The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X. The Company follows the accounting principles generally accepted in the United States of America (“GAAP”) and includes the accounts of the Company’s wholly owned consolidated subsidiaries and majority-owned controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Prior to the termination of its status as a BDC, the Company was an investment company under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). Under the 1940 Act rules, regulations pursuant to Article 6 of Regulation S-X and ASC 946, subject to certain inapplicable exceptions, the Company was precluded from consolidating portfolio company investments, including those in which the Company had a controlling interest, unless the portfolio company was an investment company. Therefore, the Company’s portfolio company investments, including those in which the Company had a controlling interest, were carried on the consolidated statements of assets and liabilities at fair value with changes to fair value recognized as “Net unrealized gain (loss)” on the consolidated statements of operations until the investment was realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeded the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company included required financial information for such subsidiary in the notes or as an attachment to its consolidated financial statements.

As a result of the termination of the Company’s status as a BDC, the Company is no longer an investment company under the FASB ASC 946. The Company discontinued applying the guidance in ASC 946 and began to account for the change in status prospectively by accounting for its investments in accordance with other GAAP as of the date of the change in status.

The Company’s financial statements for the period subsequent to the termination of its BDC status are prepared on a consolidated basis to include the financial position, results of operations, and cash flows of the Company and its wholly owned and majority-owned subsidiaries. This change in status and the application of different accounting principles makes it difficult to compare consolidated financial statements for 2021 and 2020. As such, for the three and six months ended December 31, 2021, the consolidated statements of operations, changes in net assets (referred as “equity” effective March 31, 2021) and cash flows have been presented as it would be for a REIT (on a “successor basis”). For the three and six months ended December 31, 2020, the consolidated statements of operations, changes in net assets, and cash flows have been presented as they would be for an investment company (on a “predecessor basis”). The consolidated balance sheets at December 31, 2021 and June 30, 2021 have been presented on the successor basis.

The unaudited consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates.

The Company evaluates the need to consolidate its investments in securities in accordance with ASC Topic 810, Consolidation (“ASC 810”). In determining whether the Company has a controlling interest in a variable interest entity and whether to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners, as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. Refer to Note 5 for additional information.

The Company’s cash represents balances held in current bank accounts and restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, debt service and leasing costs held by lenders, and cash pledged as collateral for securities sold short. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. At times, the cash balances held in financial institutions by the Company may exceed these insured limits.

Restricted cash is subject to a legal or contractual restrictions as to withdrawal or use, including restrictions that require the funds to be used for a specified purpose and restrictions that limit the purpose for which the funds can be used. The Company considers cash pledged as collateral for securities sold short to be restricted cash.

Investment income represent dividends, distributions, and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the consolidated financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables, and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. The Company has determined that all investments income receivable balances outstanding as of December 31, 2021 and June 30, 2021, are collectible and do not require recording any uncollectible allowance.

The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates. The Company has determined that all rent receivable balances outstanding as of December 31, 2021 and June 30, 2021, are collectible and do not require recording any uncollectible allowance.

The Company conducts closings for new purchases of the Company’s common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are effective only upon the Company’s acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated statements of assets and liabilities. As of December 31, 2021, capital pending acceptance was $73,000. As of June 30, 2021, there was no capital pending acceptance.

Organization costs include, among other things, the cost of legal services pertaining to the organization and incorporation of the business, incorporation fees, and audit fees relating to the public offerings and the initial statement of assets and liabilities. These costs are expensed as incurred. Offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. While the Company was a BDC, offering costs were capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period. Any deferred offering costs that had not been amortized upon the expiration or earlier termination of an offering were accelerated and expensed upon such expiration or termination. The offering costs incurred by the Company on the offering circular to sell the Series A preferred stock have been classified as a reduction of equity.

The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2020. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2020. Similarly, for the tax year 2021, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2021.

TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on their taxable income at regular statutory rates. However, as of December 31, 2021, they did not have any taxable income for tax years 2020 or 2021. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2020 and 2021.

The Operating Partnership is a limited partnership and its subsidiaries; Addison Property Owner, LLC (the “Property Owner”) and Hollywood Hillview Owner, LLC (the “Hollywood Hillview”) are limited liability companies. Madison and PVT are also limited liability companies. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities.

The Company and its subsidiaries follow ASC 740, Income Taxes (“ASC 740”), to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax liabilities attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for recognizing, measuring, presenting, and disclosing uncertain tax positions in the financial statements. As of December 31, 2021, and June 30, 2021, there were no uncertain tax positions. Management’s determinations regarding ASC 740 are subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

The Company has minority and non-controlling equity investments in various limited partnerships and non-traded entities, which do not have readily determinable fair values. The Company does not have controlling interests in these entities. Thus, these investments have been recorded as investments in equity securities in accordance with ASC Topic 321, Investments – Equity Securities, and measured at fair value. The changes in the fair value of these investments are recorded in the consolidated statement of operations.

The Company elected the fair value option of accounting for the investments listed below that would have otherwise been recorded under the equity method of accounting. The primary purpose of electing the fair value option was to enhance the transparency of the Company’s financial condition. Changes in the fair value of these investments, which are inclusive of equity in income, are recorded in the consolidated statement of operations during the period such changes occur. The below list of investments would have been accounted for under the equity method if the fair value method had not been elected and have been included in investments in the consolidated balance sheet as of December 31, 2021 and June 30, 2021:

These are equity method investments that do not meet the consolidation requirements under ASC topic 810. Under the 1940 Act, these investments are considered “voting securities” as opposed to “investment securities”. Therefore, the Company listed these equity method investments separately from rest of the equity method investments at fair value in the consolidated balance sheets. As of December 31, 2021, the Company’s investments in BP3 Affiliate, LLC, Britannia Preferred Members, LLC - Class 1 and Class 2, and Dimensions 28, LLP were considered to be voting securities under the 1940 Act and as of June 30, 2021, the Company’s investments in Bishop Berkeley, LLC, BP3 Affiliate, LLC, Britannia Preferred Members, LLC - Class 1 and Class 2, and Dimensions 28, LLP were considered to be voting securities under the 1940 Act. Therefore, these investments were shown as unconsolidated investments (non-securities), at fair value in the consolidated balance sheets. For GAAP purposes, these investments have been recorded under the equity method investments, for which the Company has elected the fair value option as discussed above.

The Company may sell a security it does not own in anticipation of a conversion of a private equity investment to a publicly traded investment. When the Company sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. A gain, limited to the price at which the Company sold the security short, or a loss, unlimited in amount, will be recognized upon the termination of the short sale.

During the quarter ended December 31, 2021, the Company short sold Phillips Edison & Company, Inc. Class A shares. The Company presented the short sale in the consolidated balance sheet as securities sold, not yet purchased, at fair value based on the security’s publicly traded price as of December 31, 2021, which is considered to be level 1 under the fair value hierarchy. In January 2022, the short sale liability was closed by delivering the Company’s Phillips Edison & Company, Inc. Class B shares that converted to Class A shares in January 2022.

The Company continually monitors events and changes in circumstances that could indicate that the carrying value of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment emerge, the Company assesses whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this assessment, if the Company does not believe that it will recover the carrying value of the real estate and related intangible assets, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets. No impairment charges were recorded for the period ended December 31, 2021.

Gains on sales of rental real estate are not considered sales to customers and will generally be recognized pursuant to the provisions of ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company will dispose of the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer.

ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has one reportable segment, income-producing real estate properties, which consists of activities related to investing in real estate. The real estate properties are geographically diversified throughout the United States, and the Company evaluates operating performance on an overall portfolio level.