10-Q 1 mrc10qmar31-2015.htm MRC 10Q mrc10qmar31-2015.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
    X    
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2015
   
¨¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from _________ to __________
   
Commission file number 000-55006
   
MacKenzie Realty Capital, Inc.
(Exact name of registrant as specified in its charter)
   
Maryland
45-4355424
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
1640 School Street, Moraga, California 94556
(Address of principal executive offices)
   
(925) 631-9100
(Registrant’s telephone number, including area code)
   
 
________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
 
   
Indicate by check mark whether the registrant has (1) 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 or 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           No        
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer                 Accelerated filer                   Non-accelerated filer         X           Smaller reporting company             
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       No    X   
 
The number of the shares of issuer’s Common Stock outstanding as of May 11, 2015 was 1,965,395.17.
 
 


SLC-7226539-2
 
 


 
TABLE OF CONTENTS



   
Page
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7-19
 
 
 
Item 2.
20-27
 
 
 
Item 3.
27
 
 
 
Item 4.
27
 
 
 
PART II.
 
 
 
 
Item 1.
28
 
 
 
Item 1A.
28
 
 
 
Item 2.
28
 
 
 
Item 3.
28
 
 
 
Item 4.
28
 
 
 
Item 5.
28
 
 
 
Item 6.
29
 
 
 
 
30
     
   Exhibit Index  31
 

 


 
SLC-7226539-2
 

 
 
 
Part I. FINANCIAL INFORMATION
 
Item 1. Financial Statements

MacKenzie Realty Capital, Inc.
Statements of Assets and Liabilities
March 31, 2015 and June 30, 2014


 
   
March 31, 2015
   
June 30, 2014
 
   
(Unaudited)
       
Assets
 
 
       
Investments, at fair value (cost of $14,640,540 and $5,593,407, respectively)
  $ 16,667,386     $ 5,905,995  
Cash and cash equivalents
    2,123,677       3,522,751  
Accounts receivable
    69,043       12,869  
Other assets
    209,947       69,145  
Deferred offering costs (net of accumulated amortization of $424,825 and $389,423, respectively)
    -       35,402  
    $ 19,070,053     $ 9,546,162  
                 
Liabilities
               
Accounts payable and accrued liabilities
  $ 40,566     $ 58,378  
Income tax payable
    6,488       160,362  
Capital pending acceptance
    411,408       380,200  
Due to related entities
    158,929       57,915  
Deferred tax liability
    37,943       124,518  
Total liabilities
    655,334       781,373  
                 
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 1,811,991.17 and 893,807.67 shares issued and outstanding, respectively
    181       89  
Capital in excess of par value
    16,711,802       8,591,878  
Retained earnings
    1,702,736       172,822  
Total net assets
  $ 18,414,719     $ 8,764,789  
                 
Net asset value per share of common stock (note 6)
  $ 10.16     $ 9.81  
                 


 
 

 


 
 
The accompanying Notes to Financial Statements are an integral part of these financial statements.

 
 
 
MacKenzie Realty Capital, Inc.
Schedule of Investments
March 31, 2015
(Unaudited)

 

 
Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of Net Assets
 
American Realty Capital Properties, Inc.
     
Publicly Traded Company
    54,800.00     $ 514,633     $ 539,780       2.94  
Apartment Investment and Management Company
 
Publicly Traded Company
    3,888.00       115,163       153,032       0.83  
Ashford Hospitality Prime, Inc.
     
Publicly Traded Company
    12,800.00       224,201       214,656       1.17  
Ashford Hospitality Trust, Inc.
     
Publicly Traded Company
    30,000.00       299,917       288,600       1.57  
Associated Estates Realty Corporation
     
Publicly Traded Company
    8,900.00       193,494       219,652       1.19  
Bluerock Residential Growth REIT, Inc.
     
Publicly Traded Company
    1,429.61       18,641       19,057       0.10  
CBL & Associates Properties Inc.
     
Publicly Traded Company
    18,300.00       348,730       362,340       1.97  
Equity Commonwealth
     
Publicly Traded Company
    12,150.00       311,113       322,582       1.75  
FelCor Lodging Trust Incorporated
     
Publicly Traded Company
    6,300.00       51,604       72,387       0.39  
Lexington Realty Trust
     
Publicly Traded Company
    49,300.00       528,497       484,619       2.63  
Liberty Property Trust
     
Publicly Traded Company
    5,500.00       195,750       196,350       1.07  
One Liberty Properties, Inc.
     
Publicly Traded Company
    9,000.00       206,110       219,780       1.19  
Rouse Properties Inc
     
Publicly Traded Company
    20,700.00       377,231       392,472       2.13  
Senior Housing Properties Trust
     
Publicly Traded Company
    9,000.00       201,135       199,710       1.08  
Winthrop Realty Trust Shares of Beneficial Interest
 
Publicly Traded Company
    38,500.00       597,020       628,320       3.41  
Total Public Traded Company
                    4,183,239       4,313,337       23.42  
                                         
Apple Hospitality REIT, Inc.
     
Non Traded Company
    180,986.44       1,268,340       1,730,230       9.40  
Bluerock Residential Growth REIT, Inc. Class B2
 
Non Traded Company
    1,429.61       17,211       19,057       0.10  
Bluerock Residential Growth REIT, Inc. Class B3
 
Non Traded Company
    1,429.61       15,781       19,057       0.10  
FSP South 10th Street Corp. Liquidating Trust
     
Non Traded Company
    0.25       225       616       -  
Hines Real Estate Investment Trust, Inc.
     
Non Traded Company
    2,692.31       13,569       12,626       0.07  
Inland American Real Estate Trust, Inc.
     
Non Traded Company
    304,977.27       902,875       914,932       4.97  
Landmark Apartment Trust, Inc.
     
Non Traded Company
    139,704.88       598,087       783,744       4.26  
SmartStop Self Storage, Inc.
     
Non Traded Company
    17,242.04       123,750       163,110       0.89  
TIER REIT, Inc.
     
Non Traded Company
    1,324,247.32       2,813,101       3,601,953       19.56  
Total Non Traded Company
     (1)               5,752,939       7,245,325       39.35  
                                         
Brown Palace Hotel Associates, LP
     
LP Interest
    0.25       1,913       4,510       0.02  
Del Taco Income Properties IV
     
LP Interest
    2,296.00       59,696       57,400       0.31  
Del Taco Restaurant Properties I
     
LP Interest
    437.00       321,618       371,935       2.02  
Del Taco Restaurant Properties II
     
LP Interest
    644.00       123,206       140,070       0.76  
DRV Holding Company, LLC
     
LP Interest
    500.00       500,000       547,245       2.97  
El Conquistador Limited Partnership
     
LP Interest
    2.00       80,976       60,297       0.33  
Hotel Durant, LLC
     
LP Interest
    7.10       577,299       372,285       2.02  
Inland Land Appreciation Fund II, L.P.
     
LP Interest
    210.97       8,667       26,797       0.15  
MPF Pacific Gateway - Class B
    (2 )
LP Interest
    23.20       6,287       6,265       0.03  
National Property Investors 6
       
LP Interest
    7.00       145       90       0.01  
Post Street Renaissance Partners Class A
       
LP Interest
    9.10       16,981       20,336       0.11  
Post Street Renaissance Partners Class D
       
LP Interest
    21.60       105,623       130,036       0.71  
Rancon Realty Fund IV
       
LP Interest
    1,005.00       181,251       408,030       2.22  
Rancon Realty Fund V
       
LP Interest
    1,156.00       213,661       267,892       1.45  
Secured Income, LP
       
LP Interest
    64,177.00       560,403       716,215       3.89  
Uniprop Manufactured Housing Income Fund II, LP
 
LP Interest
    53,202.00       237,401       221,320       1.20  
VWC Savannah, LLC
       
LP Interest
    8.25       825,000       825,000       4.48  
Total LP Interest
                      3,820,127       4,175,723       22.68  
                                           
Coastal Realty Business Trust, REEP, Inc. - A
    (2 )
Investment Trust
    72,320.00       73,555       92,570       0.50  
Coastal Realty Business Trust, Series H2- A
    (2 )
Investment Trust
    47,284.16       246,351       190,555       1.03  
Total Investment Trust
                      319,906       283,125       1.53  
                                           
BR Cabrillo LLC Promissory Note
       
Note
    324,332.58       324,333       424,876       2.31  
TTLC  Note
       
Note
    250,000.00       239,996       225,000       1.22  
Total Note
                      564,329       649,876       3.53  
                                           
Total Investments
                    $ 14,640,540     $ 16,667,386       90.51  
                                           


 
 

 
(1) Investments primarily in non traded public REITs or their successors.
(2) Investment in related party



 
The accompanying Notes to Financial Statements are an integral part of these financial statements.


MacKenzie Realty Capital, Inc.
Schedule of Investments
June 30, 2014



Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of Net Assets
 
Agree Realty Corporation
     
Publicly Traded Company
    4,200.00     $ 117,893     $ 126,966       1.45  
Apartment Investment and Management Company
 
Publicly Traded Company
    3,888.00       115,163       125,466       1.43  
Ashford Hospitality Prime, Inc.
     
Publicly Traded Company
    12,800.00       224,201       219,648       2.51  
Associated Estates Realty Corporation
     
Publicly Traded Company
    4,000.00       69,920       72,080       0.82  
CBL & Associates Properties Inc.
     
Publicly Traded Company
    5,000.00       95,057       95,000       1.08  
CommonWealth REIT
     
Publicly Traded Company
    8,450.00       213,363       222,404       2.54  
Empire State Realty OP, L.P.
     
Publicly Traded Company
    19,176.00       255,281       303,940       3.47  
Empire State Realty OP, L.P. - Series 250
     
Publicly Traded Company
    1,757.00       24,728       27,426       0.31  
Empire State Realty OP, L.P. - Series 60
     
Publicly Traded Company
    4,974.00       64,081       78,191       0.89  
Empire State Realty Trust, Inc. Class A
     
Publicly Traded Company
    4,832.00       64,217       79,728       0.91  
FelCor Lodging Trust Incorporated
     
Publicly Traded Company
    6,300.00       51,604       66,213       0.76  
Lexington Realty Trust
     
Publicly Traded Company
    10,800.00       123,452       118,908       1.36  
Rouse Properties Inc
     
Publicly Traded Company
    9,500.00       176,525       162,545       1.85  
Total Public Traded Company
                    1,595,485       1,698,515       19.38  
                                         
Apple Hospitality REIT, Inc.
     
Non Traded Company
    21,539.39       116,937       194,931       2.22  
BellaVista Capital, Inc.
     
Non Traded Company
    123,987.00       49,595       49,595       0.57  
Hines Real Estate Investment Trust, Inc.
     
Non Traded Company
    2,692.31       13,569       13,058       0.15  
Total Non Traded Company
     (1)               180,101       257,584       2.94  
                                         
Brown Palace Hotel Associates, LP
     
LP Interest
    0.25       1,913       1,932       0.03  
Del Taco Income Properties IV
     
LP Interest
    2,296.00       59,696       64,472       0.74  
Del Taco Restaurant Properties I
     
LP Interest
    417.00       306,918       330,798       3.77  
Del Taco Restaurant Properties II
     
LP Interest
    632.00       120,803       152,129       1.74  
DRV Holding Company, LLC
     
LP Interest
    500.00       500,000       500,000       5.70  
El Conquistador Limited Partnership
     
LP Interest
    2.00       80,976       94,754       1.08  
Hotel Durant, LLC
     
LP Interest
    7.10       577,299       367,461       4.19  
Inland Land Appreciation Fund II, L.P.
     
LP Interest
    210.97       8,667       26,234       0.30  
Inland Land Appreciation Fund, L.P.
     
LP Interest
    149.37       18,166       19,418       0.22  
MPF Pacific Gateway - Class B
    (2 )
LP Interest
    23.20       6,287       6,264       0.07  
National Property Investors 6
       
LP Interest
    7.00       145       95       -  
Post Street Renaissance Partners Class A
       
LP Interest
    9.10       16,981       16,981       0.19  
Post Street Renaissance Partners Class D
       
LP Interest
    11.60       56,729       58,319       0.67  
Rancon Realty Fund IV
       
LP Interest
    997.00       179,266       312,659       3.57  
Rancon Realty Fund V
       
LP Interest
    1,150.00       212,541       245,629       2.80  
Secured Income, LP
       
LP Interest
    26,600.00       232,732       249,242       2.84  
Uniprop Manufactured Housing Income Fund II, LP
 
LP Interest
    47,304.00       207,996       234,155       2.67  
Total LP Interest
                      2,587,115       2,680,542       30.58  
                                           
Coastal Realty Business Trust, REEP, Inc.
    (2 )
Investment Trust
    72,320.00       73,555       90,400       1.03  
Coastal Realty Business Trust, Secured Income
    (2 )
Investment Trust
    37,577.00       327,671       352,096       4.02  
Coastal Realty Business Trust, Series H2
    (2 )
Investment Trust
    47,284.16       246,351       254,389       2.90  
Coastal Realty Business Trust, Series L2
    (2 )
Investment Trust
    7,950.00       18,444       17,411       0.20  
Coastal Realty Business Trust, Series Q
    (2 )
Investment Trust
    10.00       48,894       50,264       0.57  
Total Investment Trust
                      714,915       764,560       8.72  
                                           
BR Cabrillo LLC Promissory Note
       
Note
            275,795       275,794       3.15  
TTLC  Note
       
Note
            239,996       229,000       2.61  
Total Note
                      515,791       504,794       5.76  
                                           
Total Investments
                    $ 5,593,407     $ 5,905,995       67.38  
                                           




(1) Investments primarily in non traded public REITs or their successors.
(2) Investment in related party




 

 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
MacKenzie Realty Capital, Inc.
Statements of Operations
For The Three and Nine Months Ended March 31, 2015 and 2014
(Unaudited)


                         
   
For The Three Months Ended
March 31,
   
For The Nine Months Ended
March 31,
 
   
2015
   
2014
   
2015
   
2014
 
Investment income
                       
Dividend and distribution income
  $ 152,119     $ 99,523     $ 312,341     $ 235,835  
Interest and other income
    22,183       6,483       46,937       18,944  
Total investment income
    174,302       106,006       359,278       254,779  
                                 
Operating expenses
                               
Investment advisory fees
    135,875       57,331       335,575       166,564  
Administrative cost reimbursements
    30,000       12,000       90,000       48,000  
Amortization of deferred offering costs
    -       106,206       35,402       283,217  
Professional fees
    16,349       17,005       129,739       101,258  
Other general and administrative
    29,242       46,080       93,495       86,110  
Total operating expenses
    211,466       238,622       684,211       685,149  
                                 
Net investment loss
    (37,164 )     (132,616 )     (324,933 )     (430,370 )
                                 
Net realized gain on sale of investments
    436,436       142,469       758,190       551,879  
Net unrealized gain on investments
    929,836       276,752       1,714,257       409,076  
Total net realized and unrealized gain on investments
    1,366,272       419,221       2,472,447       960,955  
                                 
Income tax (provision) benefit (note 2)
    -       (129,538 )     188,949       (301,922 )
                                 
Net increase in net assets resulting from operations
  $ 1,329,108     $ 157,067     $ 2,336,463     $ 228,663  
                                 
Net increase in net assets resulting from operations per share
  $ 0.78     $ 0.21     $ 1.71     $ 0.31  
                                 
Weighted average common shares outstanding
    1,696,306       747,840       1,363,202       734,663  
                                 



The accompanying Notes to Financial Statements are an integral part of these financial statements.

 

MacKenzie Realty Capital, Inc.
Statements of Changes in Net Assets
For The Nine Months Ended March 31, 2015 and The Year June 30, 2014




   
For The Nine
Months Ended
   
For The Year
 Ended
 
   
March 31, 2015
   
June 30, 2014
 
   
(Unaudited)
       
Operations
           
Net investment loss
  $ (324,933 )   $ (290,587 )
Net realized gain on sale of investments
    758,190       632,703  
Net unrealized gain on investments
    1,714,257       192,524  
Income tax (provision) benefit
    188,949       (373,580 )
Net increase in net assets resulting from operations
    2,336,463       161,060  
                 
Capital share transactions
               
Issuance of common stock
    9,178,608       1,655,901  
Dividend to Stockholders
    (675,699 )     (130,850 )
Selling commissions and fees
    (1,189,442 )     (215,254 )
Net increase in net assets resulting from capital share transactions
    7,313,467       1,309,797  
                 
Total increase in net assets
    9,649,930       1,470,857  
                 
Net assets at beginning of period
    8,764,789       7,293,932  
                 
Net assets at end of period
  $ 18,414,719     $ 8,764,789  



 

The accompanying Notes to Financial Statements are an integral part of these financial statements.

 
 
 
 
MacKenzie Realty Capital, Inc.
Statements of Cash Flows
For The Nine Months Ended March 31, 2015, and 2014
(Unaudited)



   
For The Nine Months Ended
March 31,
 
   
2015
   
2014
 
             
Cash flows from operating activities:
 
 
       
Net increase in net assets resulting from operations
  $ 2,336,463     $ 228,663  
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash used in operating activities:
               
Proceeds from sale of investments, net
    4,405,858       1,681,970  
Return of capital
    85,572       224,570  
Purchase of investments
    (12,780,374 )     (754,946 )
Net realized gain on sale of investments
    (758,190 )     (551,879 )
Net unrealized gain on investments
    (1,714,257 )     (409,076 )
Amortization of deferred offering costs
    35,402       283,217  
Changes in assets and liabilities:
               
Accounts receivable
    (56,174 )     (469,661 )
Other assets
    (140,802 )     (6,349 )
Accounts payable and accrued liabilities
    (17,812 )     (170,554 )
Income tax payable
    (153,874 )     -  
Due to related entities
    101,014       31,166  
Deferred tax liability
    (86,575 )     170,426  
Net cash from operating activities
    (8,743,749 )     257,547  
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    9,178,608       362,000  
Dividend to Stockholders
    (675,699 )     -  
Payment of selling commissions and fees
    (1,189,442 )     (47,060 )
Change in capital pending acceptance
    31,208       -  
    Net cash from financing activities
    7,344,675       314,940  
                 
Net increase (decrease) in cash and cash equivalents
    (1,399,074 )     572,487  
                 
Cash and cash equivalents at beginning of the period
    3,522,751       262,806  
                 
Cash and cash equivalents at end of the period
  $ 2,123,677     $ 835,293  
                 
Supplemental schedule of noncash financing activities:
               
Taxes paid
  $ 51,000      $ 87,900  
                 


 

The accompanying Notes to Financial Statements are an integral part of these financial statements.

MacKenzie Realty Capital, Inc.
Notes to Financial Statements
March 31, 2015
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on January 25, 2012, and has been active in matters relating to its operation as a non-diversified, closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share.

The Company filed its initial registration statement on June 1, 2012, with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of the Company’s common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Company commenced its operations on February 28, 2013 and its fiscal year-end is June 30.

The Company was formed with the intention of qualifying to be taxed as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986 and the Company has been operated in a manner that allows the Company to qualify as a REIT. Therefore, when the Company files its 2014 tax return, the Company will elect to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014.

The Company is managed by MacKenzie Capital Management, LP (“MacKenzie”) under the administration agreement dated and effective as of February 28, 2013 (the “Administration Agreement”).  MacKenzie manages all of the Company’s affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the “Adviser”) under the advisory agreement dated and effective as of February 28, 2013 (the “Investment Advisory Agreement”). The Investment Advisory Agreement was subsequently amended on August 6, 2014.  The Company intends to pursue a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate.  These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, limited liability companies, and tenancies-in-common.

On February 28, 2013, the Company acquired, under an exchange agreement (the “Contribution Agreement”), a portfolio of investments and cash (the “Legacy Portfolio”) from eight private funds collectively referred to as the “Legacy Funds,” which are managed by MacKenzie. The assets acquired from the Legacy Funds had a collective fair value of approximately $6.9 million ($6.4 million in investments and $0.5 million in cash) as of February 28, 2013. As consideration for the Company’s acquisition of the Legacy Portfolio, the Company issued 692,217 shares of the Company’s common stock to the Legacy Funds. In addition, in 2012 prior to the acquisition of the Legacy Portfolio, each of the Legacy Funds and MP Value Fund 8, LLC, a private investment fund managed by MacKenzie,  purchased 4,000 shares of the Company’s common stock at $10 per share in order to provide the Company with funds to complete this exchange and prepare its initial public offering.

As of March 31, 2015, cumulative contributions of approximately $16.7 million (inclusive of the $6.9 million initial Legacy Funds capital investment), representing 1,811,991.17 shares, have been received.
 
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s assets and liabilities as of March 31, 2015 and the results of its operations for the three and nine months periods ended March 31, 2015 and 2014, which results are not necessarily indicative of results on an annualized basis.  The statement of assets and liabilities as of June 30, 2014 has been derived from audited financial statements. The Company follows the GAAP financial reporting standards for investment companies.  Accordingly, the Company’s investments are recorded at estimated fair value in the statements of assets and liabilities with changes in unrealized gains (losses) in the fair value of such investments included within the Company’s statement of operations.

These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2014 included in the Company’s annual report on Form 10-K filed with the SEC.
 
 
 

Use of Estimates

The preparation of 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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. 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.

Organization and Deferred Offering Costs

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 initial registration statement and the initial statement of assets and liabilities. These costs are expensed as incurred. Deferred 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. These offering costs were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC).

As provided in the Investment Advisory Agreement, the organization and offering costs incurred and paid by the Company in excess of $550,000 are reimbursed by the Adviser. Accordingly, the Company incurred and paid the non-reimbursable organization costs of $125,175 and offering costs of $424,825 totaling $550,000 during the period from January 25, 2012 (inception) through June 30, 2013. All organization and offering costs incurred by the Company subsequent to June 30, 2013 were reimbursed by the Adviser as disclosed in Note 5. The non-reimbursable organization costs of $125,175 were expensed as incurred during the period from January 25, 2012 (inception) through June 30, 2013. The non-reimbursable offering costs of $424,825 were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC). Amortization of the deferred offering cost for the three and nine months ended March 31, 2015 were $0 and $35,402, respectively. Amortization of the deferred offering cost for the three and nine months ended March 31, 2014 were $106,206 and $283,217, respectively.  As of March 31, 2015, the deferred offering costs have been fully amortized.

Income Taxes and Deferred Tax Liability

Under ASC 740-10-25, the Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences 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.
 
The Company was formed with the intention of qualifying to be taxed as a REIT and the Company has been operated in a manner that will allow the Company to qualify as a REIT. Therefore, when the Company files its 2014 tax return, the Company will elect to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014. After the Company has qualified as a REIT, it will not be 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 meet certain other conditions. To the extent that the Company satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it will be subject to an excise tax on its undistributed taxable income.
 
 
 
The Company is electing to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014; as such, the Company did not record any tax provision amount for the three months ended March 31, 2015. For the nine months ended March 31, 2015, the Company recorded income tax benefit of $188,949. The following table shows the tax provision (benefit) by quarter:
 
For the three months ended
 
Income tax provision (benefit)
 
September 30, 2014
  $ 213,152  
December 31, 2014
    (402,101 )
March 31, 2015
    -  
Total
  $ (188,949 )
         
 
Because the Company determined that it will qualify to be treated as a REIT for tax purposes beginning tax year ending December 31, 2014, during the three months ended December 31, 2014, the Company reversed $498,032 of income tax liability it had recorded as of September 30, 2014. The reversal amount was reduced by the income tax liability of $95,931 recorded for the built-in gain the Company had as of December 31, 2013 resulting in $402,101 of income tax benefit for the three months ended December 31, 2014. The reversed income tax liability of $498,032 was the income tax provisions recorded for the period of Jaunary 1, 2014 through September 30, 2014 based on corporate tax rates.

The provision for income taxes included in the financial statements includes both a current portion and a deferred portion. The following table shows the breakdown between the current and deferred income taxes for the periods presented:
 
   
For The Three Months Ended
March 31,
   
For The Nine Months Ended
March 31,
 
   
2015
   
2014
   
2015
   
2014
 
                         
Current tax provision (benefit)
                       
Federal
  $ -     $ 71,223     $ (63,823 )   $ 112,236  
State
    -       12,222       (19,124 )     19,260  
Total Current
    -       83,445       (82,947 )     131,496  
                                 
Deferred tax provision
                               
Federal
  $ -       39,342       (90,474 )     145,464  
State
    -       6,751       (15,528 )     24,962  
Total deferred
    -       46,093       (106,002 )     170,426  
                                 
Federal
    -       110,565       (154,297 )     257,700  
State
    -       18,973       (34,652 )     44,222  
Total tax provision (benefit)
  $ -     $ 129,538     $ (188,949 )   $ 301,922  
                                 
                                 
                                 
The following table shows the tax effect of the cumulative temporary differences as of March 31,
                 
      2015       2014                  
                                 
Unrealized gain on investments, net
  $ 95,261     $ 210,780                  
Expenses, net of income deferred for tax purposes
    -       (40,354 )                
    $ 95,261     $ 170,426                  
                                 

 

 

The effective tax rate as of December 31, 2014 was 39.8%; 34.0% U.S. statutory federal income tax rate and 5.8% California state tax, net of U.S. federal income tax benefit. This effective tax rate was applicable on the 2014 realized and unrealized built-in gain which are not tax exempted for REITs. Offering costs amortizing into the statement of operations are not considered deductible for income tax purposes and result in the effective tax rate on reported financial statement income to be larger than would otherwise be expected.

Per Share Information

Net increase or decrease in net assets resulting from operations per common share is calculated using the weighted average number of common shares outstanding for the periods presented.

Subsequent Events
 
Subsequent events are events or transactions that occur after the date of the statements of assets and liabilities but before the date the financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the statement of assets and liabilities are considered in the preparation of the financial statements presented herein. Subsequent events that occur after the date of the statement of assets and liabilities that do not provide evidence about the conditions that existed as of the date of the statement of net assets are considered for disclosure based upon their significance in relation to the Company’s financial statements taken as a whole.

Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash, accounts receivable from affiliates, interest payable to affiliates and other accrued expenses and liabilities approximate the fair values of such items.

Revenue Recognition

Realized gains or losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost of the investment. Investments are disposed of on a first-in, first-out basis.

Distributions received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date. Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.

Interest Income

Interest income is derived from the investments in notes and recorded on the accrual basis to the extent amounts are expected to be collected. Accrued interest is evaluated for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is sold or written off, it will be removed from non-accrual status. As of March 31, 2015 and June 30, 2014, the Company did not have any investments that were more than 90 days past due or on non-accrual status. Additionally, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.

Dividends and Distributions
 
Dividends (and distributions, if any) to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a quarterly dividend (or distribution, if any) is approved quarterly by the Board of Directors and is generally based upon management’s estimate of the Company’s earnings for the quarter.
 
 

Capital Pending Acceptance

The Company generally admits new stockholders monthly and 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 statements of assets and liabilities. As of March 31, 2015 and June 30, 2014, capital pending acceptance were $411,408 and $380,200, respectively.

Recent Accounting Pronouncements
 
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under the new guidance, an entity should recognize 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 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on our financial statements.
 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
 
Valuation of Investments
 
The Company’s financial statements include investments that are measured at their estimated fair values in accordance with GAAP. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. The Company develops fair values for investments based on available inputs which could include pricing that is observed in the marketplace.
 
Examples of market information that the Company attempts to obtain include the following:

Recently quoted trading prices for the same or similar securities;
Recent purchase prices paid for the same or similar securities;
Recent sale prices received for the same or similar securities;
Relevant reports issued by industry analysts and publications; and
Other relevant observable and unobservable inputs, including liquidity discounts.

After considering all available indications of the appropriate rate of return that market participants would require, the Company considers the reasonableness of the range indicated by the results to determine an estimate that, in its opinion, is most representative of fair value.

The real estate securities in which the Company invests are, due to the absence of an efficient market, generally illiquid. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions. If either the volume and/or level of trading activity for an investment has significantly changed from normal market conditions, or price quotations or observable inputs are not associated with orderly transactions, the market inputs used might not be relevant. For example, recently quoted trading prices might not be relevant if a ready market does not exist for the quantity of investments that the Company may wish to sell.

In circumstances where relevant market inputs cannot be obtained, increased analysis and management judgment are required to estimate fair value. This generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Regardless of the valuation inputs used, the objective of fair value measurement is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price.

The Company is under no compulsion to dispose of its investments, and expects to hold them for a substantial period of time. Therefore, estimated values as determined above may not reflect amounts that could be realized upon actual sale at a future date.

 
 
Fair Value Measurements
 
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value. Market price is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observables and a lesser degree of judgment used in measuring fair value.
 
Investments measured and reported at fair value are classified and disclosed in one of the following categories:

 
Level I
Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities. The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.
 
Level II
Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions.
 
Level III
Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company’s investments at cost and fair value as of March 31, 2015 and June 30, 2014:
 
   
March 31, 2015
   
June 30, 2014
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
  $ 4,183,239     $ 4,313,337     $ 1,595,485     $ 1,698,515  
Non Traded Company
    5,752,939       7,245,325       180,101       257,584  
LP Interest
    3,820,127       4,175,723       2,587,115       2,680,542  
Investment Trust
    319,906       283,125       714,915       764,560  
Note
    564,329       649,876       515,791       504,794  
Total
  $ 14,640,540     $ 16,667,386     $ 5,593,407     $ 5,905,995  
                                 
 
 
 
 
The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of March 31, 2015 according to the fair value hierarchy:

 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
  $ 4,313,337     $ 4,313,337     $ -     $ -  
Non Traded Company
    7,245,325       -       -       7,245,325  
LP Interest
    4,175,723       -       -       4,175,723  
Investment Trust
    283,125       -       -       283,125  
Note
    649,876       -       -       649,876  
Total
  $ 16,667,386     $ 4,313,337     $ -     $ 12,354,049  
                                 
 
The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of June 30, 2014 according to the fair value hierarchy:
 

Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
  $ 1,698,515     $ 1,288,958     $ 409,557     $ -  
Non Traded Company
    257,584       -       -       257,584  
LP Interest
    2,680,542       -       -       2,680,542  
Investment Trust
    764,560       -       -       764,560  
Note
    504,794       -       -       504,794  
Total
  $ 5,905,995     $ 1,288,958     $ 409,557     $ 4,207,480  
                                 

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the nine month period ended March 31, 2015:


Balance at July 1, 2014
  $ 4,207,480  
Purchases of investments
    8,838,414  
Transfer to Level I
    (595,058 )
Proceeds from sales, net
    (2,233,436 )
Return of capital
    (20,781 )
Net realized gain on sale of investments
    470,240  
Net unrealized gain
    1,687,190  
Ending balance at March 31, 2015
  $ 12,354,049  

For the nine months ended March 31, 2015, changes in unrealized gain included in earnings relating to Level III investments still held at March 31, 2015 was $1,738,088.

The transfer of $595,058 from Level III to Level I during the nine months ended March 31, 2015 relates to changes in tradability of the securities in an active market due to one of the Company’s investments converting from an LP interest to public REIT shares.

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the year ended June 30, 2014:

Balance at July 1, 2013
  $ 5,823,451  
Purchases of investments
    824,900  
Transfer to Level I
    (55,597 )
Proceeds from sales, net
    (1,537,952 )
Return of capital
    (1,304,778 )
Net realized gain on sale of investments
    398,431  
Net unrealized gain
    59,025  
Ending balance at June 30, 2014
  $ 4,207,480  
         
 
 
 
For the fiscal year ended June 30, 2014, changes in unrealized gain included in earnings relating to Level III investments still held at June 30, 2014 was $290,795.

The transfer of $55,597 from Level III to Level I during the year ended June 30, 2014 relates to changes in tradability of the securities in an active market due to one of the Company’s investments converting from an LP interest to public REIT shares.

There were no Level II investments as of March 31, 2015. Level II investments as of June 30, 2014 with total fair value of $409,557 included investments in thinly-traded public REITs which were valued using the ten day average trading prices of their stock.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2015:


Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
                       
Non Traded Company
  $ 7,244,709  
Market Activity
Contracted sale of security price
           
           
Secondary market industry publication
           
           
Convertible stock price
           
Non Traded Company
    616  
Net Asset Value (1)
Sponsor provided value
           
                         
LP Interest
    2,050,552  
Market Activity
Acquisition Cost
           
           
Secondary market industry publication
           
LP Interest
    2,125,171  
Net Asset Value (1)
Capitalization rate
    6.6% - 7.7 %     6.9 %
           
Comparable sales report
               
           
Contracted sale of property
               
           
Liquidity discount
    10.0% - 40.0 %     30.6 %
           
Sponsor provided value
               
                             
Investment Trust
    190,555  
Market Activity
Secondary market industry publication
               
Investment Trust
    92,570  
Net Asset Value (1)
Capitalization rate
    6.6 %        
           
 
               
Note
    225,000  
Discounted Cash Flow
Quoted market prices
               
           
Discount rate
    9.8 %        
           
Term (in years)
    3.3          
Note
    424,876  
Net Asset Value (1)
Liquidity discount
    10.0 %        
           
Sponsor provided value
               
    $ 12,354,049                      
                             
                             
 Valuation Technique Terms:
 (1) Internally calculated investee's net asset value, which is the estimated total assets minus the value of all liabilities.
 
 
 

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2014:


Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
                       
Non Traded Company
  $ 257,584  
Market Activity
Contracted security purchase price
           
           
Secondary market industry publication
           
           
 
           
LP Interest
    8,196  
Discounted Cash Flow
Sponsor provided value
           
           
Liquidity discount
    15 % - 31.5 %     28 %
LP Interest
    2,134,737  
Market Activity
Secondary market industry publication
               
           
Contracted security purchase price
               
LP Interest
    537,609  
Net Asset Value (1)
Capitalization rate
    6.5% - 9.5 %     7 %
           
Liquidity discount
    10% - 35 %     29 %
                             
Investment Trust
    623,896  
Market Activity
Secondary market industry publication
               
Investment Trust
    140,664  
Net Asset Value (1)
Capitalization rate
    6.3 %        
           
Liquidity discount
    10% - 31.5 %     24 %
           
 
               
Note
    504,794  
Market Activity
Contracted security purchase price
               
         
Discounted Cash Flow
Term (in years)
    4.0          
           
Quoted market prices
               
           
Discount rate
    11.6 %        
    $ 4,207,480                      
                             
Valuation Technique Terms:
 (1) Internally calculated investee's net asset value, which is the estimated total assets minus the value of all liabilities.

 
NOTE 4—MARGIN LOANS
 
The Company has a brokerage account through which it buys and sells publicly-traded securities. The provisions of the account allow the Company to borrow between 50% and 70% of the equity of certain securities held in the account. Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of March 31, 2015, the Company had $2,900,061 of margin credit available for cash withdrawal or the ability to purchase up to $5,800,122 in additional shares. As of June 30, 2014, the Company had $1,275,165 of margin credit available for cash withdrawal or the ability to purchase up to $2,550,330 in additional shares. As of March 31, 2015 and June 30, 2014, the Company had not drawn any amount or purchased any shares under this short-term credit line.

NOTE 5 –RELATED PARTY TRANSACTIONS

Investment Advisory Agreement:

Under the Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components — a portfolio structuring fee, a base management fee and a subordinated incentive fee.

The portfolio structuring fee is for the Adviser’s initial work performed in connection with the acquisition of all of the Company’s assets and equals 3.0% of the gross proceeds from the sale of the Company’s shares.

The base management fee is calculated based on the Company’s “managed funds,” which equal the price at which the Company’s shares are issued plus any borrowing for investment purposes.  The base management fees range from 1.5% to 3.0%, depending on the level of the “managed funds.”

The subordinated incentive fee has three parts—income, capital gains and liquidation. The income component is (i) 100% of the Company’s preliminary net investment income for any calendar quarter that exceeds 1.75% (7% annualized) but is less than 2.1875% (8.75% annualized) of the Company’s “contributed capital” (defined as the number of shares outstanding, multiplied by the price at which the shares are sold), and (ii) 20% of the Company’s preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Company’s “contributed capital.”  The capital gains component is (i) 100% of the Company’s realized capital gains annually generated by its investments above 7% and up to 8.75% of the Company’s “contributed capital,” and (ii) 20% of the Company’s realized capital gains above 8.75% of the Company’s “contributed capital,” all computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.  The capital gains component may not, in any event, exceed 20% of the Company’s realized capital gains, net of all realized capital losses and unrealized capital depreciation.  The liquidation component will be 20% of the amount by which all distributions to stockholders exceed the “contributed capital,” less all previously-paid capital gains fees, provided that the liquidation component may not exceed 20% of all of the Company’s realized capital gains as of the date of liquidation.

The portfolio structuring fees for the three and nine months ended March 31, 2015 were $102,918 and $276,928, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2014 was $12,670.

The base management fees for the three and nine months ended March 31, 2015 were $135,875 and $335,575, respectively. The base management fees for the three and nine months ended March 31, 2014 were $57,331 and $166,564, respectively. The base management fees were recorded as investment advisory fees on the statements of operations and due to related entities in the statements of assets and liabilities.

The Company has not paid any subordinated incentive fees as of March 31, 2015.
 
 

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Company in excess of $550,000 will be reimbursed by the Adviser. As of March 31, 2015 and June 30, 2014, the Company had incurred $955,109 and $806,672 of organization and offering costs, respectively. Thus, according to the agreement, $405,109 and $256,672 of the amount were reimbursable from the Adviser as of March 31, 2015 and June 30, 2014, respectively. As of March 31, 2015, the Adviser has reimbursed the Company in the amount of $394,105 and the remaining reimbursable amount of $11,004 was settled through an offset against the amount payable to the Adviser as of March 31, 2015.

Administration Agreement:
 
Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the Independent Directors’ approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company’s Chief Financial Officer, Chief Compliance Officer, Financial Reporting Manager, and any administrative support staff.

The administrative cost reimbursements for the three and nine months ended of March 31, 2015, were $30,000 and $90,000, respectively. The administrative cost reimbursements for the three and nine months ended of March 31, 2014, were $12,000 and $48,000, respectively.

The table below outlines the related party expenses incurred for the nine months ended March 31, 2015 and 2014 and unpaid as of March 31, 2015 and 2014.


   
For The Nine Months Ended
   
Unpaid as of
 
Types and Recipient
 
March 31, 2015
   
March 31, 2014
   
March 31, 2015
   
March 31, 2014
 
                         
Portfolio Structuring fee- the Adviser
  $ 276,928     $ 12,670     $ 3,976     $ -  
Base Management fees- the Adviser
    335,575       166,564       135,875       57,331  
Administrative Cost Reimbursements- MacKenzie
    90,000       48,000       30,000       12,000  
Others expenses (1) -MacKenzie
    -               82       2,282  
Organization & Offering Cost Reimbursement by the Adviser
                    (11,004 )     (5,054 )
Due to related entities
                  $ 158,929     $ 66,559  
 

(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.
 
 
 
 
Investments:
 
Coastal Realty Business Trust (“CRBT”):

CRBT is a Nevada business trust whose trustee is MacKenzie and whose beneficiaries are the Company and various private funds managed by MacKenzie. Its purpose is to own various investments on behalf of such funds.

Each CRBT Trust Series (“Series”) pools capital from several funds managed by MacKenzie and invests (generally) in shares of private REITs as provided for in the Trust Agreement. Each Series participant is limited by the terms of the agreement and, as such, an interest in a Series has no redemption rights.

During the quarter ended December 31, 2014, all Series in which the Company had ownership interests in either transferred the Series’ underlying investments to the funds that owned the Series and dissolved, or transferred the Company’s share of the underlying investment and formed a new Series where the Company is the 100% owner of the Series.

The Company had investment in the following Series as of March 31, 2015:

 
The Company has a 100% ownership interest in CRBT, REEP, Inc.-A, which has ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland. During the quarter ended December 31, 2014, the Company received the general partner ownership interest, which this Series currently owns, from CRBT, REEP, Inc., as distribution-in-kind proportionate to the Company’s ownership share in Series REEP, Inc. The Company afterwards exchanged the general partner interest for 100% of ownership interest in CRBT, REEP, Inc-A.
 
The Company has 100% ownership interest in CRBT, Series H2-A, which invests in shares of a REIT that owns a real estate portfolio totaling 170 properties located in the United States and Canada. These properties include senior housing, hotels and resorts, golf courses, and marinas, among others. During the quarter ended December 31, 2014, the Company received shares of the underlying REIT, which this Series currently owns, from CRBT, Series H2 as distribution-in-kind proportionate to the Company’s ownership share in Series H2. The Company afterwards exchanged the underlying REIT’s shares for 100% of ownership interest in CRBT Series, H2-A.
 
The Company had an ownership interest in CRBT, Series L2, which invested in shares of a REIT that acquired and managed a diversified real estate portfolio, primarily comprised of retail, office, hotel, multi-family, and industrial properties. During the quarter ended December 31, 2014, this Series transferred all its underlying investments to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.
 
The Company had an ownership interest in CRBT, Secured Income, which invested in units of a limited partnership, which owns one multi-family property located in Frederick, Maryland. During the quarter ended December 31, 2014, this Series transferred its investments in the limited partnership to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.
 
The Company had an ownership interest in CRBT, Series Q, which invested in units of a limited partnership formed for the purpose of acquiring, refurbishing, and operating the Prescott Hotel and Postrio Restaurant located near Union Square in San Francisco, California. During the quarter ended December 31, 2014, this Series transferred all its ownership interests in the limited partnership to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.
 
 
As of June 30, 2014, the Company had investments in these Series (each described above): CRBT, REEP, Inc., CRBT, Secured Income, CRBT, Series H2, CRBT, Series L2, and CRBT, Series Q.

MPF Pacific Gateway:

MPF Pacific Gateway, which is managed by MacKenzie, is a holding company that owns an investment in a REIT Liquidating Trust. As of March 31, 2015 and June 30, 2014, the Company had a 15.82% of ownership interest in MPF Pacific Gateway.

 

 
NOTE 6 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights of the Company for the nine months ended March 31, 2015 and the year ended June 30, 2014.

   
For The Nine months ended
   
For The Year Ended
 
   
March 31, 2015
   
June 30, 2014
 
Per Share Data:
           
             
Beginning net asset value
  $ 9.81     $ 10.02  
                 
Net investment loss (1)
    (0.24 )     (0.38 )
Net realized gain on sale of investments (1)
    0.56       0.83  
Net unrealized gain on investments (1)
    1.25       0.25  
Income tax (provision) benefit (1)
    0.14       (0.49 )
Net increase (decrease) in net assets resulting from operations
    1.71       0.21