued as of December 31, 2018 and 2017 was $57,774 and $57,774, respectively. As of December 31, 2018 and 2017, accumulated
amortization of capitalized issuance costs was $30,921 and $12,369, respectively.



FS-18







For the Hampton
Inn Property mortgage payable, interest expense was $761,544 and $137,726 for the years ended December 31, 2018 and 2017, respectively.
Payments received from the interest rate protection transaction (see note below) were recorded as a reduction of interest expense
and were $12,330 and $0 for the years ended December 31, 2018 and 2017, respectively. Amortization of capitalized issuance costs
was $139,560 and $23,261 for the years ended December 31, 2018 and 2017, respectively. Interest accrued as of December 31, 2018
and 2017 was $0 and $59,331, respectively. As of December 31, 2018 and 2017 accumulated amortization of capitalized issuance costs
was $162,821 and $23,261, respectively.



For the Hanover
Square Property mortgage payable, interest expense was $280,377 and $0 for the years ended December 31, 2018 and 2017, respectively.
Amortization of capitalized issuance costs was $8,488 and $0 for the years ended December 31, 2018 and 2017, respectively. Interest
accrued as of December 31, 2018 and 2017 was $0 and $0, respectively. As of December 31, 2018 and 2017 accumulated amortization
of capitalized issuance costs was $8,488 and $0, respectively.



Interest
rate protection transaction



On
November 3, 2017, the Company entered into an Interest Rate Protection Transaction to limit the Company’s exposure to
increases in interest rates on the variable rate mortgage loan on the Hampton Inn Property. Under this agreement, the
Company’s interest rate exposure is capped at 7 percent if USD 1-Month LIBOR BBA exceeds 2 percent. USD 1-Month LIBOR
was 2.51988 percent and 1.56775 percent as of December 31, 2018 and 2017, respectively. In accordance with the guidance on
derivatives and hedging, the Company records all derivatives on the balance sheet at fair value. As of December 31, 2018 and
2017, respectively, the fair value of the interest Rate Protection Transaction was $126,797 and $83,436. The Company reports
the changes in the fair value of the derivative in other income.



Beginning in
July 2018, the USD 1-Month LIBOR BBA rate exceeded two percent and remained in excess of two percent on each subsequent monthly
valuation date from July 2018 through December 31, 2018. Accordingly, the Company received the following payments under the Interest
Rate Protection Transaction, all of which were recorded as a reduction to interest expense:



|Period         |  | Payment  Received |       |  | Period |               | Payment  Received |  
|-------------- |  | ----------------- | ----- |  | ------ | ------------- | ----------------- | -
|July 2018      |  | $                 | 1,104 |  |        | October 2018  |                   | $
|August 2018    |  | $                 | 1,141 |  |        | November 2018 |                   | $
|September 2018 |  | $                 | 1,141 |  |        | December 2018 |                   | $



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



As of December
31, 2018, the Company had no notes payable, short term or related party notes payable, short term outstanding. As of December
31, 2017, the company had a short-term note payable outstanding to Virginia Commonwealth Bank in the principal amount of $1,500,000
with a fixed interest rate of 4.223 percent per annum. .



During the year
ended December 31, 2018, the Company accrued $27,485 in interest on the Virginia Commonwealth Bank loan, which included a loan
fee of $22,500 which was recorded as interest expense, and $4,985 in interest. During the year ended December 31, 2017, the Company
accrued interest of $9,971.



On January 29,
2018, the Company repaid the short-term note payable, with interest. Interest paid on this loan during 2018 totaled $37,456, which
included the $9,971 of interest accrued during the year ended December 31, 2017, the loan fee of $22,500, which was paid at the
time of the principal repayment and which was recorded as interest expense and the $4,985 of interest accrued in January 2018.



FS-19







As of December
31, 2018 and 2017, respectively, the Company had the following related party short-term notes payable outstanding:



|                                          |  | December 31, |  
|----------------------------------------- |  | ------------ | -
|                                          |  | 2018         |  
|Loan payable to Medalist Fund I (a)       |  | $            | -
|Loan payable to Medalist Fund II (a)      |  |              | -
|Loan payable to Medalist Properties 8 (b) |  |              | -
|Loan payable to K&R Automotive (a)        |  |              | -
|Loan payable to Medalist Fund I-B (a)     |  |              | -
|                                          |  | $            | -



| | (a) | Interest
    rate of 5 percent for the term of the loan
| | --- | -------------------------------------------------------



| | (b) | Short
    term loan from seller of Hampton Inn Property which did not bear interest
| | --- | -----------------------------------------------------------------------------------



Each loan was
issued on November 2, 2017 and the proceeds were used to fund the purchase of the Hampton Inn Property. During the year ended
December 31, 2018, the Company accrued $9,200 in interest on the related party short-term notes payable. During the year ended
December 31, 2017, the Company accrued $18,400 in interest. All of these loans were repaid, with interest, on January 29, 2018,
as follows:





|                                          |  | Principal |         |  | Interest |  
|----------------------------------------- |  | --------- | ------- |  | -------- | -
|Loan payable to Medalist Fund I (a)       |  | $         | 252,000 |  |          | $
|Loan payable to Medalist Fund II (a)      |  |           | 150,000 |  |          |  
|Loan payable to Medalist Properties 8 (b) |  |           | 125,538 |  |          |  
|Loan payable to K&R Automotive (a)        |  |           | 100,000 |  |          |  
|Loan payable to Medalist Fund I-B (a)     |  |           | 50,000  |  |          |  
|                                          |  | $         | 677,538 |  |          | $



| | (a) | Interest
    rate of 5 percent for the term of the loan
| | --- | -------------------------------------------------------



| | (b) | Short
    term loan from seller of Hampton Inn Property which did not bear interest.
| | --- | ------------------------------------------------------------------------------------



On a weighted average basis, the
effective interest rate on the short-term loans payable was 8.0 percent per annum.



Debt Maturity



The Company’s scheduled principal
repayments on indebtedness as of December 31, 2018 are as follows:



|2019                            |  | $ | 192,446    |  
|------------------------------- |  | - | ---------- | -
|2020                            |  |   | 10,801,019 |  
|2021                            |  |   | 14,487,444 |  
|2022                            |  |   | 223,242    |  
|2023                            |  |   | 234,589    |  
|Thereafter                      |  |   | 7,708,822  |  
|Total Maturities                |  | $ | 33,647,562 |  
|Less Unamortized Issuance Costs |  |   | (411,165   | )
|Outstanding Loans               |  | $ | 33,236,397 |  



FS-20







| | 5. | 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, 2018 are as follows:



|2019                |  | $ | 2,989,929  | 
|------------------- |  | - | ---------- | 
|2020                |  |   | 2,623,055  | 
|2021                |  |   | 2,455,083  | 
|2022                |  |   | 1,492,061  | 
|2023                |  |   | 835,469    | 
|Thereafter          |  |   | 2,236,454  | 
|Total minimum rents |  | $ | 12,632,051 | 



| | 6. | Equity
| | -- | ------



The Company
has authority to issue 1,000,000,000 shares consisting of 750,000,000 shares of common stock, $0.01 par value per share ("Common
Shares"), and 250,000,000 shares of preferred stock, $0.01 par value per share ("Preferred Shares"). Substantially
all of the Company’s business is conducted through its Operating Partnership. The REIT is the sole general partner of the
Operating Partnership and owned a 94.89% and 90.18% interest in the Operating Partnership as of December 31, 2018 and December
31, 2017, 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.



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



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



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



As of December
31, 2018 and 2017 there were 2,446,582 and 1,273,002, respectively, of common units of the Operating Partnership outstanding with
the REIT owning 2,321,582 and 1,148,002, respectively, of these common units. As of December 31, 2018 and 2017, there were 2,321,582
and 1,148,002, respectively, of Common Shares of the REIT outstanding. As of December 31, 2018 and 2017, there were 125,000 and
0, respectively, common units of the Operating Partnership that were eligible for conversion to the Company’s Common Shares.



Warrants
to purchase shares of common stock



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



FS-21







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 August 31,
2018, the Company’s Board of Directors approved a grant of 80,000 shares of Common Shares to two employees of the Manager
who also serve as directors of the Company and a grant of 6,000 Common Shares to the Company’s three independent directors.
The effective date of the grants was December 4, 2018, the date on which the registration of the Plan shares was effective. The
Common Shares granted vest immediately, but will be restricted for six months by a lock-up agreement associated with the Company’s
sale of its Common Shares on November 27, 2018. In addition, 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 $790,340, 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.



As of December
31, 2018, there are 154,000 shares available for issuance under the Plan.



Earnings
per share



Basic earnings
per share for the Company’s Common Shares is calculated by dividing income (loss) from continuing operations, excluding
the net loss 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, 2018, all of the Operating Partnership’s 125,000 common units outstanding were eligible to be
converted, on a one-to-one basis, into Common Shares. As of December 31, 2017, none of the Operating Partnership’s common
units outstanding to noncontrolling interests were eligible to be converted into shares of Common Stock. The Operating Partnership’s
common units have been excluded from the Company’s diluted earnings per share calculation because their inclusion would
be antidilutive.



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



|                                                      |  | For the year ended
    December 31, |           
|----------------------------------------------------- |  | ----------------------------------- | ----------
|                                                      |  | 2018                                |           
|Basic and diluted shares outstanding                  |  |                                     |           
|Weighted average Common Shares – basic                |  |                                     | 1,967,980 
|Effect of conversion of operating partnership units   |  |                                     | 125,000   
|Weighted average common shares – diluted              |  |                                     | 2,092,980 
|                                                      |  |                                     |           
|Calculation of earnings per share – basic and diluted |  |                                     |           
|Net loss attributable to common shareholders          |  | $                                   | (2,743,323
|Weighted average Common Shares – basic and diluted    |  |                                     | 1,967,980 
|Earnings per share – basic and diluted                |  | $                                   | (1.39     



Dividends



During the years
ended December 31, 2018, dividends were declared on March 28, 2018 payable to common shareholders of record on April 2, 2018,
July 12, 2018 payable to common shareholders of record on July 12, 2018, and November 30, 2018 payable to common shareholders
of record on December 12, 2018. During the years ended December 31, 2017, dividends were declared on August 15, 2017 payable to
common shareholders of record on August 30, 2017 and December 21, 2017 payable to common shareholders of record on December 28,
2017. In addition, distributions were made to holders of Operating Partnership units and noncontrolling interests. Dividends and
distributions paid during the years ended December 31, 2018 and 2017 are as follows:



FS-22







|                                                               |  | For the year ended
    December 31, |          
|-------------------------------------------------------------- |  | ----------------------------------- | ---------
|                                                               |  | 2018                                |          
|Common shareholders (dividends)                                |  | $                                   | 1,088,215
|Hampton Inn Property noncontrolling interest (distribution)    |  |                                     | 36,000   
|Hanover Square Property noncontrolling interest (distribution) |  |                                     | 24,000   
|Operating Partnership unit holders (distributions)             |  |                                     | 65,625   
|Total dividends and distributions                              |  | $                                   | 1,213,840



| | 7. | Commitments
and Contingencies
| | -- | -----------------------------



Hampton
Inn Property – Property Improvement Plan



The
Company is obligated under the mortgage loan for the Hampton Inn Property to complete a property improvement plan which
includes exterior and interior renovations and replacement of furniture and fixtures. This obligation is irrevocably and
unconditionally guaranteed by individual members of the Manager and by an individual member of the noncontrolling owner. The
Company has entered into a series of contracts for this work with a total estimated cost of $2,576,920. These costs will be
partially funded by $2,206,099 of funds held in escrow by the mortgage holder (see ‘Escrow Deposits and Property
Reserves’, above), with the remainder being funded by the Company and the noncontrolling owner.



During the year ended December 31, 2018,
the Company incurred and paid $1,009,452 in costs associated with the property improvement plan. Escrows held by the mortgage
holder funded $604,290 of these costs and the remainder was funded by the Company. As of December 31, 2018, the Company estimates
that the remaining costs to be incurred associated with this work is $1,567,468, all of which will be funded by the escrow balance
of $1,601,809 as of December 31, 2018.



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 which represented 100 percent of the total annualized base revenues
of the properties in its portfolio as of December 31, 2018. The Company’s geographic concentration may cause it to be more
susceptible to adverse developments in those markets than if it owned a more geographically diverse portfolio. Additionally, the
Company’s retail shopping center property depends 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.



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.



FS-23







Litigation



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



| | 8. | 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.



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.



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 31, 2018 or 2017.



FS-24







In addition,
the Manager advanced funds totaling $239,940 to the Company during 2016 and 2017 and $1,083 during 2018 to fund syndication, legal
and other costs. On January 8, 2018, the Company reimbursed the Manager for $4,997 and on January 30, 2018, the Company reimbursed
the Manager for $196,483, representing partial repayment of the funds the Manager advanced on behalf of the Company for syndication,
legal and other costs. On May 3, 2018 the Company reimbursed the Manager $39,543 for the remainder of the syndication, legal and
other costs.



For the years
ended December 31, 2018 and 2017, respectively, the Company paid the Manager the following amounts:



|                                |  | For the year ended
    December 31, |          
|------------------------------- |  | ----------------------------------- | ---------
|                                |  | 2018                                |          
|Asset management fees           |  | $                                   | 305,193  
|Acquisition fees earned in 2017 |  |                                     | 275,560  
|Acquisition fees earned in 2018 |  |                                     | 252,451  
|Repayment of funds advanced     |  |                                     | 241,023  
|                                |  | $                                   | 1,074,227



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. Acquisition fees are allocated and added to the fair value of the tangible assets acquired. Repayment
of funds advanced are recorded as a reduction in outstanding accounts payable and accrued liabilities.



For the years
ended December 31, 2018 and 2017, respectively, the Company received the following payments from the Manager:



|                                |  | For the year ended
    December 31, |       
|------------------------------- |  | ----------------------------------- | ------
|                                |  | 2018                                |       
|Medalist Fund Manager, Inc. (a) |  | $                                   | 18,606



| | (a) | Repayment of overpaid asset
                                         management fees. These amounts were netted against asset management fees payable during
                                         the year ended December 31, 2018.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December
31, 2018 and 2017, respectively, the Company recorded as an accounts payable and accrued liabilities on its consolidated balance
sheets the following amounts payable to the Manager:



|                                                    |  | December 31, |       
|--------------------------------------------------- |  | ------------ | ------
|                                                    |  | 2018         |       
|                                                    |  |              |       
|Funds advanced – syndication, legal and other costs |  | $            | -     
|Asset management fees accrued                       |  |              | 17,755
|Acquisition fees accrued                            |  |              | -     



Hampton Inn Property



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



|            |  | Period      |  | Annual Rent |         |  | Percentage Rent
|----------- |  | ----------- |  | ----------- | ------- |  | ---------------
|Years 1 – 3 |  | 2017 – 2020 |  | $           | 866,834 |  |                
|Years 4 – 5 |  | 2020 - 2022 |  | $           | 946,834 |  |                



During the years ending December
31, 2018 the TRS paid $1,106,333 in rent to the tenants in common owners. During the years ending December 31, 2017 the TRS accrued
$163,627 in rent payable to the tenants in common owners. All material balances and transactions between the two entities have
been eliminated in the consolidated financial statements.



FS-25







Other related parties



For the years
ended December 31, 2018 and 2017, respectively, the Company made the following payments to other related parties:



|                                                           |  | For the year ended
    December 31, |        
|---------------------------------------------------------- |  | ----------------------------------- | -------
|                                                           |  | 2018                                |        
|                                                           |  |                                     |        
|Medalist Properties 8, LLC (a)                             |  | $                                   | 43,623 
|Shockoe Properties, Inc. (b)                               |  |                                     | 86,077 
|                                                           |  |                                     |        
|Related party notes payable, short term, repayments        |  |                                     |        
|Principal and interest repaid to Medalist Fund I (c)       |  | $                                   | 264,600
|Principal and interest repaid to Medalist Fund II (c)      |  |                                     | 157,500
|Principal and interest repaid to K&R Automotive (c)        |  |                                     | 105,000
|Principal and interest repaid to Medalist Fund I-B (c)     |  |                                     | 52,500 
|Principal and interest repaid to Medalist Properties 8 (c) |  |                                     | 125,538



| | (a) | In 2017, the Company acquired the
                                         Hampton Inn Property from an entity which was managed by the Manager and in which the
                                         Manager’s members had ownership interests. As part of the pro rations and reconciliations
                                         of rents and expenses from this transaction, the Company owed the selling entity $43,623,
                                         which was repaid to Medalist Properties 8, LLC, the seller of the Hampton Inn Property,
                                         on May 4, 2018.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | 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 3 percent of
                                         the monthly gross revenues of the Franklin Square Property and the Hanover Square Properties.
                                         These fees are paid in arrears on a monthly basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | The Company entered into short
                                         term loans from various entities affiliated with the Manager to provide funds for the
                                         purchase of the Hampton Inn Property. These loans were repaid in January 2018 and are
                                         described under “Other Loans Payable”, above.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the years
ended December 31, 2018 and 2017, respectively, the Company received the following payments from other related parties:



|                               |  | For the year ended
    December 31, |       
|------------------------------ |  | ----------------------------------- | ------
|                               |  | 2018                                |       
|Medalist Fund I, LLC (a)       |  | $                                   | 35,443
|Medalist Fund I, LLC (b)       |  |                                     | 37,468
|Medalist Properties 8, LLC (c) |  |                                     | 30,774





| | (a) | In 2017, the Company acquired
                                         the Franklin Square Property from an entity which was managed by the Manager and in which
                                         the Manager’s members had ownership interests. As part of the pro rations and reconciliations
                                         of rents and expenses from this transaction, the selling entity owed the Company $35,443,
                                         which was repaid by Medalist Fund I, LLC, the seller of the Franklin Square Property,
                                         on May 30, 2018.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On June 7, 2018, the Company
                                         received $37,468 from Medalist Fund I, LLC. This represented funds from a rollover of
                                         a member’s interest in Medalist Fund I, LLC to the Company’s Common Shares
                                         that was unpaid at the time of the closing of the issuance in January 2018.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | In 2017, the Company acquired
                                         the Hampton Inn Property from an entity which was managed by the Manager and in which
                                         the Manager’s members had ownership interests. As part of the pro rations and reconciliations
                                         of expense from this transaction, the selling entity owed the Company $30,774, which
                                         was repaid by Medalist Properties 8, LLC, the seller of the Hampton Inn Property, on
                                         September 30, 2018.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



FS-26







As of December
31, 2018 and 2017, respectively, the Company owed the following amounts to related parties:



|                                          |  | December 31, |  
|----------------------------------------- |  | ------------ | -
|                                          |  | 2018         |  
|Medalist Properties 8, LLC (a)            |  | $            | -
|                                          |  |              |  
|Loan payable to Medalist Fund I (b)       |  |              | -
|Loan payable to Medalist Fund II (b)      |  |              | -
|Loan payable to K&R Automotive (b)        |  |              | -
|Loan payable to Medalist Fund I-B (b)     |  |              | -
|Loan payable to Medalist Properties 8 (b) |  |              | -



| | (a) | In 2017, the Company acquired
                                         the Hampton Inn Property from an entity which was managed by the Manager and in which
                                         the Manager’s members had ownership interests. As part of the pro rations and reconciliations
                                         of rents and expenses from this transaction, the Company owed the selling entity $32,194
                                         as of December 31, 2017. Additional amounts due to the selling entity were identified
                                         and recorded in 2018. On May 4, 2018, $43,623 was repaid to Medalist Properties 8, LLC,
                                         the seller of the Hampton Inn Property.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | See “Other Loans Payable”
| | --- | -------------------------



As of December
31, 2018 and 2017, respectively, other related parties owed the Company the following amounts:



|                         |  | December 31, |  
|------------------------ |  | ------------ | -
|                         |  | 2018         |  
|                         |  |              |  
|Medalist Fund I, LLC (a) |  | $            | -
|Medalist Fund I, LLC (b) |  |              | -



| | (a) | In 2017, the Company acquired
                                         the Franklin Square Property from an entity which was managed by the Manager and in which
                                         the Manager’s members had ownership interests. As part of the pro rations and reconciliations
                                         of rents and expenses from this transaction, the selling entity owed the Company $35,443,
                                         which was repaid by Medalist Fund I, LLC, the seller of the Franklin Square Property,
                                         on May 30, 2018.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | On June 7, 2018, the Company
                                         received $37,468 from Medalist Fund I, LLC. This represented funds from a rollover of
                                         a member’s interest in Medalist Fund I, LLC to the Company’s Common Shares
                                         that was unpaid at the time of the closing of the issuance in January 2018
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 9. | Segment Information
| | -- | -------------------



The Company establishes
operating segments at the property level and aggregates individual properties into reportable segments based on product types
in which the Company has investments. As of December 31, 2018, The Company had the following reportable segments:  retail
center properties and hotel properties. During the periods presented, there have been no material intersegment transactions.



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:



|                         |  | Hotel
    property |           |  | Retail
    center properties |   |         | Total | 
|------------------------ |  | ------------------ | --------- |  | ---------------------------- | - | ------- | ----- | 
|                         |  | 2018               |           |  | 2017                         |   |         | 2018  | 
|Revenues                 |  | $                  | 3,676,169 |  |                              | $ | 399,502 |       | 
|Operating
    expenses   |  |                    | 2,608,825 |  |                              |   | 356,427 |       | 
|Net operating
    income |  | $                  | 1,067,344 |  |                              | $ | 43,075  |       | 



FS-27







| | 10. | Subsequent
Events
| | --- | -----------------



As of March
11, 2019, the following events have occurred subsequent to the December 31, 2018 effective date of the consolidated
financial statements:



Registration
statement filed with SEC for issuance of additional shares of common stock



On January 31,
2019, the Company filed an S-11 registration statement, subject to completion, (the “Registration Statement”) with
the United States Securities and Exchange Commission (“SEC”). Under the Registration Statement, the Company plans
to sell 1,000,000 shares of common stock at a to-be-determined price per share. The Company will use the net proceeds from this
issuance for property acquisitions, asset management and working capital and general corporate purposes.



Release of Property Escrows



On January 24,
2019, the mortgage holder for the Franklin Square Property released an escrow of $350,000 (recorded on the Company’s consolidated
balance sheets under “Escrows and operating property reserves”). These funds had been held by the mortgage holder
until the Company leased space that had been vacant upon the Company’s purchase of the Franklin Square Property. These funds
will be used for general operating purposes.



FS-28







Medalist Diversified REIT, Inc.
and Subsidiaries

Schedule III - Real Estate Properties
and Accumulated Depreciation

December 31, 2018



|                                |  |               |            |  | Initial
    Cost to Company |   |           |                          |  |   |                                          |     |  | Gross
    Amount atWhich Carried atClose of Period |         |           |      |   |         |                          |   |   |           |           | 
|------------------------------- |  | ------------- | ---------- |  | --------------------------- | - | --------- | ------------------------ |  | - | ---------------------------------------- | --- |  | -------------------------------------------------- | ------- | --------- | ---- | - | ------- | ------------------------ | - | - | --------- | --------- | 
|Description                     |  | Encum-brances |            |  | Land                        |   |           | BuildingsandImprovements |  |   | CostsCapitalizedSubsequent toAcquisition |     |  | CostsWrittenOff Due toImpairment                   |         |           | Land |   |         | BuildingsandImprovements |   |   | Total     |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Retail properties               |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|The Shops at Franklin Square    |  | $             | 14,275,000 |  |                             | $ | 3,343,164 |                          |  | $ | 15,418,158                               | (1) |  | $                                                  | 685,004 |           |      | $ | (54,478 | )                        |   | $ | 3,343,164 |           | 
|Gastonia, North Carolina        |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Hanover North Shopping Center   |  |               | 8,772,562  |  |                             |   | 3,158,882 |                          |  |   | 8,334,478                                | (1) |  |                                                    | 6,115   |           |      |   | -       |                          |   |   | 3,158,882 |           | 
|Mechanicsville, Virginia        |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Total retail properties         |  |               | 23,047,562 |  |                             |   | 6,502,046 |                          |  |   | 23,752,636                               |     |  |                                                    | 691,119 |           |      |   | (54,478 | )                        |   |   | 6,502,046 |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Hotel properties                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Greensboro Airport Hampton Inn  |  |               | 10,600,000 |  |                             |   | 960,900   |                          |  |   | 13,120,032                               | (2) |  |                                                    | 585,705 | (2)       |      |   | -       |                          |   |   | 960,900   |           | 
|Greensboro, North Carolina      |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|                                |  |               |            |  |                             |   |           |                          |  |   |                                          |     |  |                                                    |         |           |      |   |         |                          |   |   |           |           | 
|Total
    investment properties |  | $             | 33,647,562 |  |                             | $ | 7,462,946 |                          |  | $ | 36,872,668                               |     |  |                                                    | $       | 1,276,824 |      |   | $       | (54,478                  | ) |   | $         | 7,462,946 | 



|(1)
    Excludes intangible assets     
|---------------------------------------
|(2)
    Excludes furniture and fixtures



FS-29







|                                                 |  | Franklin |            |   | Hanover |   |            | Hampton |  |   |            | 
|------------------------------------------------ |  | -------- | ---------- | - | ------- | - | ---------- | ------- |  | - | ---------- | 
|                                                 |  | Square   |            |   | Square  |   |            | Inn     |  |   | Total      | 
|Investments in real estate - 2018                |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at beginning of period - 1/1/18          |  | $        | 18,959,453 |   |         | $ | -          |         |  | $ | 14,090,807 | 
|Additions during period:                         |  |          |            |   |         |   |            |         |  |   |            | 
|Acquisitions                                     |  |          | -          |   |         |   | 11,493,360 |         |  |   | -          | 
|Capitalized leasing commissions                  |  |          | 299,533    |   |         |   | 6,115      |         |  |   | -          | 
|Capitalized tenant improvements                  |  |          | 62,340     |   |         |   | -          |         |  |   | -          | 
|Capitalized tenant inducements                   |  |          | 125,000    |   |         |   | -          |         |  |   | -          | 
|Building improvements - construction in progress |  |          | -          |   |         |   | -          |         |  |   | 575,830    | 
|Impairment write-offs                            |  |          | (54,478    | ) |         |   | -          |         |  |   | -          | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at end of period - 12/31/18              |  | $        | 19,391,848 |   |         | $ | 11,499,475 |         |  | $ | 14,666,637 | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Accumulated depreciation - 2018                  |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at beginning of period                   |  | $        | 394,746    |   |         | $ | -          |         |  | $ | 48,125     | 
|Additions charged to costs and expenses          |  |          | 615,599    |   |         |   | 229,238    |         |  |   | 288,756    | 
|Impairment write-offs                            |  |          | (4,073     | ) |         |   | -          |         |  |   | -          | 
|Balance at end of period                         |  | $        | 1,006,272  |   |         | $ | 229,238    |         |  | $ | 336,881    | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Net investments in real estate - end of period   |  | $        | 18,385,576 |   |         | $ | 11,270,237 |         |  | $ | 14,329,756 | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Investments in real estate - 2017                |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at beginning of period - 1/1/17          |  | $        | -          |   |         | $ | -          |         |  | $ | -          | 
|Additions during period:                         |  |          |            |   |         |   |            |         |  |   |            | 
|Acquisitions                                     |  |          | 18,761,322 |   |         |   | -          |         |  |   | 14,080,932 | 
|Capitalized leasing commissions                  |  |          | 43,321     |   |         |   | -          |         |  |   | -          | 
|Capitalized tenant improvements                  |  |          | 154,810    |   |         |   | -          |         |  |   | -          | 
|Building improvements - CIP                      |  |          | -          |   |         |   | -          |         |  |   | 9,875      | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at end of period - 12/31/17              |  | $        | 18,959,453 |   |         | $ | -          |         |  | $ | 14,090,807 | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Accumulated depreciation - 2017                  |  |          |            |   |         |   |            |         |  |   |            | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Balance at beginning of period                   |  | $        | -          |   |         | $ | -          |         |  | $ | -          | 
|Additions charged to costs and expenses          |  |          | 394,746    |   |         |   | -          |         |  |   | 48,125     | 
|Balance at end of period                         |  | $        | 394,746    |   |         | $ | -          |         |  | $ | 48,125     | 
|                                                 |  |          |            |   |         |   |            |         |  |   |            | 
|Net investments in real estate - end of period   |  | $        | 18,564,707 |   |         | $ | -          |         |  | $ | 14,042,682 | 



FS-30









EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                                                                                                                                                                                 
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation of Medalist Diversified REIT, Inc. **                                                                                                                                                                                                             
|3.2            |  | Bylaws of Medalist Diversified REIT, Inc. **                                                                                                                                                                                                                                
|4.1            |  | Form of Certificate of Common Stock **                                                                                                                                                                                                                                      
|4.2            |  | Agreement of Limited Partnership of Medalist Diversified Holdings, L.P. **                                                                                                                                                                                                  
|10.1           |  | Management Agreement by and among Medalist Diversified REIT, Inc., Medalist Diversified Holdings, L.P. and Medalist Fund Manager, Inc. **                                                                                                                                   
|10.2           |  | Real Estate Purchase and Sale Agreement, dated as of June 1, 2016, by and between Medalist Fund 1-A, LLC and Medalist Diversified Holdings, L.P. **                                                                                                                         
|10.3           |  | First Amendment Real Estate Purchase and Sale Agreement, dated as of September 2016, by and between Medalist Fund 1-A, LLC and Medalist Diversified Holdings, L.P. **                                                                                                       
|10.4           |  | Second Amendment Real Estate Purchase and Sale Agreement, dated as of April 18, 2017, by and between Medalist Fund 1-A, LLC and Medalist Diversified Holdings, L.P. **                                                                                                      
|10.5           |  | Third Amendment Real Estate Purchase and Sale Agreement, dated as of April 28, 2017, by and between Medalist Fund 1-A, LLC and Medalist Diversified Holdings, L.P. **                                                                                                       
|10.6           |  | Loan Agreement, dated as of February 10, 2016, by and between Medalist Fund 1-A, LLC and Jefferies Loancore LLC**                                                                                                                                                           
|10.7           |  | Promissory Note, dated as of February 10, 2016 by Medalist Fund 1-A, LLC for the benefit of Jefferies Loancore LLC**                                                                                                                                                        
|10.8           |  | Deed of Trust, Assignment of Leases and Rents, and Security Agreement, dated as of February 10, 2016, by Medalist Fund 1-A, LLC for the benefit of Jefferies Loancore LLC**                                                                                                 
|10.9           |  | Modification, Consent and Assumption Agreement with Release, dated as of April 28, 2017, by and among Medalist Fund 1-A, LLC, MDR Franklin Square, LLC, William R. Elliott, Thomas E. Messier, Medalist Diversified REIT, Inc. and Wells Fargo Bank, National Association **
|10.10          |  | Real Estate Purchase and Sale Agreement, dated as of July 31, 2016, by and between Medalist Properties 8, LLC and Medalist Diversified Holdings, L.P. **                                                                                                                    
|10.11          |  | First Amendment and Reinstatement of Real Estate Purchase and Sale Agreement, dated as of July 25, 2017, by and between Medalist Properties 8, LLC and Medalist Diversified Holdings, L.P. **                                                                               
|10.12          |  | Second Amendment and Reinstatement of Real Estate Purchase and Sale Agreement, dated as of October 12, 2017, by and between Medalist Properties 8, LLC and Medalist Diversified Holdings, L.P. **                                                                           
|10.13          |  | Assignment of Real Estate Purchase and Sale Agreement, dated as of September 2017, by and among Medalist Diversified Holdings, L.P., MDR Greensboro, LLC and PMI Greensboro, LLC **                                                                                         
|10.14          |  | Loan Agreement, dated as of November 3, 2017, by and among MDR Greensboro, LLC, PMI Greensboro, LLC and Benefit Street Partners Realty Operating Partnership, L.P. **                                                                                                       
|10.15          |  | Promissory Note, dated as of November 3, 2017, by MDR Greensboro, LLC and PMI Greensboro, LLC for the benefit of Benefit Street Partners Realty Operating Partnership, L.P. **                                                                                              
|10.16          |  | Deed of Trust, Security Agreement, Assignment of Leases and Fixture Filing, dated as of November 3, 2017, by MDR Greensboro, LLC and PMI Greensboro, LLC for the benefit of Benefit Street Partners Realty Operating Partnership, L.P. **                                   
|10.17          |  | Security Agreement, dated as of November 3, 2017, by MDR Greensboro HI TRS, LLC for the benefit of Benefit Street Partners Realty Operating Partnership, L.P. **                                                                                                            
|10.18          |  | Tenants in Common Agreement, dated as of November 3, 2017, by and between MDR Greensboro, LLC and PMI Greensboro, LLC **                                                                                                                                                    
|10.19          |  | First Amendment to Tenants in Common Agreement, dated as of November 3, 2017, by and between MDR Greensboro, LLC and PMI Greensboro, LLC **                                                                                                                                 
|10.20          |  | Limited Liability Company Agreement of MDR Greensboro HI TRS, LLC, dated as of September 15, 2017, by and between Medalist Diversified Holdings, L.P. and Peter Mueller, Inc. **                                                                                            
|10.21          |  | Real Estate Purchase and Sale Agreement, dated as of February 26, 2018, by and between COF North, LLC and Medalist Diversified Holdings, L.P. **                                                                                                                            
|10.22          |  | Assignment of Real Estate Purchase and Sale Agreement, dated as of May 3, 2018, by and between Medalist Diversified Holdings, L.P., MDR Hanover Square, LLC and PMI Hanover Sq., LLC **                                                                                     



24







|10.23 |  | Business Loan Agreement, dated as of November 3, 2017, by and between COF North, LLC and Langley Federal Credit Union **                                      
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | Promissory Note, dated as of November 3, 2017, by COF North for the benefit of Langley Federal Credit Union **                                                
|10.25 |  | Change in Terms Agreement, dated as of May 8, 2018, by MDR Hanover Square, LLC and PMI Hanover Sq., LLC **                                                    
|10.26 |  | Deed of Trust, dated as of November 3, 2017, by COF North for the benefit of Langley Federal Credit Union **                                                  
|10.27 |  | Modification of Deed of Trust, dated as of May 8, 2018, by MDR Hanover Square, LLC and PMI Hanover Sq., LLC for the benefit of Langley Federal Credit Union **
|10.28 |  | Tenants in Common Agreement, dated as of May 8, 2018, by and between MDR Hanover Square, LLC and PMI Hanover Sq., LLC **                                      
|10.29 |  | Medalist Diversified REIT, Inc. 2018 Equity Incentive Plan **                                                                                                 
|21.1  |  | List of Subsidiaries **                                                                                                                                       
|23.1  |  | Consent of Cherry Bekaert LLP                                                                                                                                 
|31.1  |  | Certification of Annual Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002                                                 
|32.1  |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002              



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



25







SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                     |                                
|-------------------- | -------------------------------
|                     | MEDALIST DIVERSIFIED REIT, INC.
|                     |                                
|Date: March 11, 2019 | By:                            
|                     |                                
|                     |                                





Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.



|Name                        |  | Title                                                                                       |  | Date          
|--------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------
|                            |  |                                                                                             |  |               
|/s/ Thomas E. Messier       |  | Chief Executive Officer and  Chairman of the Board                                          |  | March 11, 2019
|Thomas E. Messier           |  | (principal executive officer, principal accounting officer and principal financial officer) |  |               
|                            |  |                                                                                             |  |               
|/s/ William R. Elliott      |  | President, Chief Operating Officer and Vice Chairman of the Board                           |  | March 11, 2019
|William R. Elliott          |  |                                                                                             |  |               
|                            |  |                                                                                             |  |               
|/s/ Neil P. Farmer          |  | Director                                                                                    |  | March 11, 2019
|Neil P. Farmer              |  |                                                                                             |  |               
|                            |  |                                                                                             |  |               
|/s/ Charles S. Pearson, Jr. |  | Director                                                                                    |  | March 11, 2019
|Charles S. Pearson, Jr.     |  |                                                                                             |  |               
|                            |  |                                                                                             |  |               
|/s/ Charles M. Polk, III    |  | Director                                                                                    |  | March 11, 2019
|Charles M. Polk, III        |  |                                                                                             |  |               
|                            |  |                                                                                             |  |