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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-18 · 206 added, 217 removed, 216 unchanged (66% of the section changed)

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Company Overview

We are a Maryland corporation focused on owning, leasing and operating income producing strip centers, neighborhood centers, grocery-anchored centers, community centers and free-standing retail properties.

We are a Maryland corporation focused on owning, leasing and operating income producing grocery-anchored centers, neighborhood centers, community centers and free-standing retail properties.

We have targeted competitively protected properties located within developed areas, commonly referred to as in-fill, that possess minimal competition risk and are surrounded by communities that have strong demographics and dynamic, diversified economies that will continue to generate jobs and future demand for commercial real estate.

Our primary target markets include the Southeast and Mid-Atlantic.

Our portfolio is comprised of sixty retail shopping centers and six undeveloped land parcels.

Twelve of these properties are located in Virginia, three are located in Florida, seven are located in North Carolina, twenty-three are located in South Carolina, twelve are located in Georgia, two are located in Kentucky, two are located in Tennessee, one is located in New Jersey, one is located in Alabama, one is located in West Virginia, one is located in Oklahoma and one is located in Pennsylvania.

The Company’s portfolio had total net rentable space of approximately 5,561,766 square feet and a leased level of approximately 88.9% at December 31, 2020.

Our portfolio is comprised of fifty-eight retail shopping centers and four undeveloped land parcels.

Ten of these properties are located in Virginia, three are located in Florida, six are located in North Carolina, twenty-two are located in South Carolina, twelve are located in Georgia, two are located in Kentucky, two are located in Tennessee, one is located in New Jersey, one is located in Alabama, one is located in West Virginia, one is located in Oklahoma and one is located in Pennsylvania.

The Company’s portfolio had total gross rentable space of approximately 5,478,855 square feet and a leased level of approximately 94.2% at December 31, 2021.

Impact of COVID-19

The spread of COVID-19 has had a significant impact on the global economy, the U.S.

economy, the economies of the local markets in which the Company’s properties are located, and the broader financial markets.

Local, state and federal authorities have taken preventative measures to alleviate the public health crisis and these preventative measures have affected the operations of the Company’s tenant base to varying degrees depending on the category and location of the tenant.

The Company derives revenues primarily from rents and reimbursement payments received from tenants under leases at the Company’s properties.

The Company’s operating results therefore depend materially on the ability of its tenants to make required rental payments.

In addition, the trend toward online shopping for goods and services that accelerated during the COVID-19 pandemic may continue and could result in a permanent decrease in spending levels at brick-and-mortar commercial establishments.

The factors described above, as well as additional factors that the Company may not currently be aware of, could materially negatively impact the Company’s ability to collect rent and could lead to increases in rent relief requests from tenants, termination of leases by tenants, tenant bankruptcies, decreases in demand for retail space at the Company’s properties, difficulties in accessing capital, impairment of the Company’s long-lived assets and other impacts that could materially and adversely affect the Company’s business, results of operations, financial condition and ability to pay distributions to stockholders.

The comparability of the Company’s results of operations for the year ended December 31, 2021 to future periods may be impacted by the effects of the COVID-19 pandemic.

Recent Trends and Activities

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These events are summarized below.

Impact of COVID-19

The following discussion is intended to provide stockholders with certain information regarding the impacts of the COVID-19 pandemic on the Company’s business and management’s efforts to respond.

Unless otherwise specified, the statistical and other information regarding the Company’s portfolio and tenants are estimates based on information available to the Company.

As a result of the rapid development, fluidity and uncertainty surrounding this situation, the Company expects that such statistical and other information will change, potentially significantly, going forward and may not be indicative of the actual impact of the COVID-19 pandemic on the Company’s business, operations, cash flows and financial condition for future periods.

The United States of America has been subject to significant economic disruption caused by the onset of COVID-19.

Nearly every industry has been impacted directly or indirectly, and the U.S.

retail market has come under severe pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders at the state and local levels.

These containment measures, which generally do not apply to businesses designated as “essential”, are affecting the operations of different categories of the Company’s base to varying degrees with, for example, grocery stores and pharmacies generally permitted to remain open and operational, restaurants generally limited to take-out and delivery services only and capacity restrictions while open, and non-essential businesses generally forced to close.

There is uncertainty as to the time, date and extent to which these restrictions will be relaxed or lifted, businesses of tenants that have closed, either voluntarily or by mandate, will reopen or partially reopen.

The properties are geographically located in the Southeast, Mid-Atlantic and Northeast, which markets represented approximately 61%, 35% and 4%, respectively, of the total annualized base rent of the properties in our portfolio.

Our operating portfolio contains retail shopping centers with a particular emphasis on grocery-anchored retail centers;

grocers represent approximately 26% of total annualized base rent as of December 31, 2020.

We generally lease our properties to national and regional retailers.

The Company’s portfolio and tenants have been impacted as follows:

• The Company’s sixty retail shopping centers are open and operating.

As of December 31, 2020, all of the Company’s shopping centers feature necessity-based tenants, with forty-three of the sixty properties anchored by grocery and/or drug stores.

• The Company agreed to lease modifications with nine tenants who declared bankruptcy, resulting in a weighted average rate decrease of 7.54% or $0.86 rate per square foot.

• Nine tenants vacated due to bankruptcy and three of these vacated tenants have been backfilled.

• Beginning in April 2020, the Company received certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19.

The Company evaluates each tenant rent relief request on an individual basis, considering a number of factors.

Not all tenant requests ultimately result in concessions or modification of agreements, nor is the Company forgoing its contractual rights under its lease agreements.

As a result, the Company granted 148 concessions as of March 5, 2021 and modified 72 leases as of December 31, 2020, with a weighted average rate increase of 3.53% and 3 year weighted average extension term.

During the three months ended December 31, 2020, the Company modified 4 leases at no rate change and five months weighted average extension term.

• The Company has received payment of 97% of contractual base rent and tenant reimbursements billed for the three months ended December 31, 2020, total 2020 collections were 99%.

• As of December 31, 2020, $257 thousand of accounts receivable relate to short term deferral of rents, a decrease of $132 thousand compared to September 30, 2020.

The Company has taken a number of proactive measures to maintain the strength of its business and manage the impact of COVID-19 on the Company’s operations and liquidity, including the following:

• Along with the Company’s tenants and the communities they serve, the health and safety of the Company’s employees and their families is a top priority.

The Company has adapted its operations to protect employees, including implementing a work from home policy and the Company’s IT systems have enabled its team to work seamlessly.

• The Company is in constant communication with its tenants and sharing resources on how to identify local, state and federal resources that may be available to support their businesses and employees during the pandemic, including stimulus funds that may be available under the Coronavirus Aid, Relief and Economic Security Act of 2020 and the Consolidated Appropriations Act of 2021.

• The Company currently has approximately $7.66 million in cash and cash equivalents and an additional $35.11 million in restricted cash.

• Given the uncertainty of the COVID-19 pandemic’s near and potential long-term impact on the Company’s business, and in order to preserve its liquidity position, the Company has continued its suspension of any dividend distributions.

The Company derives revenues primarily from rents received from tenants under leases at the Company’s properties.

The Company’s operating results therefore depend materially on the ability of its tenants to make required rental payments.

The extent to which the COVID-19 pandemic impacts the businesses of the Company’s tenants, and the Company’s operations and financial condition, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and such containment measures, among others.

While the extent of the outbreak and its impact on the Company, its tenants and the U.S.

retail market is uncertain, a prolonged crisis could result in continued disruptions in the credit and financial markets, continued high unemployment rates, low consumer confidence and consumer spending levels and overall poor global and U.S.

economic conditions.

The factors described above, as well as additional factors that the Company may not currently be aware of, could materially negatively impact the Company’s ability to collect rent and could lead to termination of leases by tenants, tenant bankruptcies, decreases in demand for retail space at the Company’s properties, difficulties in accessing capital, impairment of the Company’s long-lived assets and other impacts that could materially and adversely affect the Company’s business, results of operations, financial condition and ability to pay distributions to stockholders.

The comparability of the Company’s results of operations for the year ended December 31, 2020 to future periods may be significantly impacted by the effects of the outbreak of the COVID-19 pandemic.

Paycheck Protection Program

The Company received proceeds of $552 thousand (the "PPP funds") pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act.

The PPP funds were received in the form of a promissory note, dated April 24, 2020 (the “Promissory Note”), between the Company and KeyBank as the lender that matures on April 24, 2022 bearing interest at a fixed rate of 1% per annum, payable monthly commencing seven months from the date of the note.

Under the terms of the PPP, the principal may be forgiven if the proceeds are used for qualifying expenses as described in the CARES Act, such as payroll costs, mortgage interest, rent and utilities.

On January 8, 2021, KeyBank notified the Company that the PPP Promissory Note application for forgiveness has been approved.

On April 24, 2020, the Company received proceeds of $552 thousand in the form of a promissory note (the "Promissory Note") pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief and Economic Security ("CARES") Act.

Under the terms of the CARES Act, the Promissory Note was forgiven during the year ended December 31, 2021.

Assets Held for Sale and Dispositions

At December 31, 2020, assets held for sale included Columbia Fire Station, Berkley Shopping Center, a .75 acre land parcel at Berkley and two outparcels at Rivergate Shopping Center, as the Company has committed to a plan to sell each property.

The Company recorded $600 thousand impairment expense for Columbia Fire Station for the year ended December 31, 2020 reducing the carrying value for the amounts that exceeded the property's fair value less estimated selling costs.

Disposal Date Property Contract Price Gain (Loss) Net Sales Proceeds

(in thousands)

December 31, 2020 Riversedge North - Virginia Beach, VA $ 3,000 $ 49 $ 2,843

January 21, 2020 St.

Matthews - St.

Matthews, SC 1,775 (26) 1,665

On December 31, 2020, the Company sold its corporate headquarters in Virginia Beach to an unrelated party and simultaneously leased the building for ten years at an annual base rent of $265 thousand, plus taxes and other operating and maintenance expenses.

The transaction qualified for sale leaseback accounting in accordance with ASC 842.

As a result of this transaction, a gain of $49 thousand was recognized, which is included in "gain on disposal of properties" on the consolidated statements of operations with the remaining gain of $725 thousand deferred over the life of the lease and the net cash proceeds were approximately $1.10 million after transaction costs and repayment of the outstanding mortgage.

Powerscourt Financing Agreement

On December 22, 2020, the Company entered into a financing agreement (the "Powerscourt Financing Agreement") with Powerscourt Investments XXII, LP, as administrative agent and collateral agent.

The Powerscourt Financing Agreement provides for a term loan in the aggregate principal of $25.00 million.

The proceeds of the Powerscourt Financing Agreement are intended for the following:

(i) to paydown the Company’s indebtedness on the KeyBank Credit Agreement, (ii) to redeem certain shares of the Company’s Series D Preferred and (iii) to pay fees and expenses in connection with the transactions contemplated by the Powerscourt Financing Agreement.

The Powerscourt Financing Agreement is at a rate of 13.50% and matures on March 31, 2023 with quarterly interest only payments beginning on January 15, 2021.

In conjunction with the Powerscourt Financing Agreement, the Company issued to Powerscourt XXII, LP a warrant to purchase an aggregate of 496,415 shares of the Company’s Common Stock (see the “Powerscourt Warrant Agreement” below).

Powerscourt Warrant Agreement

Pursuant to Powerscourt Financing Agreement, the Company issued Powerscourt Investments XXII, LP, a warrant (the “Warrant”) to purchase 496,415 shares of Common Stock for $3.12 per share (the “Powerscourt Warrant Agreement”).

The Warrant is exercisable at the option of its holder in whole or in part into shares of Common Stock from time to time on or after December 22, 2020 (the “Effective Date”) and before the date that is the 36-month anniversary of the Effective Date.

The Powerscourt Warrant Agreement contains terms and features that give rise to derivative liability classification.

The Company utilized the Monte Carlo simulation model to calculate the fair value of these warrants at the date of commitment.

Significant observable and unobservable inputs include stock price, conversion price, annual risk free rate, term, likelihood of an event of contractual conversion and expected volatility.

At December 31, 2021, assets held for sale included Walnut Hill Plaza, as the Company has committed to a plan to sell the property.

During the year ended December 31, 2021, the Company sold the below properties, of which Columbia Fire Station, Berkley Shopping Center, the 0.75-acre land parcel at Berkley and the outparcel at Rivergate Shopping Center were included as assets held for sale at December 31, 2020.

Additionally at December 31, 2020, the Company held for sale a second outparcel at Rivergate Shopping Center which the Company is no longer pursuing.

The Company recorded $2.30 million in impairments during the year ended December 31, 2021, $100 thousand on Walnut Hill Plaza and $2.20 million on Columbia Fire Station reducing the carrying value for the amounts that exceeded the property's fair value less estimated selling costs.

The Company recorded $600 thousand in impairments on Columbia Fire Station during the year ended December 31, 2020.

Disposal Date Property Contract Price Gain (loss) Net Proceeds

(in thousands, unaudited)

November 17, 2021 Columbia Fire Station - Columbia, SC $ 4,250 $ (88) $ 3,903

August 31, 2021 Rivergate Shopping Center Out Parcel - Macon, GA 3,700 1,915 3,451

July 9, 2021 Tulls Creek Land Parcel (1.28 acres) - Moyock, NC 250 52 222

March 25, 2021 Berkley Shopping Center and Berkley Land Parcel (0.75 acres) - Norfolk, VA 4,150 176 3,937

In conjunction with the Berkley Shopping Center disposition the Company made a $3.22 million principal payment on the Berkley/Sangaree/Tri-County loan and paid $687 thousand in defeasance.

In conjunction with the Rivergate Shopping Center Out Parcel disposition the Company made a $3.54 million principal payment on the Rivergate loan.

Powerscourt Financing Agreement Payoff

On March 12, 2021, the Company paid in full the $25.00 million Powerscourt Financing Agreement.

The Powerscourt Warrant Agreement and the Powerscourt Registration Rights Agreement remain.

Wilmington Financing Agreement

On March 12, 2021, the Company entered into a financing agreement (the "Wilmington Financing Agreement") as borrower, certain subsidiaries of the Company from time to time party thereto, as guarantors (together with the Company, the “Loan Parties”), the lenders from time to time party thereto, and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent.

The Wilmington Financing Agreement provides for a term loan in the aggregate principal amount of $35.00 million.

The proceeds of the Wilmington Financing Agreement are intended for the following:

(i) to paydown the Company’s indebtedness on the Powerscourt Financing Agreement, (ii) to fund the redemption of certain shares of the Company’s 8.75% Series D Preferred and (iii) to pay fees and expenses in connection with the transactions contemplated by the Wilmington Financing Agreement.

The Wilmington Financing Agreement is at a rate of 8.00% and matures in March 2026 with quarterly interest only payments beginning on April 15, 2021.

Any payment or repayment of principal will be made with a premium equal to 5% of the amount repaid or prepaid.

Pursuant to the Wilmington Financing Agreement, the Company issued to the holders from time to time party thereto a warrant (the “Wilmington Warrant”) to purchase in the aggregate, 1,061,719 shares of Common Stock in three tranches:

warrants to purchase an aggregate of 510,204 shares at an exercise price of $3.430 per share ("Tranche A");

warrants to purchase an aggregate of 424,242 shares at an exercise price of $4.125 per share ("Tranche B");

and warrants to purchase an aggregate of 127,273 shares at an exercise price of $6.875 per share ("Tranche C") (the “Wilmington Warrant Agreement”).

The Warrant is exercisable at the option of its holder in whole or in part into shares of Common Stock from time to time on or after March 12, 2021 (the “Effective Date”) and before the maturity date of the Wilmington Financing Agreement.

On December 21, 2021, the principal balance on the Wilmington Financing Agreement was paid in full.

The Wilmington Warrant Agreement and the Wilmington Registration Rights Agreement remain.

Registration Rights Agreements

In connection with the Powerscourt Financing Agreement and Wilmington Financing Agreement, the Company entered into a registration rights agreement with the holders from time to time of the Powerscourt Warrant, dated as of December 22, 2020 (the “Powerscourt Registration Rights Agreement”) and Wilmington Warrants, dated as of March 12, 2021 (the “Wilmington Registration Rights Agreement”), respectively.

Accordingly, the Company registered the resale of the common stock underlying the Powerscourt Warrant and Wilmington Warrant on a Form S-11 Registration Statement which became effective on May 25, 2021.

Warrant Agreements

The Company utilized the Monte Carlo simulation model to calculate the fair value of the Powerscourt Warrant and Wilmington Warrant (collectively, the "Warrant Agreements").

Significant observable and unobservable inputs include stock price, conversion price, risk-free rate, term, likelihood of an event of contractual conversion and expected volatility.

The Monte Carlo simulation is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.

The warrants were valued at approximately $594 thousand and the Company recorded a liability included on the consolidated balance sheet.

The Warrant Agreements were valued at approximately $2.61 million upon issuance and recorded as a liability on the consolidated balance sheets.

For the year ended December 31, 2021, the Company reported non-operating income of approximately $1.36 million, due to changes in fair value.

See Note 6 included in this Form 10-K for additional details.

KeyBank Credit Agreement

On January 24, 2020, the Company and KeyBank entered into a Second Amendment to the KeyBank Credit Agreement (the "Second Amendment"), effective December 21, 2019.

Pursuant to the Second Amendment, the Company began making monthly principal payments of $350 thousand on November 1, 2019.

The Second Amendment, among other provisions, requires a pledge of additional collateral of $15.00 million in residual equity interests and staggered maturity dates with an ultimate maturity of June 30, 2020.

On July 21, 2020, the Company and KeyBank entered into a Third Amendment to the KeyBank Credit Agreement (the "Third Amendment").

The Third Amendment, among other provisions, reduces the pledge of additional collateral by two properties and extends the maturity to December 31, 2020.

The KeyBank Credit Agreement was paid in full as of December 22, 2020.

The following collateralized portions of the Amended and Restated Credit Agreement had principal paydowns associated with each refinancing as noted below:

• $1.78 million paydown from St.

Matthews sale proceeds on January 21, 2020;

• $5.75 million paydown from Shoppes at Myrtle Park refinancing proceeds on January 23, 2020;

• $2.50 million paydown from cash released to the Company from restricted cash accounts on May 20, 2020;

• $1.00 million paydown on November 12, 2020;

• $3.00 million final paydown from Powerscourt Financing Agreement proceeds on December 22, 2020.

Columbia Fire Station Extension

Effective September 3, 2020, the Company extended the Columbia Fire Station promissory note ("Columbia Fire Station Loan") to December 3, 2020, with the monthly principal payment increasing $20 thousand for a total monthly principal and interest payment of $46 thousand beginning on October 3, 2020.

On December 7, 2020, the Company received a letter demanding payment in full from Pinnacle Bank for all amounts due under Columbia Fire Station Loan and the interest rate increased to 14%, the default rate.

On December 29, 2020, Pinnacle Bank filed a suit against the Company, guarantor.

On January 21, 2021, the Company entered into a Forbearance Agreement (the "Forbearance Agreement") with Pinnacle Bank at an interest rate of 14% and made a $500 thousand principal payment.

The Forbearance Agreement, among other provisions, extends the maturity date of the Columbia Fire Station Loan to July 21, 2021 and waives all defaults and late fees existing prior to the Forbearance Agreement.

Operating Partnership Purchase of Stock

On September 22, 2020, the Operating Partnership purchased 71,343 shares of Series D Preferred from an unaffiliated investor at $15.50 per share.

These shares are deemed to be retired on the consolidated financial statements.

Series D Preferred Stock Tender Offers

The Company through “modified Dutch auction” tender offers on the Series D Preferred accepted for purchase 387,097 shares at a purchase price of $15.50 per share, for an aggregate cost of $6.00 million on March 12, 2021 and 103,513 shares of Series D Preferred at a purchase price of $18.00 per share, for an aggregate cost of $1.86 million on May 15, 2021, both excluding fees and expenses.

Rights Offering and Convertible Notes

On July 22, 2021, the Company commenced the rights offering (the “Rights Offering”) for the purchase of up to $30.00 million in aggregate principal amount of the Company’s 7.00% senior subordinated convertible notes due 2031 (the “Convertible Notes”).

On August 13, 2021, the Rights Offering expired.

Pursuant to the Rights Offering, the Company distributed to holders of its Common Stock, as of 5:00 p.m.

New York City time on June 1, 2021 (the “Record Date”), non-transferable subscription rights to purchase Convertible Notes.

Each holder of the Company’s Common Stock as of the Record Date received one right for each eight shares of the Company’s Common Stock owned, and each right entitled a holder to purchase $25.00 principal amount of Convertible Notes.

The Rights Offering was made pursuant to an effective registration statement filed with the U.S.

Securities and Exchange Commission.

The aggregate principal amount of Convertible Notes issued in the Rights Offering was $30.00 million.

The Rights Offering was backstopped by Magnetar Structured Credit Fund, LP, Magnetar Longhorn Fund LP, Magnetar Lake Credit Fund LLC, Purpose Alternative Credit Fund – F LLC, Purpose Alternative Credit Fund – T LLC, and AY2 Capital LLC (each individually, a “Backstop Party” and, collectively, the “Backstop Parties”) in the amount of $2.19 million in aggregate principal.

On October 12, 2021, the Backstop Parties and their assignee elected to exercise their “accordion right” in full and purchased from the Company an additional $3.00 million in aggregate principal amount of the Company’s Convertible Notes.

On August 13, 2021, the Company, as Issuer, and Wilmington Savings Fund Society, FSB., as Trustee, entered into an Indenture governing the terms of the Convertible Notes (the “Indenture”).

The Convertible Notes bear interest at a rate of 7.00% per annum.

Interest on the Convertible Notes is payable semi-annually in arrears on June 30 and December 31 of each year, commencing on December 31, 2021.

The Convertible Notes are subordinate and junior in right of payment to the Company’s obligations to the holders of senior indebtedness, and that in the case of any insolvency, receivership, conservatorship, reorganization, readjustment of debt, marshalling of assets and liabilities or similar proceedings or any liquidation or winding-up of or relating to the Company as a whole, whether voluntary or involuntary, all obligations to holders of senior indebtedness shall be entitled to be paid in full before any payment shall be made on account of the principal or interest on the Convertible Notes.

Interest on the Convertible Notes is payable, at the Company’s election:

(b) in shares of Series B Preferred;

or (d) in any combination of (a), (b), and/or (c).

For purposes of determining the value of Series B Preferred and Series D Preferred Stock paid as interest on the Convertible Notes, each share of Series B Preferred and Series D Preferred Stock shall be deemed have a value equal to the product of (x) the average of the VWAPs (as defined in the Indenture) for the Series B Preferred or the Series D Preferred, as the case may be, for the 15 consecutive trading days ending on the third business day immediately preceding the relevant interest payment date, and (y) 0.55.

On December 31, 2021, the first interest payment date on the Convertible Notes, the Company issued a total of 113,709 shares of Series D Preferred in payment of interest on the Convertible Notes.

The Convertible Notes are convertible, in whole or in part, at any time, at the option of the holders of the Convertible Notes, into shares of the Company’s Common Stock at a conversion price of $6.25 per share of the Company’s Common Stock (the “Conversion Price”);

provided, however, that if at any time after September 21, 2023, holders of the Series D Preferred have required the Company to redeem (payable in cash or stock) in the aggregate at least 100,000 shares of Series D Preferred, then the Conversion Price will be adjusted to the lower of (i) 55% of the Conversion Price or (ii) a 45% discount to the lowest price at which any Series D Preferred was converted into the Common Stock.

Upon a change of control, each Convertible Note will mandatorily convert into shares of the Company’s Common Stock equal to:

(i) the principal amount of each Convertible Note divided by (ii) the product of (x) the average of the per share volume-weighted average prices for the Common Stock for the 15 consecutive trading days ending on the third business day immediately preceding the date of such change of control, and (y) 0.55.After January 1, 2024, the Company may redeem the Convertible Notes at any time (in whole or in part) at the Company’s option at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest as of

the redemption date (the “Redemption Price”).

The Redemption Price may be paid:

(b) in shares of Common Stock;

or (c) in any combination of (a) and (b).

The Company identified certain embedded derivatives related to the conversion features of the Convertible Notes.

In accordance with ASC 815-40, Derivatives and Hedging Activities , the embedded conversion options contained within the Convertible Notes were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through each reporting date.

The Company utilized a multinomial lattice model to calculate the fair value of the embedded derivatives.

The embedded derivative liabilities were assigned a value of $5.93 million.

For the year ended December 31, 2021, the Company reported non-operating income of approximately $2.41 million, due to changes in the fair value of the embedded derivative liability .

See Note 6 included in this Form 10-K for additional details.

Preferred Dividends

At December 31, 2020, the Company had accumulated undeclared dividends of $30.51 million to holders of shares of our Series A Preferred Stock, Series B Preferred Stock, and Series D Preferred Stock of which $13.85 million is attributable to the year ended December 31, 2020.

On November 3, 2021, common stockholders of the Company voted to amend the Company’s Charter to remove the cumulative dividend rights of the Series A Preferred and Series B Preferred.

At December 31, 2021, the Company had accumulated undeclared dividends of $26.16 million to holders of shares of our Series D Preferred of which $8.17 million is attributable to the year ended December 31, 2021.

New Leases, Leasing Renewals and Expirations

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Weighted average change over prior rates 3.05 % 4.63 %

Weighted average change over prior rates, excluding bankruptcy negotiations 5.58 %

New Leases (1) (2) :

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(2) The Company does not include ground leases entered into for the purposes of new lease sq feet and weighted average rate (per sq foot) on new leases.

(3) Includes transactions related to bankruptcy negotiations, unless otherwise noted.

Critical Accounting Policies

Critical Accounting Estimates

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

The critical accounting policies summarized in this section are discussed in further detail in the notes to the consolidated financial statements appearing elsewhere in this Form 10-K.

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.

The critical accounting estimates and policies summarized in this section are discussed in further detail in the notes to the consolidated financial statements appearing elsewhere in this Form 10-K.

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.

The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that have a significant level of uncertainty at the time the accounting estimates are made, and changes to those estimates could have a material impact on our financial condition or operating results.

Revenue Recognition

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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.

Although 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, they are subject to uncertainty.

These assessments are inherently sensitive as they are based on the judgment of management and information available at the time of evaluation.

Rents and Other Tenant Receivables

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A past due receivable triggers certain events such as notices, fees and other allowable and required actions per the lease.

Upon adoption of ASC Topic 842 "Leases," reserves for uncollectible accounts were recorded and reclassified to "rental revenues".

Prior to adoption, reserves for uncollectible accounts were recorded as an operating expense, provision for credit losses.

The standard also provides guidance on calculating reserves;

however, those did not impact the Company.

Beginning in April 2020, the Company received certain rent relief requests, most often in the form of rent deferral requests, as a result of COVID-19.

The Company evaluates each tenant rent relief request on an individual basis, considering a number of factors.

The Company evaluated each tenant rent relief request on an individual basis, considering a number of factors.

Not all tenant requests ultimately result in concessions or modification of agreements, nor is the Company forgoing its contractual rights under its lease agreements.

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When the carrying value exceeds the fair value, less estimated costs to sell an impairment expense is recognized.

The Company estimates fair value, less estimated closing costs based on similar real estate sales transactions.

The Company estimates fair value, less estimated closing costs based on

similar real estate sales transactions.

These valuation assumptions are based on the three-level valuation hierarchy for fair value measurement and represent Level 2 and 3 inputs.

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Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company recognized $600 thousand and $1.60 million of impairment expense to its assets held for sale for the years ended December 31, 2020 and 2019, respectively.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company evaluates all of its financial instruments, including stock purchase warrants and convertible notes, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statement of operations.

The assumptions used in these fair value estimates are based on the three-level valuation hierarchy for fair value measurement and represent Level 3 inputs.

Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Liquidity and Capital Resources

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Operating Activities

During the year ended December 31, 2020, our cash flows from operating activities were $15.78 million, compared to cash flows from operating activities of $15.25 million during the year ended December 31, 2019, representing an increase of 3.46% or $527 thousand.

This increase is primarily a result of the decrease in interest expense and corporate general and administrative expense, partially offset by the increase in accounts receivables due to the impacts of COVID-19 on the portfolio, a decrease in property net operating income ("NOI") of $2.07 million and the timing of accounts payable, accrued expenses and other liabilities and deferred costs and other assets.

During the year ended December 31, 2021, our cash flows from operating activities were $17.04 million, compared to cash flows from operating activities of $15.78 million during the year ended December 31, 2020, representing an increase of 7.99% or $1.26 million.

This increase is primarily a result of the timing of receivables and accounts payable, accrued expenses and other liabilities and the decrease in non-operating other expenses, partially offset by the increase in interest expense, corporate general and administrative expense and a decrease in property net operating income ("NOI") of $189 thousand.

Investing Activities

During the year ended December 31, 2020, our cash flows from investing activities were $2.24 million, compared to cash flows from investing activities of $868 thousand during the year ended December 31, 2019, representing an increase of 157.72% or $1.37 million primarily due to the 2020 sales of St.

Matthews and Riversedge North compared to the three properties sold in 2019, sale of Harbor Pointe land parcel and a decrease in capital expenditures of $440 thousand primarily related to fewer tenant improvement projects in 2020.

During the year ended December 31, 2021, our cash flows from investing activities were $5.10 million, compared to cash flows from investing activities of $2.24 million during the year ended December 31, 2020, representing an increase of 128.03% or $2.86 million primarily due to the four 2021 sales described in Note 3 included in this Form 10-K compared to two in 2020, partially offset by an increase in capital expenditures of $4.14 million resulting from increased occupancy.

Financing Activities

During the year ended December 31, 2020, our cash flows from financing activities were $3.16 million, compared to $12.53 million of cash flows used in financing activities during the year ended December 31, 2019, representing an increase of 125.22% or $15.69 million due to the following:

• $11.92 million decrease in loan principal payments primarily as a result of the 2020 Shoppes at Myrtle Park and Folly Road refinances, the St.

Matthews sale and pay-down of the KeyBank Credit Agreement, offset by the three properties sold in 2019 and the 2019 payoff of the Revere Term Loan and Senior Convertible Notes in addition to the Village of Martinsville, Laburnum Square and Litchfield Market Village refinances;

• $6.69 million increase in loan proceeds due to the Shoppes at Myrtle Park and Folly Road refinances and Powerscourt Financing Agreement occurring in 2020 offset by the 2019 Village of Martinsville, Laburnum Square and Litchfield Market Village refinances;

• $552 thousand increase in proceeds from PPP funds as detailed in Note 2;

partially offset by

• $2.36 million increase in deferred financing costs primarily related to the Powerscourt Financing Agreement;

During the year ended December 31, 2021, our cash flows used in financing activities were $24.49 million, compared to $3.16 million of cash flows provided by financing activities during the year ended December 31, 2020, representing a decrease of 875.03% or $27.65 million due to the following:

• $14.51 million increase in loan principal payments, net loan proceeds, due to the Wilmington Financing Agreement, Powerscourt Financing Agreement, and Columbia Fire Station payoffs, the Convertible Notes and refinancing activity described in Note 5 of this Form 10-K;

• $7.23 million increase in preferred stock redemption;

• $4.67 million increase in deferred financing costs primarily related to the Wilmington Financing Agreement and Convertible Notes;

• $687 thousand prepayment penalty related to the Berkley/Sangaree/Tri-County loan payoff.

We intend to continue managing our debt prudently so as to maintain a conservative capital structure and minimize leverage within our company.

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Fixed-rate notes (1)

Adjustable-rate mortgages (1)

$ 344,177 $ 330,340

Fixed-rate notes, assets held for sale 6,472 —

Floating-rate line of credit (1)

Adjustable-rate mortgages (1)

Total debt $ 346,262 $ 353,916

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See Note 5 included in this Form 10-K for additional mortgage indebtedness details.

Future Liquidity Needs

The primary liquidity needs of the Company, in addition to the funding of our ongoing operations, at December 31, 2020 are $43.93 million in debt maturities and principal payments due in the year ended December 31, 2021 as described in Note 6 on this Form 10-K.

Included in the $43.93 million are 6 loans collateralized by 7 properties within our portfolio.

The Company plans to pay these obligations through a combination of refinances, dispositions and operating cash.

Management intends to refinance or extend the remaining maturing debt as it comes due.

Material Cash Requirements, Contractual Obligations and Commitments

Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures;

(ii) other essential expenditures;

and (iii) opportunistic expenditures.

The primary liquidity needs of the Company, in addition to the funding of our ongoing operations, at December 31, 2021 are $13.57 million in principal and regularly scheduled payments due in the year ended December 31, 2022 as described in Note 5 on this Form 10-K.

In addition to liquidity required to fund debt payments we may incur some level of capital expenditures during the year for our existing properties that cannot be passed on to our tenants.

As discussed above, the continuing COVID-19 pandemic outbreak has adversely impacted states and cities where the Company’s tenants operate their businesses and where the Company’s properties are located.

The COVID-19 pandemic could have a material adverse effect on the Company’s financial condition, results of operations and cash flows as the reduced economic activity severely impacts certain of the Company’s tenants’ businesses, financial condition and liquidity and may cause certain tenants to be unable to meet their obligations to the Company in full.

Closures of stores operated by the Company’s tenants could reduce the Company’s cash flows.

To meet these future liquidity needs:

To meet these future liquidity needs, the Company had:

• $22.90 million in cash and cash equivalents at December 31, 2021;

• $35.11 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes, insurance and funds held for the 2020 tender offer at December 31, 2020;

• $17.52 million held in lender reserves for the purpose of tenant improvements, lease commissions, real estate taxes and insurance at December 31, 2021;

• intends to use cash generated from operations during the year ended December 31, 2022.

In addition, the Board suspended Series A Preferred, Series B Preferred and Series D Preferred dividend payments beginning with the fourth quarter 2018 dividend.

The Board plans to revisit the dividend payment policy with respect to the Series A Preferred, Series B Preferred and Series D Preferred on an ongoing basis.

The Board believes that the dividend suspension will provide the Company approximately $3.44 million of additional funds per quarter to help meet its ongoing liquidity needs.

Additionally, the Company plans to undertake measures to grow its operations and increase liquidity through backfilling vacant anchor spaces, replacing tenants who are in default of their lease terms, increasing future lease revenue through tenant improvements partially funded by restricted cash, disposition of assets and refinancing properties.

Our success in refinancing the debt, and executing on our strategy will dictate our liquidity needs going forward.

Our success in executing on our strategy will dictate our liquidity needs going forward.

If we are unable to execute in these areas, our ability to grow and reinstate dividends may be limited without additional capital.

Off-Balance Sheet Arrangements

On September 1, 2011, the Grove Economic Development Authority issued the Grove Economic Development Authority Tax Increment Revenue Note, Taxable Series 2011 in the amount of $2.42 million, bearing a variable interest rate of 2.29%, not to exceed 14% and payable in 50 semi-annual installments.

The proceeds of the bonds were to provide funding for the construction of public infrastructure and other site improvements and to be repaid by incremental additional property taxes generated by development.

Harbor Pointe Associates, LLC, then owned by an affiliate of former CEO, Jon Wheeler, entered into an Economic Development Agreement with the Grove Economic Development Authority for this infrastructure development and in the event the ad valorem taxes were insufficient to cover annual debt service, Harbor Pointe Associates, LLC would reimburse the Grove Economic Development Authority (the “Harbor Pointe Agreement”).

In 2014, Harbor Pointe Associates, LLC was acquired by the Company.

The total debt service shortfall over the life of the bond is uncertain as it is based on ad valorem taxes, assessed property values, property tax rates, LIBOR and future potential development ranging until 2036.

The Company’s future total principal obligation under the Harbor Pointe Agreement will be no more than $2.21 million, the principal amount of the bonds, as of December 31, 2020.

In addition, the Company may have an interest obligation on the note based on the principal balance and LIBOR rates in effect at future payment dates.

In 2020 and 2019, we funded approximately $0 thousand and $79 thousand, respectively in debt service shortfalls.

No amounts have been accrued for this as of December 31, 2020 as a reasonable estimate of future debt service shortfalls cannot be determined based on variables noted above.

As of December 31, 2020, we have no off-balance sheet arrangements, other than that noted above, that are likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

In addition, our Board of Directors suspended Series A Preferred, Series B Preferred and Series D Preferred dividend payments beginning with the fourth quarter 2018 dividend.

On November 3, 2021, common stockholders of the Company approved amendments to the Company’s Charter to remove the cumulative dividend of the Series A Preferred and the Series B Preferred.

The Company believes that these actions support the Company's liquidity needs and improve the Company's capital structure.

Looking ahead to 2023, beginning on September 21, 2023, holders of the Series D Preferred will have the right to cause the Company to redeem their Series D Preferred at a price of $25.00 per share plus the amount of all accrued but unpaid dividends.

This redemption price is payable by the Company, at the Company’s election, in cash or shares of the Company’s

common stock, or a combination of cash and shares of the Company’s common stock.

Since January 2019, the Company’s Series D Preferred (of which there are currently approximately 3.15 million shares outstanding at December 31, 2021) have been accruing unpaid dividends at a rate of 10.75% per annum of the $25.00 liquidation preference per share of Series D Preferred, or at $2.6875 per share per annum.

As of December 31, 2021, the outstanding Series D Preferred had a liquidation preference of approximately $78.81 million, with aggregate accrued and unpaid dividends in the amount of approximately $26.16 million.

Furthermore, based upon the closing price of the Company’s common stock on February 24, 2022 of $1.97 per share, the Company believes it is unlikely that holders of the Series D Preferred would convert their shares into common stock at the current conversion price of $16.96 per share of common stock.

As such, there is a significant risk that the Company will not have sufficient cash to pay the aggregate redemption price, and would not be able to meet its redemption obligation without substantial dilution of its common stock.

Inflation, Deflation and Economic Condition Considerations

Inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers;

however, inflation may become a greater concern in the near future.

Inflation has been historically low and had a minimal impact on the operating performance of our shopping centers;

however, inflation has recently increased in the United States.

Increased inflation could have a negative impact on the Company’s property operating expenses, as these costs could increase at a rate higher than the Company’s rents.

Inflation could also have an adverse effect on consumer spending which could impact the Company’s tenants’ sales and, in turn, the Company’s percentage rents, where applicable, and the willingness and ability of tenants to enter into or renew leases and/or honor their obligations under existing leases.

Conversely, deflation could lead to downward pressure on rents and other sources of income.

Most of our leases contain provisions designed to partially mitigate the impact of inflation, which require tenants to pay their pro-rata share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation, although some tenants have capped the amount of these operating expenses they are responsible for under the lease.

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In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates.

However, during deflationary periods or periods of economic weakness, minimum rents and percentage rents will decline as the supply of available retail space exceeds demand and consumer spending declines.

Occupancy declines will result in lower recovery rates of our operating expenses.

Recent Accounting Pronouncements

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Property operations 19,618 18,886 732 3.88 %

Non-REIT management and leasing services — 25 (25) (100.00) %

Depreciation and amortization 14,797 17,291 (2,494) (14.42) %

Impairment of notes receivable — 5,000 (5,000) (100.00) %

Impairment of assets held for sale 2,300 600 1,700 283.33 %

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Operating Income 19,510 18,418 1,092 5.93 %

Interest income 34 1 33 3,300.00 %

Interest expense (33,028) (17,093) (15,935) (93.23) %

Net changes in fair value of derivative liabilities 3,768 — 3,768 100.00 %

Other income 552 — 552 100.00 %

Other expense (185) (1,039) 854 82.19 %

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Total Revenue

Total revenue was $61.00 million for the year ended December 31, 2020 compared to $63.16 million for the year ended December 31, 2019, representing a decrease of 3.42% primarily due to sold properties, three new anchor vacancies of which two were backfilled with rent commencing in 2021 and an increase in the credit loss on operating receivables driven by higher accounts receivable due to impacts of COVID-19 on the portfolio.

These negative impacts were partially offset by increases in straight-line rental revenues resulting from long-term lease extensions.

See Same Store and Non-same Store Operating Income for further details about the changes within operating revenue.

Total revenue was $61.31 million and $61.00 million for the years ended December 31, 2021 and December 31, 2020, respectively, representing an increase of 0.50%.

The increase in rental revenues of $329 thousand is a result of an $892 thousand decline in the provision for credit losses due to collections returning to pre-COVID levels, partially offset by the decrease of property revenues due to dispositions.

Total Operating Expenses

Total operating expenses for the year ended December 31, 2020 were $42.61 million compared to $53.70 million for the year ended December 31, 2019, representing a decrease of 20.66%.

The decrease are primarily a result of decreases in impairments, depreciation and amortization and corporate general and administrative expense.

Impairments decreased as a

result of the $5.00 million impairment of the Sea Turtle notes receivable and $1.00 million decrease in impairment of assets held for sale, Perimeter Square and St.

Matthews impaired in 2019 compared to Columbia Fire Station impairment in 2020.

Depreciation and amortization decreased $4.03 million primarily as a result of lease intangibles becoming fully amortized and ceasing of depreciation and amortization as properties were classified as available held for sale.

Corporate general and administrative expenses for the year ended December 31, 2020 decreased 12.09% or $802 thousand, as a result of the following:

• $402 thousand decrease in compensation and benefits primarily driven by a reduction in personnel and decrease in director's compensation;

• $159 thousand decrease in advertising costs for leasing activities related to cancellation of conferences due to COVID-19;

• $154 thousand decrease in other expenses primarily associated with a reduction in taxes and licenses and travel expenses, partially offset by an increase in debt financing costs associated with short term loan extensions.

Total operating expenses were $43.86 and $42.61 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 2.93%.

Impairment of assets held for sale was $2.30 million for the year ended December 31, 2021 as a result of Walnut Hill Plaza and Columbia Fire Station and impairment was $600 thousand for the year ended December 31, 2020, a result of Columbia Fire Station.

Depreciation and amortization decreased $2.49 million for the

year ended December 31, 2021 primarily as a result of lease intangibles becoming fully amortized and ceasing of depreciation and amortization as properties were classified as assets held for sale.

See Same Store and Non-same Store Operating Income for further details about the changes within property operations expense.

Corporate general and administrative expenses were $7.14 million and $5.83 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 22.45%, primarily a result of the following:

• $650 thousand increase in professional fees primarily related to property and corporate legal fees along with costs associated with the Special Meeting of Common Stockholders;

• $531 thousand increase in corporate administration primarily related to office rent expense for the Company's corporate headquarters that had a sale leaseback in December 2020, credit card fees the Company has borne on cash receipts and increased directors and officers insurance costs.

Gain on Disposal of Properties

The gain on disposal of properties decrease of $1.37 million for the year months ended December 31, 2020 is a result of the 2020 sales of St.

Matthews and Riversedge North, net of the 2019 demolition of an approximate 10,000 square foot outparcel at the JANAF property to make way for a new approximate 20,000 square foot building constructed by a grocer tenant, Aldi, and sales of Jenks Plaza, Graystone Crossing and Perimeter Square.

The net gain on disposal of properties increase of $2.03 million for the year ended December 31, 2021 is a result of the 2021 sales of Columbia Fire Station, Rivergate Shopping Center Out Parcel, Berkley Shopping Center and Berkley Land Parcel, along with the Tulls Creek Land Parcel sale compared to the 2020 sales of St.

Matthews and Riversedge North.

Interest Expense

Interest expense decreased $1.89 million or 9.96% for the year ended December 31, 2020, compared to $18.98 million for the year ended December 31, 2019.

The decrease is primarily attributable to a $12.86 reduction in loans payable from December 31, 2019 absent the Powerscourt Financing Agreement combined with lower loan cost amortization due to loan modifications and sold properties.

Other Expenses

Other expenses were $1.04 million for the year ended December 31, 2020.

Other expenses include $600 thousand in legal settlement costs and $439 thousand for reimbursement of the Stilwell Group's proxy solicitation expenses incurred in connection with the Company's 2019 annual meeting of stockholders.

Interest expense was $33.03 million and $17.09 million for the years ended December 31, 2021 and 2020, representing an increase of 93.23%.

Loan cost amortization accounted for $11.61 million of the increase, primarily attributable to the write-off of debt issuance costs related to the Powerscourt Financing Agreement and Wilmington Financing Agreement.

Interest expense on the Convertible Notes accounted for $1.61 million, which includes the adjustment to fair value with the remaining increase of $2.71 million a result of the Powerscourt and Wilmington Financing Agreements and defeasance resulting from the sale of Berkley Shopping Center.

Net Change in Fair Value of Derivative Liabilities

The net change in the fair value of derivative liabilities of $3.77 million for the year ended December 31, 2021 is a result of the fair value calculations described in Note 6 included in this Form 10-K with the largest impact in the valuation attributed to the change in the Company’s stock price since the issuance of each warrant and embedded derivative.

Other Income and Expense

Other incomes were $552 thousand and $0 for the years ended December 31, 2021 and 2020, respectively, relating to PPP Promissory Note forgiveness.

Other expenses were $185 thousand for the year ended December 31, 2021, which consist of legal settlement costs.

Other expenses were $1.04 million for the year ended December 31, 2020 which includes $600 thousand in legal settlement costs and $439 thousand for reimbursement of 2019 proxy expenses.

These expenses are non-operating in nature.

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The Company uses NOI to evaluate its operating performance since NOI allows the Company to evaluate the impact of factors, such as occupancy levels, lease structure, lease rates and tenant base, have on the Company's results, margins and returns.

NOI should not be viewed as a measure of the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties.

should not be viewed as a measure of the Company's overall financial performance since it does not reflect general and administrative expenses, depreciation and amortization, involuntary conversion, interest expense, interest income, provision for income taxes, gain or loss on sale or disposition of assets, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties.

Other REITs may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to that of other REITs.

The following table is a reconciliation of same and non-same store NOI from the most directly comparable GAAP financial measure of net income (loss).

Same stores consist of those properties owned during all periods presented in their

entirety, while non-same stores consist of those properties acquired or disposed of during the periods presented.

The non-same store category consists of the following sold properties:

• Discontinued operations

◦ Harbor Pointe land parcel (sold February 7, 2019);

Same stores consist of those properties owned during all periods presented in their entirety, non-same stores consist of those properties acquired or disposed of during the periods presented.

store category consists of the following properties:

• Continuing operations

◦ Jenks Plaza (sold January 11, 2019);

◦ Graystone Crossing (sold March 18, 2019);

◦ Perimeter Square (sold July 12, 2019);

Matthews (sold January 21, 2020);

◦ JANAF Executive Building (24,980 square foot building, decommissioned as of March 31, 2020);

◦ Berkley Shopping Center and Berkley Land Parcel (sold March 25, 2021);

◦ Tulls Creek Land Parcel (sold July 9, 2021);

◦ Rivergate Shopping Center Out Parcel (sold August 31, 2021);

◦ Columbia Fire Station (sold November 17, 2021).

Years Ended December 31,

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(in thousands)

Net Income (Loss) $ 285 $ (8,100) $ 2 $ (44) $ 287 $ (8,144)

Net (Loss) Income $ (8,201) $ 1,280 $ (1,150) $ (993) $ (9,351) $ 287

Income tax expense 2 — — — 2 —

Other expense 185 1,039 — — 185 1,039

Other income (552) — — — (552) —

Net changes in fair value of derivative liabilities (3,768) — — — (3,768) —

Interest expense 31,978 16,607 1,050 486 33,028 17,093

Interest Income (34) (1) — — (34) (1)

Gain on disposal of properties — — (2,055) (23) (2,055) (23)

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Impairment of assets held for sale 100 — 2,200 600 2,300 600

Impairment of notes receivable — 5,000 — — — 5,000

Depreciation and amortization 14,797 17,141 — 150 14,797 17,291

Non-REIT management and leasing services — 25 — — — 25

Other non-property revenue (36) (272) — — (36) (272)

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Property Revenues

Total same store property revenues for the year ended December 31, 2020 decreased to $60.72 million compared to $62.19 million for the year ended December 31, 2019, representing a decrease of 2.37% primarily due to:

• $1.33 million decrease in rental revenues due to three new anchor vacancies of which two were backfilled with rent commencing in 2021;

• $602 thousand increase in the credit loss on operating receivables driven by higher accounts receivable due to the impacts of COVID-19 on the portfolio;

• $267 thousand decrease in above (below) market lease amortization related to leases becoming fully amortized;

Total same store property revenues were $60.95 million and $60.00 million for the years ended December 31, 2021 and 2020, respectively, representing an increase of 1.58% primarily due to:

• $915 thousand decrease in provision for credit losses a result of the Company's proactive tenant outreach during the pandemic and collection initiatives, which included accepting credit card payments;

• $333 thousand increase in rental revenue due to increased occupancy;

partially offset by

• $783 thousand increase in straight-line rental revenues resulting from long-term lease extensions.

• $467 thousand decrease in above (below) market lease amortization related to leases becoming fully amortized.

Property Expenses

Total same store property expenses for the year ended December 31, 2020 remained relatively consistent at $18.86 million, compared to $18.83 million for the year ended December 31, 2019.

Property expenses had an increase of $400

thousand in insurance that was, partially offset by a decrease of $326 thousand in common area maintenance expenses and real estate taxes.

Total same store property expenses were $19.40 million and $18.44 million for the years ended December 31, 2021 and 2020, respectively, an increase of 5.18% primarily due to increasing management fee allocation and an increase of $301 thousand in grounds and landscaping and an increase of $222 thousand in real estate taxes and utilities, partially offset by $105 thousand decrease in insurance expense.

There were no significant unusual or non-recurring items included in non-same store property expenses for the years ended December 31, 2021 and 2020.

Property Net Operating Income

Total property net operating income was $41.85 million for the year ended December 31, 2020, compared to $43.91 million for the year ended December 31, 2019 representing a decrease of 4.70%.

Same stores accounted for decreases of $1.50 million, while non-same stores had a decrease of $566 thousand, resulting from the loss of NOI associated with sold properties.

Total property net operating income were $41.66 million and $41.85 million for the years ended December 31, 2021 and 2020, respectively, representing a decrease of 0.45%.

Non-same stores had a decrease of $183 thousand in property net operating income, resulting from the loss of NOI associated with sold properties.

Funds from Operations (FFO)

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2021 2020 2021 2020 2021 2020 $ %

Net Income (loss) $ 285 $ (8,100) $ 2 $ (44) $ 287 $ (8,144) $ 8,431 103.52 %

Net (Loss) income $ (8,201) $ 1,280 $ (1,150) $ (993) $ (9,351) $ 287 $ (9,638) (3,358.19) %

Depreciation and amortization of real estate assets 14,797 17,141 — 150 14,797 17,291 (2,494) (14.42) %

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FFO $ 6,696 $ 18,421 $ (1,005) $ (266) $ 5,691 $ 18,155 $ (12,464) (68.65) %

During the year ended December 31, 2020, same store FFO increased $5.03 million primarily due to the following:

• $5.00 million decrease in impairment of notes receivable;

• $1.60 million decrease in interest expense

• $784 thousand decrease in corporate general and administrative expenses;

During the year ended December 31, 2021, same store FFO decreased $11.72 million primarily due to the following:

• $15.37 million increase in interest expense;

• $1.32 million increase in corporate general and administrative expenses;

partially offset by

• $1.04 million increase in other expense for legal settlements and reimbursement of 2019 proxy costs;

• $1.50 million decrease in property net operating income.

• $854 thousand decrease in other expense for legal settlements and reimbursement of 2019 proxy costs;

• $552 thousand increase in other income for PPP Promissory Note forgiveness;

• $3.77 million net change in the fair value of derivative liabilities.

We believe 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, but are not limited to, legal settlements, non-cash share-based compensation expense, non-cash amortization on loans and acquisition costs.

Therefore, in addition to FFO, management uses Adjusted FFO ("AFFO"), which

we define to exclude such items.

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 they are not indicative of the operating performance of our assets.

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FFO available to common stockholders and common unitholders (2,476) 8,670

Impairment of notes receivable — 5,000

Acquisition and development costs — 26

Capital related costs 438 291

Other non-recurring and non-cash expenses 352 1,085

Net changes in fair value of derivative liabilities (3,768) —

Share-based compensation 14 —

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Loan cost amortization 12,710 1,097

(Below) above market lease amortization (461) (1,261)

Paid-in-kind interest 1,610 —

Above (below) market lease amortization 13 (461)

Recurring capital expenditures and tenant improvement reserves (1,096) (1,112)

AFFO $ 6,771 $ 8,599

Impairment on notes receivable during the year ended December 31, 2019 is due to the impairment of the notes receivable related to Sea Turtle and is not indicative of our core portfolio of properties and future operations.

Other non-recurring and non-cash expenses are costs we believe will not be incurred on a go forward basis.

Other non-recurring expenses during year ended December 31, 2020 include $600 thousand in legal settlement costs, $439 thousand for reimbursement of the Stilwell Group's proxy solicitation expenses incurred in connection with the Company's 2019 annual meeting of stockholders and $51 thousand for severance.

During the year ended December 31, 2019, other non-recurring expenses were for severance, vacation accrual and one-time fees we believe will not be incurred on a go forward basis.

The preferred stock redemption represents the retirement of the undeclared dividends during the year ended December 31, 2020 associated with the Operating Partnership purchasing 71,343 shares of the Series D Preferred Stock from an unaffiliated investor.

These shares are considered retired on the consolidated financial statements.

The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B Preferred Stock and Series D Preferred Stock.

Other nonrecurring expenses of $352 thousand for the year ended December 31, 2021 include $687 thousand loan prepayment penalty on sale of the Berkley Shopping Center and $185 thousand in legal settlement costs, partially offset with $552 thousand in PPP Promissory Note forgiveness.

Other nonrecurring expenses of $1.09 million for the year ended December 31, 2020, include legal settlement costs of $600 thousand, reimbursement of 2019 proxy solicitation expenses of $439 thousand incurred in connection with the Company's 2019 annual meeting of stockholders and severance of $51 thousand.

Loan cost amortization was $12.71 million and $1.10 million for the years ended December 31, 2021 and 2020, respectively.

The 2021 increase primarily related to the write-off of loan costs associated with the Powerscourt Financing Agreement and Wilmington Financing Agreement as a result of paying off each loan and the addition of the Convertible Notes.

Paid-in-kind interest was $1.61 million for the year ended December 31, 2021 due to interest related to the Convertible Notes paid with shares of Series D Preferred.

See Note 5 included in this form 10-K for additional details.

The preferred stock redemption of $70 thousand and $96 thousand for the years ended December 31 2021 and

2020, respectively, represents the undeclared dividends on the stock retirement for the months preceding their retirement.

The preferred stock accretion adjustments represent the amortization of offering costs associated with raising the Series B Preferred and Series D Preferred.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Financial Statements and Supplementary Data.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis