10-Q 1 mrc10q_03-31-2016.htm FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2016
 
 
 
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        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   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    
The number of the shares of issuer's Common Stock outstanding as of May 12, 2016 was 3,732,259.88.
 




TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (unaudited)
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
Item 2.
     
Item 3.
     
Item 4.
     
PART II.
OTHER INFORMATION
 
     
Item 1.
     
Item 1A.
   
 
Item 2.
     
Item 3.
     
Item 4.
     
Item 5.
     
Item 6.
     
 








Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MacKenzie Realty Capital, Inc.
Statements of Assets and Liabilities

 
 
March 31, 2016
   
June 30, 2015
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value (cost of $25,764,742 and $16,528,720, respectively)
 
$
27,704,020
   
$
18,645,022
 
Cash and cash equivalents
   
6,439,951
     
4,297,086
 
Accounts receivable
   
322,777
     
87,689
 
Other assets
   
307,183
     
188,407
 
Total assets
 
$
34,773,931
   
$
23,218,204
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
30,593
   
$
18,045
 
Capital pending acceptance
   
865,210
     
588,250
 
Due to related entities
   
1,038,857
     
228,803
 
Deferred tax liability
   
46,278
     
44,667
 
Total liabilities
   
1,980,938
     
879,765
 
 
               
Commitments and contingencies (Note 9)
               
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 3,357,723.89 and 2,196,612.73 shares issued and outstanding, respectively
   
336
     
220
 
Capital in excess of par value
   
30,147,921
     
20,061,251
 
Accumulated undistributed net investment loss
   
(910,814
)
   
(1,002,901
)
Accumulated undistributed net realized gain
   
1,616,272
     
1,163,567
 
Accumulated undistributed net unrealized gain
   
1,939,278
     
2,116,302
 
Total net assets
   
32,792,993
     
22,338,439
 
 
               
Total liabilities and net assets
 
$
34,773,931
   
$
23,218,204
 
 
               
Net asset value per Share
 
$
9.77
   
$
10.17
 
















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

MacKenzie Realty Capital, Inc.
Schedule of Investments
March 31, 2016
(Unaudited)
 
Name
   
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
Ambase Corporation
(5
)
Publicly Traded Company
   
250,000.00
   
$
424,397
   
$
437,500
     
1.33
 
Ashford Hospitality Prime, Inc.
(3
)
Publicly Traded Company
   
54,027.00
     
795,610
     
630,495
     
1.92
 
Ashford Hospitality Trust, Inc.
(3
)
Publicly Traded Company
   
150,000.00
     
912,218
     
957,000
     
2.92
 
Bluerock Residential Growth REIT, Inc.
   
Publicly Traded Company
   
147,858.61
     
1,621,715
     
1,608,702
     
4.91
 
CBL & Associates Properties, Inc.
(3
)
Publicly Traded Company
   
54,000.00
     
646,753
     
642,600
     
1.96
 
Equity Commonwealth
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
342,873
     
1.05
 
Independence Realty Trust, Inc.
(3
)
Publicly Traded Company
   
72,000.00
     
542,232
     
512,640
     
1.56
 
Liberty Property Trust
(3
)
Publicly Traded Company
   
14,000.00
     
474,607
     
468,440
     
1.43
 
New York REIT, Inc.
(3
)
Publicly Traded Company
   
72,000.00
     
789,642
     
727,200
     
2.22
 
One Liberty Properties, Inc.
(3
)
Publicly Traded Company
   
22,500.00
     
510,055
     
504,225
     
1.54
 
Sabra Health Care REIT, Inc.
(3
)
Publicly Traded Company
   
26,300.00
     
538,275
     
528,367
     
1.61
 
TIER REIT, Inc.
   
Publicly Traded Company
   
147,649.00
     
1,921,604
     
1,984,403
     
6.05
 
VEREIT Inc.
(3
)
Publicly Traded Company
   
126,800.00
     
1,104,741
     
1,124,716
     
3.43
 
Winthrop Realty Trust Shares of Beneficial Interest
(3
)(5)
Publicly Traded Company
   
38,500.00
     
556,094
     
505,505
     
1.54
 
Total Publicly Traded Company
   
 
           
11,149,057
     
10,974,666
     
33.47
 
 
   
 
                               
American Realty Capital New York City REIT, Inc.
(4
)
Non Traded Company
   
936.48
     
16,257
     
16,257
     
0.06
 
FSP Energy Tower
(4
)(5)
Non Traded Company
   
7.00
     
294,350
     
283,546
     
0.86
 
FSP Grand Boulevard
(4
)
Non Traded Company
   
7.00
     
279,104
     
300,037
     
0.91
 
FSP 1441 Main Street
(4
)
Non Traded Company
   
9.00
     
307,156
     
324,000
     
0.99
 
FSP Satellite Place
(4
)
Non Traded Company
   
5.00
     
195,035
     
185,283
     
0.57
 
FSP South 10th Street Corp. Liquidating Trust
(4
)(5)
Non Traded Company
   
0.25
     
151
     
140
     
-
 
Hines Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
2,692.31
     
13,569
     
11,442
     
0.03
 
InvenTrust Properties Corp.
(4
)
Non Traded Company
   
1,874,956.70
     
4,449,705
     
4,649,893
     
14.18
 
KBS Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
558,534.83
     
875,002
     
1,563,898
     
4.77
 
Strategic Realty Trust, Inc.
(4
)
Non Traded Company
   
5,245.47
     
24,406
     
26,175
     
0.08
 
Total Non Traded Company (1)
   
 
           
6,454,735
     
7,360,671
     
22.45
 
 
   
 
                               
Britannia Preferred Members, LLC
(4
)(5)
LP Interest
   
150,000.00
     
1,500,000
     
1,749,000
     
5.33
 
DRV Holding Company, LLC
(4
)(5)
LP Interest
   
250.00
     
250,000
     
353,418
     
1.08
 
Inland Land Appreciation Fund II, L.P.
(4
)(5)
LP Interest
   
210.97
     
8,667
     
35,865
     
0.11
 
MPF Pacific Gateway - Class B
(2)
(4)(5)
LP Interest
   
23.20
     
6,287
     
7,309
     
0.02
 
Rancon Realty Fund IV
(4
)(5)
LP Interest
   
1,016.00
     
184,474
     
184,079
     
0.56
 
Redwood Mortgage Investors VIII
(4
)
LP Interest
   
55,872.46
     
30,092
     
31,289
     
0.10
 
Resource Real Estate Investors 6, L.P.
(4
)
LP Interest
   
35,100.00
     
173,745
     
187,785
     
0.57
 
Satellite Investment Holdings, LLC - Class A
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
6.71
 
Secured Income, LP
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
788,735
     
2.41
 
The Weatherly, LTD
(4
)(5)
LP Interest
   
60.00
     
672,000
     
704,936
     
2.15
 
The Weatherly Building, LLC
(4
)(5)
LP Interest
   
17.50
     
392,000
     
411,213
     
1.25
 
Uniprop Manufactured Housing Income Fund II, LP
(4
)
LP Interest
   
97,823.00
     
453,916
     
792,365
     
2.42
 
VWC Savannah, LLC
(4
)(5)
LP Interest
   
8.25
     
825,000
     
948,915
     
2.89
 
Total LP Interest
   
 
           
7,256,584
     
8,394,909
     
25.60
 
 
   
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
(2)
(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
101,971
     
0.31
 
Coastal Realty Business Trust, Series H2- A
(2
)(4)
Investment Trust
   
47,284.16
     
184,880
     
105,444
     
0.32
 
Total Investment Trust
   
 
           
258,435
     
207,415
     
0.63
 
 
   
 
                               
BR Cabrillo LLC Promissory Note
(4
)(5)
Note
         
347,648
     
468,076
     
1.43
 
BR Cabrillo LLC Promissory Note 2
(4
)(5)
Note
   
 
     
166,612
     
166,612
     
0.51
 
BR Cabrillo LLC Promissory Note 3
(4
)(5)
Note
         
131,671
     
131,671
     
0.40
 
Total Note
   
 
           
645,931
     
766,359
     
2.34
 
 
   
 
                               
Total Investments
   
 
         
$
25,764,742
   
$
27,704,020
     
84.49
 
 
(1) Investments primarily in non-traded public REITs or their successors.
(2) Investment in related party. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of March 31, 2016, the total percentage of non-qualifying assets is 19.97%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.
(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of March 31, 2016, 48.11% of the Fund's total assets are in illiquid securities.
(5) Investments in non-income producing securities, which do not pay a regular distribution from operations. As of March 31, 2016, 21.92% of the Fund's total assets are in non-income producing securities.
 

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


MacKenzie Realty Capital, Inc.
Schedule of Investments
June 30, 2015
 
Name
   
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
American Realty Capital Properties, Inc.
(3
)(5)
Publicly Traded Company
   
54,800.00
   
$
514,633
   
$
445,524
     
1.99
 
Ashford Hospitality Prime, Inc.
(3
)
Publicly Traded Company
   
15,800.00
     
274,131
     
237,316
     
1.06
 
Ashford Hospitality Trust, Inc.
(3
)
Publicly Traded Company
   
30,000.00
     
299,917
     
253,800
     
1.14
 
CBL & Associates Properties, Inc.
(3
)
Publicly Traded Company
   
18,300.00
     
348,730
     
296,460
     
1.33
 
Equity Commonwealth
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
311,890
     
1.39
 
Lexington Realty Trust
(3
)
Publicly Traded Company
   
49,300.00
     
528,497
     
418,064
     
1.87
 
Liberty Property Trust
(3
)
Publicly Traded Company
   
5,500.00
     
195,750
     
177,210
     
0.79
 
One Liberty Properties, Inc.
(3
)
Publicly Traded Company
   
9,000.00
     
206,110
     
191,520
     
0.86
 
Rouse Properties Inc
(3
)
Publicly Traded Company
   
20,700.00
     
377,231
     
338,445
     
1.52
 
Senior Housing Properties Trust
(3
)
Publicly Traded Company
   
9,000.00
     
201,135
     
157,950
     
0.71
 
Winthrop Realty Trust Shares of Beneficial Interest
(3
)(5)
Publicly Traded Company
   
38,500.00
     
594,594
     
583,275
     
2.61
 
Total Publicly Traded Company
   
 
           
3,851,842
     
3,411,454
     
15.27
 
 
   
 
                               
Bluerock Residential Growth REIT, Inc. Class B2
(4
)
Non Traded Company
   
1,429.61
     
17,211
     
18,099
     
0.08
 
Bluerock Residential Growth REIT, Inc. Class B3
(4
)
Non Traded Company
   
1,429.61
     
15,781
     
18,099
     
0.08
 
FSP South 10th Street Corp. Liquidating Trust
(4
)(5)
Non Traded Company
   
0.25
     
152
     
130
     
-
 
Hines Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
2,692.31
     
13,569
     
12,949
     
0.06
 
InvenTrust Properties Corp.
(4
)
Non Traded Company
   
853,577.92
     
2,128,695
     
2,424,161
     
10.85
 
KBS Real Estate Investment Trust, Inc.
(4
)
Non Traded Company
   
205,831.73
     
322,025
     
642,195
     
2.87
 
Landmark Apartment Trust, Inc.
(4
)
Non Traded Company
   
179,421.12
     
770,227
     
893,517
     
4.00
 
SmartStop Self Storage, Inc.
(4
)
Non Traded Company
   
124,588.73
     
1,094,503
     
1,639,588
     
7.34
 
TIER REIT, Inc.
(4
)
Non Traded Company
   
186,508.00
     
2,401,668
     
3,189,287
     
14.28
 
Total Non Traded Company (1)
   
 
           
6,763,831
     
8,838,025
     
39.56
 
 
   
 
                               
Del Taco Income Properties IV
(4
)
LP Interest
   
2,296.00
     
59,696
     
65,275
     
0.29
 
Del Taco Restaurant Properties I
(4
)
LP Interest
   
591.00
     
443,823
     
492,172
     
2.20
 
Del Taco Restaurant Properties II
(4
)
LP Interest
   
892.00
     
179,815
     
200,878
     
0.90
 
DRV Holding Company, LLC
(4
)(5)
LP Interest
   
500.00
     
500,000
     
552,785
     
2.47
 
El Conquistador Limited Partnership
(4
)
LP Interest
   
2.00
     
80,976
     
47,107
     
0.21
 
Hotel Durant, LLC
(4
)
LP Interest
   
7.10
     
577,299
     
366,106
     
1.64
 
Inland Land Appreciation Fund II, L.P.
(4
)(5)
LP Interest
   
210.97
     
8,667
     
30,956
     
0.14
 
MPF Pacific Gateway - Class B
(2)
(4)(5)
LP Interest
   
23.20
     
6,287
     
6,613
     
0.03
 
National Property Investors 6
(4
)(5)
LP Interest
   
7.00
     
145
     
151
     
-
 
Post Street Renaissance Partners Class A
(4
)(5)
LP Interest
   
9.10
     
16,981
     
20,336
     
0.09
 
Post Street Renaissance Partners Class D
(4
)(5)
LP Interest
   
21.60
     
105,623
     
130,036
     
0.58
 
Rancon Realty Fund IV
(4
)(5)
LP Interest
   
1,016.00
     
185,651
     
406,400
     
1.82
 
Rancon Realty Fund V
(4
)(5)
LP Interest
   
1,156.00
     
213,661
     
233,455
     
1.05
 
Resource Real Estate Investors 6, L.P.
(4
)
LP Interest
   
35,100.00
     
180,990
     
175,501
     
0.79
 
Secured Income, LP
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
748,946
     
3.35
 
The Weatherly, LTD
(4
)(5)
LP Interest
   
60.00
     
672,000
     
672,000
     
3.01
 
The Weatherly Building, LLC
(4
)(5)
LP Interest
   
17.50
     
392,000
     
392,000
     
1.75
 
Uniprop Manufactured Housing Income Fund II, LP
(4
)
LP Interest
   
53,202.00
     
237,401
     
276,118
     
1.24
 
VWC Savannah, LLC
(4
)(5)
LP Interest
   
8.25
     
825,000
     
825,532
     
3.70
 
Total LP Interest
   
 
           
5,246,418
     
5,642,367
     
25.26
 
 
   
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
(2)
(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
96,909
     
0.44
 
Coastal Realty Business Trust, Series H2- A
(2
)(4)
Investment Trust
   
47,284.16
     
246,351
     
188,191
     
0.84
 
Total Investment Trust
   
 
           
319,906
     
285,100
     
1.28
 
 
   
 
                               
BR Cabrillo LLC Promissory Note
(4
)(5)
Note
         
346,723
     
468,076
     
2.10
 
Total Note
   
 
           
346,723
     
468,076
     
2.10
 
 
   
 
                               
Total Investments
   
 
         
$
16,528,720
   
$
18,645,022
     
83.47
 
 
(1) Investments primarily in non-traded public REITs or their successors.
(2) Investment in related party. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2015, the total percentage of non-qualifying assets is 14.69%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.
(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2015, the Fund has 65.61% of its assets in illiquid securities.
(5) Investments in non-income producing securities, which do not pay a regular distribution from operations. As of June 30, 2015, the Fund has 25.52% of its assets in non-income producing securities.

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

MacKenzie Realty Capital, Inc.
Statements of Operations
(Unaudited)
 


 
 
For The Three Months Ended
March 31,
   
For The Nine Months Ended
March 31,
 
 
 
2016
   
2015
   
2016
   
2015
 
Investment income
                       
Dividend and distribution income
 
$
346,569
   
$
152,119
   
$
1,727,016
   
$
312,341
 
Interest and other income
   
32,517
     
22,183
     
108,658
     
46,937
 
Total investment income
   
379,086
     
174,302
     
1,835,674
     
359,278
 
 
                               
Operating expenses
                               
Base management fee
   
217,886
     
135,875
     
592,398
     
335,575
 
Subordinated incentive fee
   
285,577
     
-
     
835,992
     
-
 
Administrative cost reimbursements
   
30,000
     
30,000
     
90,000
     
90,000
 
Amortization of deferred offering costs
   
-
     
-
     
-
     
35,402
 
Professional fees
   
25,815
     
16,349
     
116,599
     
129,739
 
Other general and administrative
   
40,402
     
29,242
     
110,010
     
93,495
 
Total operating expenses
   
599,680
     
211,466
     
1,744,999
     
684,211
 
 
                               
Net investment income (loss)
   
(220,594
)
   
(37,164
)
   
90,675
     
(324,933
)
 
                               
Realized and unrealized gain on investments
                               
Net realized gain
   
864,576
     
436,436
     
2,272,551
     
758,190
 
Net unrealized gain (loss)
   
(309,836
)
   
929,836
     
(177,025
)
   
1,714,257
 
Total net realized and unrealized gain on investments
   
554,740
     
1,366,272
     
2,095,526
     
2,472,447
 
 
                               
Income tax benefit (note 2)
   
-
     
-
     
1,412
     
188,949
 
 
                               
Net increase in net assets resulting from operations
 
$
334,146
   
$
1,329,108
   
$
2,187,613
   
$
2,336,463
 
 
                               
Net increase in net assets resulting from operations per Share
 
$
0.10
   
$
0.78
   
$
0.77
   
$
1.71
 
 
                               
Weighted average common Shares outstanding
   
3,236,743
     
1,696,306
     
2,829,003
     
1,363,202
 










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
   
For The Year
Ended
 
 
 
March 31, 2016
   
June 30, 2015
 
 
 
(Unaudited)
       
Operations
           
Net investment income (loss)
 
$
90,675
   
$
(363,162
)
Net realized gain
   
2,272,551
     
1,578,081
 
Net unrealized gain (loss)
   
(177,025
)
   
1,803,714
 
Income tax benefit
   
1,412
     
188,949
 
Net increase in net assets resulting from operations
   
2,187,613
     
3,207,582
 
 
               
Dividends
               
Dividends to stockholders from net realized gain
   
(1,819,845
)
   
(972,586
)
 
               
Capital share transactions
               
Issuance of common stock
   
12,128,268
     
12,925,611
 
Issuance of common stock through reinvestment of dividends
   
664,218
     
78,373
 
Redemption of common stock
   
(1,136,524
)
   
-
 
Selling commissions and fees
   
(1,569,176
)
   
(1,665,330
)
Net increase in net assets resulting from capital share transactions
   
10,086,786
     
11,338,654
 
 
               
Total increase in net assets
   
10,454,554
     
13,573,650
 
 
               
Net assets at beginning of period
   
22,338,439
     
8,764,789
 
 
               
Net assets at end of period
 
$
32,792,993
   
$
22,338,439
 

 












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

MacKenzie Realty Capital, Inc.
Statements of Cash Flows
 (Unaudited)

 
 
 
For The Nine Months Ended
March 31,
 
 
 
2016
   
2015
 
 
           
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
2,187,613
   
$
2,336,463
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
10,208,993
     
4,405,858
 
Return of capital
   
121,447
     
85,572
 
Purchase of investments
   
(17,293,912
)
   
(12,780,374
)
Net realized gain on investments
   
(2,272,551
)
   
(758,190
)
Net unrealized loss (gain) on investments
   
177,025
     
(1,714,257
)
Amortization of deferred offering costs
   
-
     
35,402
 
Changes in assets and liabilities:
               
Accounts receivable
   
(235,088
)
   
(56,174
)
Other assets
   
(83,027
)
   
(140,802
)
Accounts payable and accrued liabilities
   
3,559
     
(17,812
)
Income tax payable
   
-
     
(153,874
)
Due to related entities
   
810,054
     
101,014
 
Deferred tax liability
   
1,611
     
(86,575
)
Net cash from operating activities
   
(6,374,276
)
   
(8,743,749
)
 
               
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
12,128,268
     
9,178,608
 
Redemption of common stock
   
(1,136,524
)
   
-
 
Dividends to stockholders
   
(1,155,627
)
   
(675,699
)
Payment of selling commissions and fees
   
(1,595,936
)
   
(1,189,442
)
Change in capital pending acceptance
   
276,960
     
31,208
 
       Net cash from financing activities
   
8,517,141
     
7,344,675
 
 
               
Net increase (decrease) in cash and cash equivalents
   
2,142,865
     
(1,399,074
)
 
               
Cash and cash equivalents at beginning of the period
   
4,297,086
     
3,522,751
 
 
               
Cash and cash equivalents at end of the period
 
$
6,439,951
   
$
2,123,677
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
664,218
   
$
6,956
 
 
               
Supplemental disclosures:
               
Taxes paid
 
$
-
   
$
51,000
 

 

 
The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
MacKenzie Realty Capital, Inc.
Notes to Financial Statements
March 31, 2016
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION


MacKenzie Realty Capital, Inc. (the "Fund") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It is 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 Fund has elected to be treated as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Fund 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 Fund 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 Fund's common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Fund has filed various post-effective amendments since the SEC granted the initial effectiveness for the purpose of updating the Registration Statement. The most recent post-effective amendment was filed on November 4, 2015, which the SEC declared effective on the same day. The Fund commenced its operations on February 28, 2013, and its fiscal year-end is June 30.


The Fund is externally 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 Fund's affairs except for providing investment advice. The Fund 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, and renewed on October 23, 2014, and again on October 23, 2015.  The Fund pursues 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 Fund 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 Fund's acquisition of the Legacy Portfolio, the Fund issued 692,217 shares of the Fund'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 Fund's common stock at $10 per share in order to provide the Fund with funds to complete this exchange and prepare its initial public offering. As of March 31, 2016, the Fund has raised approximately $34.7 million (inclusive of the $6.9 million initial Legacy Funds capital investment) from the current offering, including proceeds from the dividend reinvestment plan ("DRIP") of approximately $0.7 million.

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 Articles 6 and 10 of Regulation S-X contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Fund's assets and liabilities as of March 31, 2016, and the results of its operations for the three and nine months periods ended March 31, 2016, and 2015, which results are not necessarily indicative of results on an annualized basis. The statement of assets and liabilities as of June 30, 2015, has been derived from audited financial statements. The Fund follows the GAAP financial reporting standards for investment companies. Accordingly, the Fund'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 Fund's statement of operations.

These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2015, included in the Fund's annual report on Form 10-K filed with the SEC.

There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2015, other than those expanded upon and described below.

Cash and Cash Equivalents

The Fund 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 Fund may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of March 31, 2016, and June 30, 2015.

Accounts Receivable

Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Fund monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. Substantially all of the accounts receivable balance outstanding as of March 31, 2016, has been collected as of the issuance date of this financial statements.

Capital Pending Acceptance

The Fund admits new stockholders monthly and subscriptions are effective only upon the Fund'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, 2016, and June 30, 2015, capital pending acceptance was $865,210 and $588,250, respectively.




Income Taxes and Deferred Tax Liability

Under ASC 740-10-25, the Fund 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 gains (losses) on existing investments. In estimating future tax consequences, the Fund 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 Fund has elected to be treated as a REIT for tax purposes under the Code and as a REIT, the Fund 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 the Fund 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 Fund is also subject to tax on built-in gains it realizes during the first ten years following REIT election.

The Fund qualified to be taxed as a REIT beginning with the tax year ended December 31, 2014, and made the REIT election in its 2014 tax return. Therefore, the Fund did not record any tax provisions during the three months and nine months ended March 31, 2016. Total dividends paid to the stockholders during tax year ended December 31, 2014, exceeded the REIT taxable income and we believe that dividends paid to the stockholders during tax year ended December 31, 2015, are expected to exceed our REIT taxable income. In addition, during tax year 2016, we intend to pay the requisite amount of dividends to stockholders such that the Fund would not pay any income taxes on its income.

The income tax benefit of $1,412 recorded during the nine months ended March 31, 2016, was the adjustment for the difference between the actual and estimated tax on the built-in gains realized during tax year 2014. The income tax benefit of $188,949 recorded during the nine months ended March 31, 2015, was the reversal of income tax provisions recorded during the period from January 1, 2014, through June 30, 2014, during which the Fund had not qualified to be treated as a REIT. This reversal occurred after the Fund qualified to be treated as a REIT during the quarter ended December 31, 2014.

Prior to the effective date of its REIT election, the Fund had net unrealized built-in gains of $239,595, for which the Fund recorded an estimated tax liability of $95,431 as of December 31, 2013. Accordingly, in each subsequent tax year, the Fund only records the difference between the actual and estimated tax on the built-in gains it realizes during each tax year as income tax expense or benefit. During the three months ended March 31, 2016, there were no built-in gains realized that resulted in any additional tax expense; however, during the nine months ended March 31, 2016, the Fund recorded an income tax benefit of $1,412 resulting from the adjustment to actual of the estimated built-in gains tax incurred for the tax year ended December 31, 2014.

The remaining net unrealized built-in gains, which are subject to tax, as of March 31, 2016 and 2015 were $117,087 and $95,261, respectively.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Fund's investments at cost and fair value as of March 31, 2016, and June 30, 2015:
 
 
 
March 31, 2016
   
June 30, 2015
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
11,149,057
   
$
10,974,666
   
$
3,851,842
   
$
3,411,454
 
Non Traded Company
   
6,454,735
     
7,360,671
     
6,763,831
     
8,838,025
 
LP Interest
   
7,256,584
     
8,394,909
     
5,246,418
     
5,642,367
 
Investment Trust
   
258,435
     
207,415
     
319,906
     
285,100
 
Note
   
645,931
     
766,359
     
346,723
     
468,076
 
Total
 
$
25,764,742
   
$
27,704,020
   
$
16,528,720
   
$
18,645,022
 
 
                               
 
The following table presents fair value measurements of the Fund's investments measured at fair value on a recurring basis as of March 31, 2016, according to the fair value hierarchy:

Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
10,974,666
   
$
10,974,666
   
$
-
   
$
-
 
Non Traded Company
   
7,360,671
     
-
     
-
     
7,360,671
 
LP Interest
   
8,394,909
     
-
     
-
     
8,394,909
 
Investment Trust
   
207,415
     
-
     
-
     
207,415
 
Note
   
766,359
     
-
     
-
     
766,359
 
Total
 
$
27,704,020
   
$
10,974,666
   
$
-
   
$
16,729,354
 
 
The following table presents fair value measurements of the Fund's investments measured at fair value on a recurring basis as of June 30, 2015, according to the fair value hierarchy:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Company
 
$
3,411,454
   
$
3,411,454
   
$
-
   
$
-
 
Non Traded Company
   
8,838,025
     
-
     
36,198
     
8,801,827
 
LP Interest
   
5,642,367
     
-
     
-
     
5,642,367
 
Investment Trust
   
285,100
     
-
     
-
     
285,100
 
Note
   
468,076
     
-
     
-
     
468,076
 
Total
 
$
18,645,022
   
$
3,411,454
   
$
36,198
   
$
15,197,370
 
 

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 months period ended March 31, 2016:
 
Balance at July 1, 2015
 
$
15,197,370
 
Purchases of investments
   
10,051,618
 
Transfers to Level I
   
(3,189,287
)
Proceeds from sales, net
   
(7,852,897
)
Return of capital
   
(82,947
)
Net realized gains
   
2,257,694
 
Net unrealized gains
   
347,803
 
Ending balance at March 31, 2016
 
$
16,729,354
 
 
For the nine months ended March 31, 2016, changes in unrealized gains included in earnings relating to Level III investments still held at March 31, 2016, was $893,676.

The transfers of $3,189,287 from Level III to Level I category during the nine months ended March 31, 2016, relates to changes in tradeability of the securities in an active market due to one of the Fund's investments converting from a non-traded REIT shares to a publicly traded 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 nine months 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 gains
   
470,240
 
Net unrealized gains
   
1,687,190
 
Ending balance at March 31, 2015
 
$
12,354,049
 
 
For the nine months ended March 31, 2015, changes in unrealized gains 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 tradeability of the securities in an active market due to one of the Fund's investments converting from a non-traded REIT to public REIT shares.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2016:
 
Asset Type
 Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
Range
Wt. Average
 
 
 
 
 
 
 
Non Traded Company
 $   6,776,948
 
Market Activity
Acquisition cost
   
       
Capitalization rate
8.1%
 
       
Discount rate
32.3%
 
       
Contracted sale of security
   
       
Secondary market industry publication
   
Non Traded Company
         583,723
 
Net Asset Value (1)
Capitalization rate
6.7% - 8.0%
7.3%
     
 
Liquidity discount
22.3% -27.3%
24.7%
     
 
Sponsor provided value
   
             
LP Interest
         828,231
 
Market Activity
Contracted sale of security
 
 
 
 
 
 
Secondary market industry publication
 
 
LP Interest
      7,566,678
 
Net Asset Value (1)
Acquisition cost
   
 
 
 
 
Appraisal
   
 
 
 
 
Capitalization rate
6.0% - 6.8%
6.5%
 
 
 
 
Comparable sales report
 
 
 
 
 
 
Discount rate
30.0%
 
 
 
 
 
Liquidity discount
22.3% - 38.0%
25.6%
 
 
 
 
Sponsor provided value
 
 
 
 
 
 
 
 
 
Investment Trust
         105,444
 
Market Activity
Secondary market industry publication
 
 
Investment Trust
         101,971
 
Net Asset Value (1)
Capitalization rate
6.8%
 
 
 
 
 
Liquidity discount
22.3%
 
 
 
 
 
 
 
 
Note
         766,359
 
Net Asset Value (1)
Liquidity discount
13.0%
 
 
 
 
 
Sponsor provided value
 
 
 
 $       16,729,354
         
 
 (1) The net asset value of the issuer's shares was calculated by the Fund.
 

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2015:
  
Asset Type
 Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
Range
Wt. Average
 
 
 
 
 
 
 
Non Traded Company
 $   8,801,827
 
Market Activity
Acquisition Cost
 
 
 
 
 
 
Secondary market industry publication
 
 
 
 
 
 
 
 
 
LP Interest
      2,879,480
 
Market Activity
Acquisition Cost
 
 
 
 
 
 
Secondary market industry publication
 
 
LP Interest
      2,762,887
 
Net Asset Value (1)
Capitalization rate
6.5% - 7.5%
6.7%
 
 
 
 
Comparable sales report
 
 
 
 
 
 
Contracted sale of property
 
 
 
 
 
 
Liquidity discount
10.0% - 40.0%
30.8%
 
 
 
 
Sponsor provided value
 
 
 
 
 
 
 
 
 
Investment Trust
         188,191
 
Market Activity
Secondary market industry publication
 
 
Investment Trust
           96,909
 
Net Asset Value (1)
Capitalization rate
6.6%
 
 
 
 
 
Liquidity discount
28.0%
 
 
 
 
 
 
 
 
Note
         468,076
 
Net Asset Value (1)
Liquidity discount
15.0%
 
 
 
 
 
Sponsor provided value
 
 
 
 $        15,197,370
 
 
 
 
 

 (1) The net asset value of the issuer's shares was calculated by the Fund.
 

NOTE 4—MARGIN LOANS

The Fund has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Fund 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, 2016, the Fund had $6,587,114 of margin credit available for cash withdrawal or the ability to purchase up to $13,174,229 in additional shares. As of June 30, 2015, the Fund had $3,001,900 of margin credit available for cash withdrawal or the ability to purchase up to $6,003,976 in additional shares. As of March 31, 2016, and June 30, 2015, the Fund 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 Fund 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 Fund's assets and equals 3.0% of the gross proceeds from the sale of the Fund's shares.

The base management fee is calculated at an annual rate as a percentage of our Managed Funds (the number of Shares issued multiplied by the price at which such Shares are issued in the Offering ($10), plus any borrowed funds). The base management fee will be 3.0% of the first $20 million of our Managed Funds, 2.0% of the next $80 million of our Managed Funds, and 1.5% of our Managed Funds in excess of $100 million.

The subordinated incentive fee has three parts—income, capital gains, and liquidation. The income component is (i) 100% of the Fund'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 Fund'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 Fund's preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Fund's "contributed capital."  The capital gains component is (i) 100% of the Fund's realized capital gains annually generated by its investments above 7% and up to 8.75% of the Fund's "contributed capital," and (ii) 20% of the Fund's realized capital gains above 8.75% of the Fund'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 Fund'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 Fund's realized capital gains as of the date of liquidation.

The portfolio structuring fees for the three and nine months ended March 31, 2016, were $160,845 and $363,848, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2015, were $102,918 and $276,928, respectively.

As of March 31, 2016, Managed Funds were $33,577,239. Thus, the base management fee for the three months ended March 31, 2016, was 1/4th of 3% of $20,000,000 plus 1/4th of 2% of the remaining $13,577,239, for a total of $217,886. The base management fee for the nine months ended March 31, 2016, was $592,398, which was the total of the base management fees for the three months ended September 30, 2015, December 31, 2015, and March 31, 2016. The base management fees for the three months ended September 30, and December 31, 2015, were $178,887 and $195,625, respectively, based on the quarter ending Managed Funds of $25,777,367 and $29,125,012, respectively.

As of March 31, 2015, Managed Funds were $18,116,650. Thus, the base management fee for the three months ended March 31, 2015, was 1/4th of 3% of $18,116,650 for a total of $135,875. The base management fee for the nine months ended March 31, 2015, was $335,575, which was the total of the base management fees for the three months ended September 30, 2014, December 31, 2014, and March 31, 2015. The base management fees for the three months ended September 30, and December 31, 2014, were $89,720 and $109,980, respectively, based on the quarter ending Managed Funds of $11,962,664 and $14,663,986, respectively.

The subordinated incentive fee for the nine months ended March 31, 2016, was $835,992, of which $17,949 was the subordinated incentive income fee (the "Income Fee") and $818,043 was the subordinated incentive capital gains fee ( "Capital Gains Fee"). The Income Fee was incurred during the three months ended December 31, 2015, when net investment income for the quarter exceeded 1.75% (7% annualized) of the Fund's contributed capital. The Capital Gains Fee accrual of $818,043 was calculated based on the cumulative realized gains net of unrealized losses from inception through March 31, 2016. The total subordinated incentive fee for the three months ended March 31, 2016, of $285,577 was the Capital Gains Fee accrual on realized gains net of unrealized losses since inception less all previously accrued Capital Gains Fees. This estimated Capital Gains Fee accrued as of March 31, 2016, is subject to change since the fee is computed and paid annually at the end of each fiscal year.

There were no subordinated incentive fees for the three and nine months ended March 31, 2015.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Fund in excess of $550,000 will be reimbursed by the Adviser. As of March 31, 2016, and June 30, 2015, the Fund had incurred $1,083,530 and $963,726 of organization and offering costs, respectively. Thus, according to the agreement, $533,530 and $413,726 of the amount were reimbursable from the Adviser as of March 31, 2016, and June 30, 2015, respectively. As of March 31, 2016, the Adviser has reimbursed the Fund $510,542 and the remaining reimbursable amount of $22,988 was settled through an offset against the amount payable to the Adviser as of March 31, 2016.

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

The administrative cost reimbursements for the three and nine months ended March 31, 2016, were $30,000 and $90,000, respectively. The administrative cost reimbursements for the three and nine months ended March 31, 2015, were $30,000 and $90,000, respectively.


The table below outlines the related party expenses incurred for the nine months ended March 31, 2016, and 2015 and unpaid as of March 31, 2016, and June 30, 2015.
 
 
 
For The Nine Months Ended
   
Unpaid as of
 
Types and Recipient
 
March 31, 2016
   
March 31, 2015
   
March 31, 2016
   
June 30, 2015
 
 
                       
Portfolio Structuring fee- the Adviser
 
$
363,848
   
$
276,928
   
$
-
   
$
-
 
Base Management fees- the Adviser
   
592,398
     
335,575
     
217,886
     
159,710
 
Subordinated incentive fee- the Adviser
   
835,992
     
-
     
821,023
     
46,748
 
Administrative Cost Reimbursements- MacKenzie
   
90,000
     
90,000
     
30,000
     
30,000
 
Others expenses (1)- MacKenzie
                   
(7,064
)
   
638
 
Organization & Offering Cost Reimbursement by the Adviser
                   
(22,988
)
   
(8,293
)
Due to related entities
                 
$
1,038,857
   
$
228,803
 
(1) Expenses paid by MacKenzie on behalf of the Fund to be reimbursed to MacKenzie.

Related Party Investments:

Name of issuer and title of issue
 
Number of shares
 
Amount of equity in net profit and loss
 
Amount of dividends/interest
 
Fair Value at
 
 
 
 
 
 
 
 
 
Controlled Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2016
 
 
 
For The Nine Months Ended March 31, 2016
 
March 31, 2016
 
 
 
 
 
 
 
 
 
Coastal Realty Business Trust, REEP, Inc. - A
 
               72,320.00
 
 $                -
 
 $                -
 
 $                 101,971
Coastal Realty Business Trust, Series H2- A
 
               47,284.16
 
 $          7,093
 
 $          7,093
 
 $                 105,444
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 For The Year Ended June 30, 2015
 
June 30, 2015
 
 
 
 
 
 
 
 
 
Coastal Realty Business Trust, REEP, Inc. - A
 
               72,320.00
 
 $          2,170
 
 $          2,170
 
 $                   96,909
Coastal Realty Business Trust, Series H2- A
 
               47,284.16
 
 $        14,776
 
 $        14,776
 
 $                 188,191
 
 
 
 
 
 
 
 
 
Non-Controlled/Affiliate Investment:
 
 
 
 
 
 
 
 
 
 
 
 
For The Nine Months Ended March 31, 2016
 
March 31, 2016
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MPF Pacific Gateway - Class B
 
                      23.20
 
 $                -
 
 $                -
 
 $                     7,309
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
For The Year Ended June 30, 2015
 
June 30, 2015
 
 
 
 
 
 
 
 
 
MPF Pacific Gateway - Class B
 
                      23.20
 
 $                -
 
 $                -
 
 $                     6,613


Coastal Realty Business Trust ("CRBT"):

CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Fund owns two series of CRBT and is the only beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants.

The Fund is the sole beneficiary of the following series as of March 31, 2016, and June 30, 2015:
· CRBT, REEP, Inc.-A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.

· CRBT, Series H2-A, which invests in shares of a REIT that owns a real estate portfolio totaling 105 properties within asset classes of ski and mountain lifestyle, senior housing, attractions, marinas and other lifestyle properties located in the United States and Canada.

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, 2016, and June 30, 2015, the Fund 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 Fund for the nine months ended March 31, 2016, and the year ended June 30, 2015.
 
 
For The Nine months ended
   
For The Year Ended
 
 
 
March 31, 2016
   
June 30, 2015
 
Per Share Data:
           
 
           
Beginning net asset value
 
$
10.17
   
$
9.81
 
 
               
Net investment income (loss) (1)
   
0.03
     
(0.24
)
Net realized gain (1)
   
0.80
     
1.03
 
Net unrealized gain (loss) (1)
   
(0.06
)
   
1.17
 
Income tax benefit (1)
   
-
     
0.12
 
Net increase in net assets resulting from operations
   
0.77
     
2.08
 
 
               
Issuance of common stock below net asset value (1) (4)
   
(0.58
)
   
(1.09
)
Redemption of common stock below net asset value (1) (7)
   
0.05
     
-
 
Dividends to stockholders from net realized gains (1) (6)
   
(0.64
)
   
(0.63
)
Ending net asset value
 
$
9.77
   
$
10.17
 
 
               
Weighted average common Shares outstanding
   
2,829,003
     
1,541,525
 
Shares outstanding at the end of period
   
3,357,724
     
2,196,613
 
Net assets at the end of period
 
$
32,792,993
   
$
22,338,439
 
Average net assets (2)
 
$
27,565,716
   
$
15,551,614
 
 
               
Ratios to average net assets
               
Total expenses (5)
   
6.33
%
   
6.21
%
Net investment income (loss) (5)
   
0.33
%
   
(2.34
)%
Total rate of return (2) (3) (5)
   
7.94
%
   
20.63
%
 
(1)       Based on weighted average number of shares of common stock outstanding for the period.
(2)       Average net assets were derived from the beginning and period-end net assets.
(3)       Total return is calculated based upon the change in value of the net assets. An individual stockholder's return may vary from this return based on the time of capital transactions.
(4)       Net of sales commissions and dealer manager fees of $1.30 per share.
(5)       Not annualized for the nine months ended March 31, 2016.
(6)       Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.
(7)       Based on the most recent NAV issued as of December 31, 2015, of $10.06 per share.


NOTE 7 – SHARE OFFERINGS AND FEES
During the nine months ended March 31, 2016, the Fund issued 1,213,589 shares with gross proceeds of $12,128,268 pursuant to the offering, and 73,802 shares under the Fund's dividend reinvestment plan ("DRIP") with gross proceeds of $664,218. For the nine months ended March 31, 2016, the Fund incurred selling commissions and upfront fees of $1,569,176, of which $363,848 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.
During the nine months ended March 31, 2015, the Fund issued 914,956 shares with gross proceeds of $9,149,560 pursuant to the offering, and issued 3,227.50 shares under the Fund's dividend reinvestment plan ("DRIP") at $9 per share with gross proceeds of $29,048. For the nine months ended March 31, 2015, the Fund paid selling commissions and upfront fees of $1,189,442, of which $276,928 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

NOTE 8 – SHARE REPURCHASE PLAN

On December 7, 2015, and February 18, 2016, the Fund, pursuant to its Share Repurchase Program, offered to purchase 50,000 and 35,000 shares, respectively, of its issued and outstanding stock at $9 per Share. The purchase offers expired on January 7, 2016, and March 21, 2016. As of the offer expiration dates the Fund received and accepted a total of 74,285.56 and 51,994.84 Shares. Although the number of Shares accepted were greater than the 50,000 and 35,000, respectively, that the Fund had offered to purchase, the Fund increased the offers to accept all such tendered shares. The Fund made cash payments of $668,570 and $467,954 on January 11, 2016, and March 22, 2016, to purchase the Shares accepted pursuant to the offers.

NOTE 9 –STOCKHOLDER DIVIDENDS AND INCOME TAXES

The following table reflects the cash dividend per share that the Fund paid on its common stock during the nine months ended March 31, 2016:
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2015
 
$
0.300
   
$
623,394
 
Three months ended December 31, 2015
   
0.210
     
520,306
 
Three months ended March 31, 2016
   
0.250
     
676,145
 
 
 
$
0.760
   
$
1,819,845
 
Of the total dividend paid during the nine months ended March 31, 2016, $664,218 was reinvested under the DRIP.
The following table reflects the cash dividend per share that the Fund paid on its common stock during the nine months ended March 31, 2015:
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2014
 
$
0.300
   
$
255,442
 
Three months ended December 31, 2014
   
0.175
     
186,812
 
Three months ended March 31, 2015
   
0.175
     
233,445
 
 
 
$
0.650
   
$
675,699
 
Of the total dividend paid during the nine months ended March 31, 2015, $29,048 was reinvested under the DRIP.
On May 9, 2016, the Fund's Board of Directors approved a quarterly dividend of $0.175 per share to the holders of record on March 31, 2016, which is expected to be paid in May, 2016.

Income Taxes

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified.
 
For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders during the tax year ended December 31, 2014 (the most recent tax year end completed and filed), were as follows:

Ordinary income - earnings and profits from pre REIT qualification
 
$
103,874
 
Capital gain
   
469,230
 
Total dividends
 
$
573,104
 
 
The tax character of dividends paid to stockholders since December 31, 2014 (the most recent tax year ended completed and filed) through March 31, 2016, is expected to be ordinary income and capital gains. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending December 31, 2015.

As of December 31, 2014 (the most recent tax year end completed and filed), the components of undistributed earnings on a tax basis were as follows:

Undistributed long term capital gain
 
$
6,372
 
Unrealized fair value appreciation
   
1,120,925
 
 
 
$
1,127,297
 
 
 The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of:
 
 
 
March 31, 2016
   
June 30, 2015
 
 
           
Aggregate gross unrealized appreciation
 
$
2,380,671
   
$
2,909,892
 
Aggregate gross unrealized depreciation
   
(432,810
)
   
(825,283
)
Net unrealized appreciation
 
$
1,947,861
   
$
2,084,609
 
 
               
Aggregate cost (tax basis)
 
$
25,756,159
   
$
16,560,414
 


NOTE 10 – COMMITMENTS AND CONTINGENCIES

As of June 30, 2015, the Fund committed to loan an additional $172,000 to BR Cabrillo, LLC. The loan is disbursed upon borrower's request and accrues interest at the rate of 15% per annum. As of March 31, 2016, the Fund has disbursed $166,612 of the total commitment with the remaining commitment of $5,388. The Fund has concluded that no accounting recognition or reporting for the estimated fair value of the undisbursed commitment is necessary as of March 31, 2016, because the loan terms continue to be equivalent to the market terms for such commitments, and the borrower's credit condition has not changed significantly. As of March 31, 2016, the Fund has sufficient unencumbered liquid assets to cover the amount of currently unfunded commitments.

As of December 17, 2015, the Fund committed to loan an additional $260,000 to BR Cabrillo, LLC. The loan is disbursed upon borrower's request and accrues interest at the rate of 15% per annum. As of March 31, 2016, the Fund has disbursed $131,671 of the total commitment with the remaining commitment of $128,329. The Fund has concluded that no accounting recognition or reporting for the estimated fair value of the undisbursed commitment is necessary as of March 31, 2016, because the loan terms continue to be equivalent to the market terms for such commitments, and the borrower's credit condition has not changed significantly. As of March 31, 2016, the Fund has sufficient unencumbered liquid assets to cover the amount of currently unfunded commitments.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc. (the "Fund," "we," or "us") contained herein, other than historical facts, may constitute "forward-looking statements."  These statements may relate to, among other things, future events or our future performance or financial condition.  In some cases, you can identify forward-looking statements by terminology such as "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative of such terms or comparable terminology.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies' ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy.  For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading "Risk Factors" in our Registration Statement filed on Form N-2.

We may experience fluctuations in our operating results due to a number of factors, including the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.


Overview


We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. Our objective is to generate both current income and capital appreciation through real estate-related investments. We qualified to be taxed as a REIT beginning with the tax year ended December 31, 2014, and we made our REIT election in our 2014 tax return. As a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. We are also subject to tax on built-in gains we realize during the first ten years following REIT election.

We are managed by the Adviser, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate.

Investments

Our investments are generally expected to range in size from $10,000 to $3 million. However, we may make smaller or larger investments from time to time on an opportunistic basis. We focus primarily on real estate-related securities. We purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers. We invest primarily in debt and equity securities issued by U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

We generally seek to invest in interests of real estate-related limited partnerships and REITs. Under normal market conditions, we invest at least 80.0% of our total assets in common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities. For purposes of the REIT rules, a real estate company is one that (i) derives at least 50.0% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50.0% of its assets invested in such real estate. We do not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities that we may invest in may in turn hold interests in general partnerships, joint ventures, or other non-limited liability entities. We generally consider purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate-related investments.

We may also acquire (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii) securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20.0% of our available capital, securities of issuers that own assets other than real estate.


Revenues


We generate revenue in the form of capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be generated in connection with our investments and recognized as earned.

Expenses

Our primary operating expenses include the payment of: (i) investment advisory fees (which include the Portfolio Structuring Fee) to our Adviser; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie Capital Management in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments, including our initial portfolio from the Legacy Funds. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We will bear all other expenses of our operations and transactions, including:

· the cost of calculating our NAV, including the cost of any third-party valuation services;
· the cost of effecting sales and repurchases of our Shares and other securities;
· interest payable on debt, if any, to finance our investments;
· fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees;
· transfer agent and safekeeping fees;
· fees and expenses associated with marketing efforts;
· federal and state registration fees, any stock exchange listing fees in the future;
· federal, state and local taxes;
· Independent Directors' fees and expenses;
· brokerage commissions;
· fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;
· direct costs and expenses of administration and sub-administration, including printing, mailing, long distance telephone and staff;
· fees and expenses associated with independent audits and outside legal costs;
· costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act and applicable federal and state securities laws; and
· all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff.

In addition, we have already born $550,000 of Organization and Offering Expenses. Any additional amounts is paid by our Adviser.

Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of March 31, 2016, and June 30, 2015:
 
 
March 31, 2016
   
June 30, 2015
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Company
 
$
11,149,057
   
$
10,974,666
   
$
3,851,842
   
$
3,411,454
 
Non Traded Company
   
6,454,735
     
7,360,671
     
6,763,831
     
8,838,025
 
LP Interest
   
7,256,584
     
8,394,909
     
5,246,418
     
5,642,367
 
Investment Trust
   
258,435
     
207,415
     
319,906
     
285,100
 
Note
   
645,931
     
766,359
     
346,723
     
468,076
 
Total
 
$
25,764,742
   
$