10-Q 1 mrc10q09-30-16.htm FORM 10-Q

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 September 30, 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 December 5, 2016 was 4,954,030.68.
 
 
 

 
TABLE OF CONTENTS
 
   
Page
 
 
 
     
 
     
 
     
 
     
 
     
 
     
 
     
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
 




Part I. FINANCIAL INFORMATION

Item 1. Financial Statements
 
MacKenzie Realty Capital, Inc.
Statements of Assets and Liabilities
 
   
September 30, 2016
   
June 30, 2016
 
   
(Unaudited)
       
Investments, at fair value (cost of $40,475,941 and $37,077,138, respectively)
 
$
43,327,713
   
$
39,176,772
 
Cash and cash equivalents
   
4,645,491
     
2,350,435
 
Accounts receivable
   
381,354
     
438,956
 
Other assets
   
217,065
     
349,058
 
Deferred offering costs
   
279,117
     
-
 
Total assets
 
$
48,850,740
   
$
42,315,221
 
                 
                 
Liabilities
               
Accounts payable and accrued liabilities
 
$
258,402
   
$
90,956
 
Capital pending acceptance
   
845,200
     
1,616,490
 
Due to related entities
   
239,781
     
230,221
 
Deferred tax liability
   
45,363
     
45,363
 
Total liabilities
   
1,388,746
     
1,983,030
 
                 
                 
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 4,478,320.68 and 4,057,319.49 shares issued and outstanding, respectively
   
475
     
406
 
Capital in excess of par value
   
43,475,167
     
37,256,225
 
Accumulated undistributed net investment loss
   
(535,407
)
   
(619,875
)
Accumulated undistributed net realized gain
   
1,669,988
     
1,595,801
 
Accumulated undistributed net unrealized gain
   
2,851,771
     
2,099,634
 
Total net assets
   
47,461,994
     
40,332,191
 
                 
Total liabilities and net assets
 
$
48,850,740
   
$
42,315,221
 
                 
Net asset value per Share
   
10.00
   
$
9.94
 


 

 

The accompanying Notes to Financial Statements are an integral part of these financial statements.
 
 
MacKenzie Realty Capital, Inc.
Schedule of Investments
September 30, 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
   
$
265,000
     
0.56
 
Apple Hospitality REIT, Inc.
       
Publicly Traded Company
   
203,574.00
     
3,855,692
     
3,768,155
     
7.94
 
Ashford Hospitality Prime, Inc.
   
(3
)
Publicly Traded Company
   
54,027.00
     
795,610
     
761,781
     
1.61
 
Ashford Hospitality Trust, Inc.
   
(3
)
Publicly Traded Company
   
150,000.00
     
912,218
     
883,500
     
1.86
 
Bluerock Residential Growth REIT, Inc.
       
Publicly Traded Company
   
147,858.00
     
1,621,715
     
1,922,154
     
4.05
 
CBL & Associates Properties, Inc.
   
(3
)
Publicly Traded Company
   
74,000.00
     
929,327
     
898,360
     
1.89
 
Chatham Lodging Trust
   
(3
)
Publicly Traded Company
   
30,000.00
     
663,653
     
577,500
     
1.22
 
Equity Commonwealth
   
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
367,173
     
0.77
 
Independence Realty Trust, Inc.
   
(3
)
Publicly Traded Company
   
72,000.00
     
542,232
     
648,000
     
1.37
 
Liberty Property Trust
   
(3
)
Publicly Traded Company
   
14,000.00
     
474,607
     
564,900
     
1.19
 
New York REIT, Inc.
   
(3
)
Publicly Traded Company
   
87,000.00
     
939,475
     
796,050
     
1.68
 
One Liberty Properties, Inc.
   
(3
)
Publicly Traded Company
   
22,500.00
     
510,055
     
543,600
     
1.15
 
Sabra Health Care REIT, Inc.
   
(3
)
Publicly Traded Company
   
26,300.00
     
538,275
     
662,234
     
1.40
 
TIER REIT, Inc.
       
Publicly Traded Company
   
55,000.00
     
713,455
     
849,200
     
1.79
 
VEREIT Inc.
   
(3
)
Publicly Traded Company
   
126,800.00
     
1,104,741
     
1,314,916
     
2.77
 
Washington Prime Group Inc.
   
(3
)
Publicly Traded Company
   
30,000.00
     
374,993
     
371,400
     
0.78
 
Total Publicly Traded Company
                     
14,711,559
     
15,193,923
     
32.03
 
                                           
American Finance Trust, Inc.
   
(4
)
Non Traded Company
   
26,879.51
     
469,595
     
470,390
     
0.99
 
American Realty Capital New York City REIT, Inc.
   
(4
)
Non Traded Company
   
936.48
     
16,257
     
16,257
     
0.02
 
Behringer Harvard REIT I
   
(4
)(5)
Non Traded Company
   
151,809.21
     
163,954
     
212,533
     
0.45
 
FSP Energy Tower
   
(4
)(5)
Non Traded Company
   
7.00
     
294,350
     
240,616
     
0.51
 
FSP Grand Boulevard
   
(4
)
Non Traded Company
   
7.00
     
279,104
     
280,736
     
0.59
 
FSP 1441 Main Street
   
(4
)
Non Traded Company
   
11.55
     
398,163
     
424,078
     
0.89
 
FSP Satellite Place
   
(4
)
Non Traded Company
   
5.00
     
195,035
     
192,213
     
0.40
 
FSP South 10th Street Corp. Liquidating Trust
   
(4
)(5)
Non Traded Company
   
0.25
     
151
     
-
     
-
 
Highlands REIT Inc.
   
(4
)
Non Traded Company
   
2,084,327.91
     
508,857
     
458,552
     
0.97
 
InvenTrust Properties Corp.
   
(4
)
Non Traded Company
   
2,031,268.94
     
4,262,262
     
3,696,909
     
7.79
 
KBS Real Estate Investment Trust, Inc.
   
(4
)
Non Traded Company
   
1,474,273.09
     
3,360,656
     
4,186,936
     
8.82
 
Phillips Edison Grocery Center REIT I, Inc
   
(4
)
Non Traded Company
   
1,950.00
     
17,439
     
17,375
     
0.04
 
Sentio Healthcare Properties, Inc.
   
(4
)
Non Traded Company
   
19,473.95
     
143,822
     
172,150
     
0.36
 
Strategic Realty Trust, Inc.
   
(4
)
Non Traded Company
   
42,288.14
     
167,662
     
195,794
     
0.41
 
Summit Healthcare REIT, Inc.
   
(4
)(5)
Non Traded Company
   
181,986.39
     
209,750
     
242,042
     
0.51
 
Total Non Traded Company (1)
                     
10,487,057
     
10,806,581
     
22.75
 
                                           
5210 Fountaingate
   
(4
)(5)
LP Interest
   
9.89
     
500,000
     
500,000
     
1.01
 
Arrowpoint Burlington LLC
   
(4
)
LP Interest
   
7.50
     
750,000
     
761,805
     
1.61
 
BR Beach House Investment Co
   
(4
)
LP Interest
   
1,499,804.92
     
1,499,805
     
1,559,797
     
3.29
 
BR Cabrillo LLC
   
(4
)(5)
LP Interest
   
346,723.32
     
104,942
     
104,017
     
0.22
 
BR Riverside Investment
   
(4
)
LP Interest
   
2,237,500.00
     
2,238,638
     
2,304,625
     
4.86
 
Britannia Preferred Members, LLC
   
(4
)(5)
LP Interest
   
150,000.00
     
1,500,000
     
1,899,000
     
4.00
 
DRV Holding Company, LLC
   
(4
)(5)
LP Interest
   
250.00
     
250,000
     
353,418
     
0.74
 
Inland Land Appreciation Fund II, L.P.
   
(4
)(5)
LP Interest
   
210.97
     
8,667
     
25,840
     
0.05
 
MC 15 Preferred Equity, LLC
   
(4)
)(5)(2)
LP Interest
   
250,000.00
     
2,500,000
     
2,810,000
     
5.92
 
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
   
5,408.97
     
50,617
     
49,979
     
0.11
 
Redwood Mortgage Investors VIII
   
(4
)
LP Interest
   
53,848.09
     
29,020
     
32,847
     
0.07
 
Resource Real Estate Investors 6, L.P.
   
(4
)
LP Interest
   
42,600.00
     
169,548
     
198,516
     
0.42
 
Resource Real Estate Investors 7 L.P.
   
(4
)
LP Interest
   
11,500.00
     
36,820
     
114,425
     
0.24
 
Satellite Investment Holdings, LLC - Class A
   
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
4.64
 
Secured Income, LP
   
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
790,661
     
1.67
 
Strategic Realty Operating Partnership, LP
   
(4
)
LP Interest
   
20,433.01
     
78,951
     
94,605
     
0.20
 
The Weatherly, LTD
   
(4
)(5)
LP Interest
   
60.00
     
672,000
     
703,288
     
1.48
 
The Weatherly Building, LLC
   
(4
)(5)
LP Interest
   
17.50
     
392,000
     
410,252
     
0.86
 
Uniprop Manufactured Housing Income Fund II, LP
   
(4
)
LP Interest
   
124,917.00
     
646,191
     
1,044,306
     
2.20
 
VWC Savannah, LLC
   
(4
)(5)
LP Interest
   
8.25
     
825,000
     
1,170,458
     
2.47
 
Total LP Interest
                     
15,018,889
     
17,135,148
     
36.08
 
                                           
Coastal Realty Business Trust, REEP, Inc. - A
   
(2)
)(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
102,694
     
0.22
 
Coastal Realty Business Trust, Series H2- A
   
(2
)(4)
Investment Trust
   
47,284.16
     
184,881
     
89,367
     
0.18
 
Total Investment Trust
                     
258,436
     
192,061
     
0.40
 
                                           
Total Investments
                   
$
40,475,941
   
$
43,327,713
     
91.26
 

 
 
 

 
(1) Investments primarily in non-traded public REITs or their successors.
(2) Investments in affiliated companies. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of September 30, 2016, the total percentage of non-qualifying assets is 17.17%, 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 September 30, 2016, 57.59% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of September 30, 2016, 20.99% of the Company'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, 2016
 
Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
Ambase Corporation
   
(5
)
Publicly Traded Company
   
250,000.00
   
$
424,397
   
$
357,500
     
0.88
 
Ashford Hospitality Prime, Inc.
   
(3
)
Publicly Traded Company
   
54,027.00
     
795,610
     
763,942
     
1.90
 
Ashford Hospitality Trust, Inc.
   
(3
)
Publicly Traded Company
   
150,000.00
     
912,218
     
805,500
     
2.00
 
Bluerock Residential Growth REIT, Inc.
       
Publicly Traded Company
   
147,858.00
     
1,621,715
     
1,922,154
     
4.77
 
CBL & Associates Properties, Inc.
   
(3
)
Publicly Traded Company
   
54,000.00
     
646,753
     
502,740
     
1.25
 
Chatham Lodging Trust
   
(3
)
Publicly Traded Company
   
15,000.00
     
323,032
     
329,700
     
0.82
 
Equity Commonwealth
   
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
353,930
     
0.88
 
Independence Realty Trust, Inc.
   
(3
)
Publicly Traded Company
   
72,000.00
     
542,232
     
588,960
     
1.46
 
Liberty Property Trust
   
(3
)
Publicly Traded Company
   
14,000.00
     
474,607
     
556,080
     
1.38
 
New York REIT, Inc.
   
(3
)
Publicly Traded Company
   
72,000.00
     
789,642
     
666,000
     
1.65
 
One Liberty Properties, Inc.
   
(3
)
Publicly Traded Company
   
22,500.00
     
510,055
     
536,625
     
1.33
 
Sabra Health Care REIT, Inc.
   
(3
)
Publicly Traded Company
   
26,300.00
     
538,275
     
542,832
     
1.35
 
TIER REIT, Inc.
       
Publicly Traded Company
   
147,649.00
     
1,922,622
     
2,263,459
     
5.62
 
VEREIT Inc.
   
(3
)
Publicly Traded Company
   
126,800.00
     
1,104,741
     
1,285,752
     
3.19
 
Total Publicly Traded Companies
                     
10,917,013
     
11,475,174
     
28.48
 
                                           
American Finance Trust, Inc.
   
(4
)
Non Traded Company
   
12,948.60
     
235,213
     
242,657
     
0.60
 
Apple REIT Ten, Inc.
   
(4
)
Non Traded Company
   
260,641.12
     
2,410,057
     
2,820,137
     
7.00
 
American Realty Capital New York City REIT, Inc.
   
(4
)
Non Traded Company
   
936.48
     
16,257
     
16,257
     
0.04
 
FSP Energy Tower
   
(4
)(5)
Non Traded Company
   
7.00
     
294,350
     
225,132
     
0.56
 
FSP Grand Boulevard
   
(4
)
Non Traded Company
   
7.00
     
279,104
     
294,021
     
0.73
 
FSP 1441 Main Street
   
(4
)
Non Traded Company
   
11.55
     
398,163
     
415,800
     
1.03
 
FSP Satellite Place
   
(4
)
Non Traded Company
   
5.00
     
195,035
     
176,836
     
0.44
 
FSP South 10th Street Corp. Liquidating Trust
   
(4
)(5)
Non Traded Company
   
0.25
     
151
     
-
     
-
 
Highlands REIT Inc.
   
(4
)
Non Traded Company
   
1,902,983.81
     
463,329
     
418,656
     
1.04
 
InvenTrust Properties Corp.
   
(4
)
Non Traded Company
   
1,940,749.73
     
4,106,446
     
3,376,905
     
8.38
 
KBS Real Estate Investment Trust, Inc.
   
(4
)
Non Traded Company
   
1,171,821.66
     
2,676,386
     
3,245,946
     
8.06
 
Phillips Edison Grocery Center REIT I, Inc
   
(4
)
Non Traded Company
   
1,950.00
     
17,439
     
17,394
     
0.04
 
Sentio Healthcare Properties, Inc.
   
(4
)
Non Traded Company
   
13,039.18
     
91,663
     
118,265
     
0.29
 
Strategic Realty Trust, Inc.
   
(4
)
Non Traded Company
   
5,245.47
     
24,406
     
23,237
     
0.06
 
Summit Healthcare REIT, Inc.
   
(4
)(5)
Non Traded Company
   
171,494.39
     
198,587
     
217,798
     
0.54
 
Total Non Traded Companies (1)
                     
11,406,586
     
11,609,041
     
28.81
 
                                           
Arrowpoint Burlington LLC
   
(4
)
LP Interest
   
7.50
     
750,000
     
750,000
     
1.86
 
BR Beach House Investment Co
   
(4
)
LP Interest
   
1,499,804.92
     
1,499,805
     
1,499,805
     
3.72
 
BR Riverside Investment
   
(4
)
LP Interest
   
2,237,500.00
     
2,238,638
     
2,237,500
     
5.55
 
Britannia Preferred Members, LLC
   
(4
)(5)
LP Interest
   
150,000.00
     
1,500,000
     
1,899,000
     
4.71
 
DRV Holding Company, LLC
   
(4
)(5)
LP Interest
   
250.00
     
250,000
     
353,418
     
0.88
 
Inland Land Appreciation Fund II, L.P.
   
(4
)(5)
LP Interest
   
210.97
     
8,667
     
24,046
     
0.06
 
MC 15 Preferred Equity, LLC
   
(4)
)(5)(2)
LP Interest
   
250,000.00
     
2,500,000
     
2,500,000
     
6.20
 
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
     
185,085
     
0.46
 
Redwood Mortgage Investors VIII
   
(4
)
LP Interest
   
54,129.40
     
29,169
     
33,019
     
0.08
 
Resource Real Estate Investors 6, L.P.
   
(4
)
LP Interest
   
42,600.00
     
169,548
     
169,974
     
0.42
 
Resource Real Estate Investors 7 L.P.
   
(4
)
LP Interest
   
11,500.00
     
36,820
     
48,645
     
0.12
 
Satellite Investment Holdings, LLC - Class A
   
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
5.46
 
Secured Income, LP
   
(4
)(5)
LP Interest
   
64,177.00
     
560,403
     
765,632
     
1.90
 
The Weatherly, LTD
   
(4
)(5)
LP Interest
   
60.00
     
672,000
     
675,378
     
1.68
 
The Weatherly Building, LLC
   
(4
)(5)
LP Interest
   
17.50
     
392,000
     
393,970
     
0.98
 
Uniprop Manufactured Housing Income Fund II, LP
   
(4
)
LP Interest
   
113,764.00
     
567,351
     
1,006,811
     
2.50
 
VWC Savannah, LLC
   
(4
)(5)
LP Interest
   
8.25
     
825,000
     
1,043,883
     
2.59
 
Total LP Interests
                     
14,390,162
     
15,793,475
     
39.19
 
                                           
Coastal Realty Business Trust, REEP, Inc. - A
   
(2)
)(4)(5)
Investment Trust
   
72,320.00
     
73,555
     
99,078
     
0.25
 
Coastal Realty Business Trust, Series H2- A
   
(2
)(4)
Investment Trust
   
47,284.16
     
184,880
     
95,987
     
0.23
 
Total Investment Trusts
                     
258,435
     
195,065
     
0.48
 
                                           
BR Cabrillo LLC Promissory Note
   
(4
)(5)
Note
           
104,942
     
104,017
     
0.26
 
Total Note
                     
104,942
     
104,017
     
0.26
 
                                           
Total Investments
                   
$
37,077,138
   
$
39,176,772
     
97.22
 
 
 
 

 
(1) Investments primarily in non-traded public REITs or their successors.
(2) Investments in affiliated companies. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2016, the total percentage of non-qualifying assets is 16.38%, 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, 2016, 65.46% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of June 30, 2016, 21.75% of the Company'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.
Statements of Operations
(Unaudited)
 
   
For The Three Months Ended
September 30,
 
   
2016
   
2015
 
Investment income
       
 
 
    Dividend and distribution income
 
$
790,329
   
$
626,166
 
    Interest and other income
   
-
     
52,402
 
        Total investment income
   
790,329
     
678,568
 
                 
Operating expenses
               
    Base management fee
   
287,416
     
178,887
 
    Portfolio Structuring fee
   
197,208
     
111,689
 
    Administrative cost reimbursements
   
55,000
     
30,000
 
    Professional fees
   
116,479
     
72,728
 
    Other general and administrative
   
49,758
     
30,434
 
        Total operating expenses
   
705,861
     
423,738
 
                 
        Net investment income
   
84,468
     
254,830
 
                 
Realized and unrealized gain on investments
               
    Net realized gain
   
1,016,846
     
328,799
 
    Net unrealized gain
   
752,137
     
553,614
 
        Total net realized and unrealized gain on investments
   
1,768,983
     
882,413
 
                  
        Income tax benefit (note 2)
   
-
     
1,412
 
                 
Net increase in net assets resulting from operations
 
$
1,853,451
   
$
1,138,655
 
                 
Net increase in net assets resulting from operations per Share
 
$
0.41
   
$
0.46
 
                 
Weighted average common Shares outstanding
   
4,533,971
     
2,476,514
 


 



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 Three Months Ended
   
For The Year Ended
 
    
September 30, 2016
   
June 30, 2016
 
    
(Unaudited)
       
Operations
           
Net investment income
 
$
84,468
   
$
807,987
 
Net realized gain
   
1,016,846
     
2,809,740
 
Net unrealized gain (loss)
   
752,137
     
(16,668
)
Income tax benefit
   
-
     
1,412
 
Net increase in net assets resulting from operations
   
1,853,451
     
3,602,471
 
                 
Dividends
               
Dividends to stockholders from net realized gain
   
(942,659
)
   
(2,377,506
)
                 
Capital share transactions
               
Issuance of common stock
   
6,573,620
     
19,248,674
 
Issuance of common stock through reinvestment of dividends
   
463,950
     
937,158
 
Redemption of common stock
   
(161,197
)
   
(1,526,467
)
Selling commissions and fees
   
(657,362
)
   
(1,912,368
)
Net increase in net assets resulting from capital share transactions
   
6,219,011
     
16,746,997
 
                 
Total increase in net assets
   
7,129,803
     
17,971,962
 
                 
Net assets at beginning of the period
   
40,332,191
     
22,360,229
 
                 
Net assets at end of the period
 
$
47,461,994
   
$
40,332,191
 

 

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 Three Months Ended
September 30,
 
   
2016
   
2015
 
         
 
 
             
Cash flows from operating activities:
           
    Net increase in net assets resulting from operations
 
$
1,853,451
   
$
1,138,655
 
    Adjustments to reconcile net increase in net assets resulting from
         
    operations to net cash from operating activities:
               
        Proceeds from sale of investments, net
   
5,860,847
     
1,545,423
 
        Return of capital
   
133,857
     
1,176
 
        Purchase of investments
   
(8,376,662
)
   
(4,324,583
)
        Net realized gain on investments
   
(1,016,846
)
   
(328,799
)
        Net unrealized loss (gain) on investments
   
(752,137
)
   
(553,614
)
        Changes in assets and liabilities:
               
            Accounts receivable
   
57,602
     
(57,691
)
            Other assets
   
110,493
     
37,830
 
            Deferred offering costs
   
(279,117
)
   
-
 
            Accounts payable and accrued liabilities
   
167,789
     
82,793
 
            Income tax payable
   
-
     
10,980
 
            Due to related entities
   
9,560
     
(26,409
)
            Deferred tax liability
   
-
     
(5,236
)
                Net cash from operating activities
   
(2,231,163
)
   
(2,479,475
)
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
6,573,620
     
3,722,968
 
Redemption of common stock
   
(161,197
)
   
-
 
Dividends to stockholders
   
(478,709
)
   
(511,050
)
Payment of selling commissions and fees
   
(636,205
)
   
(389,478
)
Change in capital pending acceptance
   
(771,290
)
   
(25,020
)
       Net cash from financing activities
   
4,526,219
     
2,797,420
 
                 
Net increase  in cash and cash equivalents
   
2,295,056
     
317,945
 
                 
Cash and cash equivalents at beginning of the year
   
2,350,435
     
4,297,086
 
                 
Cash and cash equivalents at end of the year
 
$
4,645,491
   
$
4,615,031
 
                 
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
463,950
   
$
112,344
 

 


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

MacKenzie Realty Capital, Inc.
Notes to Financial Statements
September 30, 2016
(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. 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 Company 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 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 has filed various post-effective amendments since the SEC granted the initial effectiveness for the purpose of updating the Registration Statement. The offering was concluded as of October 28, 2016. The Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30.

The Company 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 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, and renewed on October 23, 2014, October 23, 2015, and September 27, 2016.  The Company 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.

As of September 30, 2016, the Company has raised approximately $41.9 million from the current offering, including proceeds from the dividend reinvestment plan ("DRIP") of approximately $1.5 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 Company's assets and liabilities as of September 30, 2016, and the results of its operations for the three months ended September 30, 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, 2016, has been derived from audited financial statements. The Fund 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, 2016, included in the Company's annual report on Form 10-K/A filed with the SEC. The original Form 10-K for the year ended June 30, 2016, filed on September 22, 2016, was amended to restate the Company's financial statements along with certain related notes to such restated financial statements and the financial highlights. In addition, the Company restated the unaudited quarterly financial statements reported in the Company's Quarterly Reports on Form 10-Q for the quarterly periods in the years ended June 30, 2016, and 2015 and included in the amended Form 10-K/A. The restatements reflected the correction in accounting treatment of the portfolio structuring fee as an operating expense instead of as a reduction to equity.
 
Therefore, the amounts disclosed as of and for the year ended June 30, 2016, in the accompanying statements of assets and liabilities and the statements of changes in net assets reflect the restated amounts. Similarly, the three months ended September 30, 2015, in the accompanying statements of operations and statements of cash flow, reflect the restated quarterly amounts.
 
There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2016, 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 Company 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 September 30, 2016, and June 30, 2016.

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 September 30, 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 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 September 30, 2016, and June 30, 2016, capital pending acceptance was $845,200 and $1,616,490, respectively.
 
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 are deferred and expensed over a twelve month period.

During the quarter ended September 30, 2016, the Company filed a new registration statement with the SEC to register a public offering of 15,000,000 additional shares of the Company's common stock. The registration statement is currently under SEC review. The offering costs incurred on this new registration statement as of September 30, 2016, were $279,117. These offering costs have been deferred and will be expensed over a twelve-month period beginning from the date the registration is declared effective by the SEC.

 

Income Taxes and Deferred Tax Liability

The Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, the Company 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 Company 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 Company is also subject to tax on built-in gains it realizes during the first ten years following REIT election.

The Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2015, and 2014. Therefore, the Company did not incur any tax expense or excise tax for those years. For the tax year ended December 31, 2016, we intend to pay the requisite amount of dividends to stockholders such that the Company would not pay any income taxes on its income. Therefore, the Company did not record any income tax provisions during the quarter ended September 30, 2016, and 2015.

The income tax benefit of $1,412 reflected in the statements of operations for the quarter ended September 30, 2015, was the adjustment for the difference between the actual and estimated tax on the built-in gains realized during tax year 2014. Prior to the effective date of its REIT election, the Company had net unrealized built-in gains of $239,595, for which the Company recorded an estimated tax liability of $95,431 as of December 31, 2013. Accordingly, in each subsequent tax year, the Company 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. The remaining net unrealized built-in gains, which are subject to tax, as of September 30, 2016 and 2015 were $113,893 and $98,997, respectively. The deferred tax liabilities relating to those net unrealized built-in gains as of September 30, 2016 and 2015, were $45,363 and $39,431, respectively.
The Company follows ASC 740, Income Taxes, ("ASC 740") to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax 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. In addition, ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of September 30 and June 30, 2016, there were no uncertain tax positions. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company's investments at cost and fair value as of September 30, 2016, and June 30, 2016:
 
   
September 30, 2016
   
June 30, 2016
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
14,711,559
   
$
15,193,923
   
$
10,917,013
   
$
11,475,174
 
Non Traded Companies
   
10,487,057
     
10,806,581
     
11,406,586
     
11,609,041
 
LP Interests
   
15,018,889
     
17,135,148
     
14,390,162
     
15,793,475
 
Investment Trusts
   
258,436
     
192,061
     
258,435
     
195,065
 
Notes
   
-
     
-
     
104,942
     
104,017
 
Total
 
$
40,475,941
   
$
43,327,713
   
$
37,077,138
   
$
39,176,772
 

 
The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of September 30, 2016, according to the fair value hierarchy:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Companies
 
$
15,193,923
   
$
14,928,923
   
$
265,000
   
$
-
 
Non Traded Companies
   
10,806,581
     
-
     
-
     
10,806,581
 
LP Interests
   
17,135,148
     
-
     
-
     
17,135,148
 
Investment Trusts
   
192,061
     
-
     
-
     
192,061
 
Total
 
$
43,327,713
   
$
14,928,923
   
$
265,000
   
$
28,133,790
 

 
 The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of June 30, 2016, according to the fair value hierarchy:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Companies
 
$
11,475,174
   
$
11,117,674
   
$
357,500
   
$
-
 
Non Traded Companies
   
11,609,041
     
-
     
2,820,137
     
8,788,904
 
LP Interests
   
15,793,475
     
-
     
-
     
15,793,475
 
Investment Trusts
   
195,065
     
-
     
-
     
195,065
 
Notes
   
104,017
     
-
     
-
     
104,017
 
Total
 
$
39,176,772
   
$
11,117,674
   
$
3,177,637
   
$
24,881,461
 

 
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 three month period ended September 30, 2016:
 
Balance at July 1, 2016
 
$
24,881,461
 
Purchases of investments
   
2,148,321
 
Proceeds from sales, net
   
(281
)
Return of capital
   
(133,857
)
Net realized gains
   
132
 
Net unrealized gains
   
1,238,014
 
Ending balance at September 30, 2016
 
$
28,133,790
 
 
For the three months ended September 30, 2016, changes in unrealized gains included in earnings relating to Level III investments still held at September 30, 2016, was $1,238,014.

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 three months ended September 30, 2015:
 
Balance at July 1, 2015
 
$
15,197,370
 
Purchases of investments
   
1,768,847
 
Transfers to Level I
   
(3,189,287
)
Proceeds from sales, net
   
(324,119
)
Return of capital
   
(1,177
)
Net realized gain
   
(6,857
)
Net unrealized gain
   
1,319,200
 
Ending balance at September 30, 2015
 
$
14,763,977
 
 
For the three months ended September 30, 2015, changes in unrealized gains included in earnings relating to Level III investments still held at September 30, 2015 was $1,285,481.
 

The transfers of $3,189,287 from Level III to Level I category during the three months ended September 30, 2015, relates to changes in tradability of the securities in an active market due to one of the Company's investments converting from a private REIT shares to public REIT shares.

The following table shows quantitative information about significant unobservable inputs related to the Level II and Level III fair value measurements used at September 30, 2016:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
 
     
 
 
           
Level II
     
 
 
           
 
     
 
 
           
Publicly Traded Company
 
$
265,000
 
Market Activity
10 day average trading price
           
 
         
 
           
 
 
$
265,000
 
 
 
           
 
       
 
 
           
Level III
       
 
 
           
 
       
 
 
           
Non Traded Company
 
$
9,668,939
 
Market Activity
Secondary market industry publication
           
           
 
           
           
 
           
Non Traded Company
   
1,137,642
 
Net Asset Value (1)
Capitalization rate
   
6.4% - 8.4
%
   
7.7 %
 
         
   
Liquidity discount
   
10.0% -32.3
%
   
25.0 %
 
         
   
Sponsor provided value
               
                             
LP Interest
   
620,445
 
Market Activity
Acquisition cost
               
 
       
   
Secondary market industry publication
               
 
       
 
 
               
LP Interest
   
16,514,703
 
Net Asset Value (1)
Capitalization rate
   
6.3% - 7.1
%
   
6.6 %
 
 
       
   
Discount rate
   
9.0% - 30
%
   
22.5 %
 
 
       
   
Liquidity discount
   
10.0% - 52.3
%
   
16.8 %
 
 
       
   
Sponsor provided value
               
 
       
   
Contracted sale price of underlying asset
               
 
       
 
 
               
Investment Trust
   
89,367
 
Market Activity
Secondary market industry publication
               
Investment Trust
   
102,694
 
Net Asset Value (1)
Capitalization rate
   
6.7
%
       
 
       
   
Liquidity discount
   
15.0
%
       
 
       
 
 
               
   
$
28,133,790
                     
 
 
Valuation Technique Terms:
(1)
The net asset value of the issuer's shares was calculated by the Company.
 

 

The following table shows quantitative information about significant unobservable inputs related to the Level II and Level III fair value measurements used at June 30, 2016:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
 
     
 
 
           
Level II
     
 
 
           
 
     
 
 
           
Publicly Traded Company
 
$
357,500
 
Market Activity
10 day average trading price
           
Non Traded Company
   
2,820,137
 
Market Activity
Publicly traded price of like security
           
 
         
 
           
 
 
$
3,177,637
 
 
 
           
 
       
 
 
           
Level III
       
 
 
           
 
       
 
 
           
Non Traded Company
 
$
8,092,915
 
Market Activity
Acquisition cost
           
             
Secondary market industry publication
           
           
 
           
Non Traded Company
   
695,989
 
Net Asset Value (1)
Capitalization rate
   
6.4% - 8.3
%
   
7.3 %
 
         
   
Liquidity discount
   
22.3% -32.3
%
   
26.5 %
 
         
   
Sponsor provided value
               
                             
LP Interest
   
8,203,247
 
Market Activity
Acquisition cost
               
 
       
   
Secondary market industry publication
               
 
       
 
 
               
LP Interest
   
7,590,228
 
Net Asset Value (1)
Capitalization rate
   
6.3% - 7.1
%
   
6.9 %
 
 
       
   
Price per apartment unit
               
 
       
   
Discount rate
   
30.0
%
       
 
       
   
Liquidity discount
   
15.0% - 38.0
%
   
23.9 %
 
 
       
   
Sponsor provided value
               
 
       
 
 
               
Investment Trust
   
95,987
 
Market Activity
Secondary market industry publication
               
Investment Trust
   
99,078
 
Net Asset Value (1)
Capitalization rate
   
6.7
%
       
 
       
   
Liquidity discount
   
15.0
%
       
 
       
 
                 
Note
   
104,017
 
Net Asset Value (1)
Liquidity discount
   
52.3
%
       
 
       
 
 
               
   
$
24,881,461
                     
Valuation Technique Terms:
(1)
The net asset value of the issuer's shares was calculated by the Company.

 
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 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 September 30, 2016, the Company had $6,892,561 of margin credit available for cash withdrawal or the ability to purchase up to $13,785,122 in additional shares. As of June 30, 2016, the Company had $5,844,828 of margin credit available for cash withdrawal or the ability to purchase up to $11,689,656 in additional shares. As of September 30, 2016, and June 30, 2016, 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 identifying, evaluating and structuring the acquisition of portfolio of assets. The fee equals 3.0% of the gross proceeds from the sale of the Company's Shares. The services are performed on an ongoing basis in anticipation of deploying new capital, generally within 15 days of the receipt of capital.  Therefore, this fee is expensed in the period the capital is accepted.

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 two parts— the income and the capital gains. 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. If the Company liquidates all of its assets, the capital gains component is 20.0% of realized capital gains (without the hurdle), 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 portfolio structuring fees for the three months ended September 30, 2016, and 2015, were $197,208 and $111,689 (as restated), respectively.

As of September 30, 2016, Managed Funds were $47,483,206. Thus, the base management fee for the three months ended September 30, 2016, was 1/4th of 3% of $20,000,000 plus 1/4th of 2% of the remaining $27,483,206, for a total of $287,416. As of September 30, 2015, Managed Funds were $25,777,367. Thus, the base management fee for the three months ended September 30, 2015, was 1/4th of 3% of $20,000,000 plus 1/4th of 2% of the remaining $5,777,367, for a total of $178,887.

There were no subordinated incentive fees for the three months ended September 30, 2016 and 2015.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred by the Company on its initial registration statement in excess of $550,000 will be reimbursed by the Adviser. As of September 30, 2016, and June 30, 2016, the Company had incurred $1,066,226 and $1,055,350 of organization and offering costs, respectively. Thus, according to the agreement, $516,226 and $505,350 of the amount were reimbursable from the Adviser as of September 30, 2016, and June 30, 2016, respectively. As of September 30, 2016, the Adviser has reimbursed the Company $505,350 and the remaining reimbursable amount of $10,876 was offset against the amount payable to the Adviser as of September 30, 2016.

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, 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 Company with other administrative services, subject to the Independent Directors' approval.The administrative cost reimbursements for the three months ended September 30, 2016, and 2015, were $55,000 and $30,000, respectively.
 
 

The table below outlines the related party expenses incurred for the three months ended September 30, 2016, and 2015 and unpaid as of September 30, 2016, and June 30, 2016.
 
   
For The Three Months Ended
   
Unpaid as of
 
Types and Recipient
 
September 30, 2016
   
September 30, 2015
   
September 30, 2016
   
June 30, 2016
 
         
 
             
Portfolio Structuring fee- the Adviser
 
$
197,208
   
$
111,689
   
$
-
   
$
-
 
Base Management fees- the Adviser
   
287,416
     
178,887
     
287,416
     
252,866
 
Administrative Cost Reimbursements- MacKenzie
   
55,000
     
30,000
     
-
     
30,000
 
Organization & Offering Cost Reimbursement by the Adviser
                   
(10,876
)
   
(15,886
)
Due from related entities (1)
                   
(36,759
)
   
(36,759
)
Due to related entities
                 
$
239,781
   
$
230,221
 
 
(1)  As disclosed in the restated financial statements as of June 30, 2016, these amounts are the subordinated incentive income fee refund receivable from the Adviser as of June 30, 2016 and 2015, resulting from the reclassification of the portfolio structuring fee as operating expenses. The amount was fully refunded by the Adviser subsequent to September 30, 2016.
 
Investments in affiliated companies:
                           
Amount of equity in
net profit and loss
For The Three Months Ended
September 30,:
   
Amount of dividends/interest
For The Three Months Ended
September 30,:
 
                                 
Name of issuer and title of issue
 
Number of shares at
   
Fair Value at
         
   
September 30, 2016
   
June 30, 2016
   
September 30, 2016
   
June 30, 2016
   
2016
   
2015
   
2016
   
2015
 
Controlled Investments:
                                               
                                                 
Coastal Realty Business Trust, REEP, Inc.- A
   
72,320.00
     
72,320.00
   
$
102,694
   
$
99,078
   
$
-
   
$
-
   
$
-
   
$
-
 
Coastal Realty Business Trust, Series H2- A
   
47,284.16
     
47,284.16
   
$
89,367
   
$
95,987
   
$
2,364
   
$
2,364
   
$
2,364
   
$
2,364
 
MC 15 Preferred Equity, LLC
   
250,000.00
     
250,000.00
   
$
2,810,000
   
$
2,500,000
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                                 
Non-Controlled/Affiliate Investment:
                                                               
                                                                 
MPF Pacific Gateway - Class B
   
23.20
     
23.20
     
7,309
   
$
7,309
   
$
-
   
$
-
   
$
-
   
$
-
 
 
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 September 30, 2016, and June 30, 2016:
·
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.

MC 15 Preferred Equity, LLC:

MC 15 Preferred Equity, LLC is a holding company that owns preferred equity of a company that owns a commercial real estate property in Austin, Texas. The Company is a co-manager of MC 15 Preferred Equity, LLC and owns 55.8% ownership interest in the company.
 
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 September 30, 2016, and June 30, 2016, 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 three months ended September 30, 2016, and the year ended June 30, 2016.
   
For The Three Months Ended
   
For The Year Ended
 
   
September 30, 2016
   
June 30, 2016
 
Per Share Data:
   (Unaudited)        
             
    Beginning net asset value
 
$
9.94
   
$
10.18
 
                 
    Net investment income (loss) (1)
   
0.02
     
0.26
 
    Net realized gain (1)
   
0.22
     
0.91
 
    Net unrealized gain (loss) (1)
   
0.17
     
(0.01
)
    Net increase in net assets resulting from operations
   
0.41
     
1.16
 
                 
    Issuance of common stock above (below) net asset value (1) (4)
   
(0.14
)
   
(0.68
)
    Redemption of common stock below net asset value (1) (6)
   
-
     
0.05
 
    Dividends to stockholders from net realized gains (1) (5)
   
(0.21
)
   
(0.77
)
    Ending net asset value
 
$
10.00
   
$
9.94
 
                 
    Weighted average common Shares outstanding
   
4,533,971
     
3,073,448
 
    Shares outstanding at the end of period
   
4,748,321
     
4,057,319
 
    Net assets at the end of period
 
$
47,461,994
   
$
40,332,191
 
    Average net assets (2)
 
$
43,897,093
   
$
31,346,210
 
                 
Ratios to average net assets
               
    Total expenses
   
1.61
%
   
5.83
%
    Net investment income (loss)
   
0.19
%
   
2.58
%
    Total rate of return (2) (3) (7)
   
4.22
%
   
11.49
%
 
(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 ending period-end net assets.
 
 
(3)       Total rate of return is based on net increases (decreases) in net assets resulting from operations. 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 $1.00 per share.
 
 
 
 
 
(5)       Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.
(6)       Based on the most recent NAV issued as of June 30, 2016, and March 31, 2016, of $9.93 and $9.77 per share, respectively.
(7)       Not annualized for interim reporting periods.
 
 
 
 
 

 
 
NOTE 7 – SHARE OFFERINGS AND FEES

During the three months ended September 30, 2016, the Company issued 657,362 shares with gross proceeds of $6,573,620 pursuant to the offering, and 51,549.95 shares under the Company's dividend reinvestment plan ("DRIP") with gross proceeds of $463,950. For the three months ended September 30, 2016, the Company incurred selling commissions and fees of $657,362.

During the three months ended September 30, 2015, the Company issued 373,060 shares with gross proceeds of $3,722,968 pursuant to the offering, and 12,482.64 shares under the Company's dividend reinvestment plan ("DRIP") with gross proceeds of $112,344. For the three months ended September 30, 2015, the Company incurred selling commissions and fees of $364,797 (as restated).

NOTE 8 – SHARE REPURCHASE PLAN

During the quarter ended September 30, 2016, the Company, pursuant to its Share Repurchase Program, submitted a tender offer on August 24, 2016, to purchase its own Shares issued and outstanding at $9 per Share. The offer expired on September 26, 2016, and as of the offer expiration date, the Company received and accepted to repurchase a total of 17,910.76 shares issued and outstanding and for total cash payment of $161,197.

NOTE 9 –STOCKHOLDER DIVIDENDS AND INCOME TAXES

The following table reflects the dividend the Company paid on its common stock during the three months ended September 30, 2016:
 
   
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
                 
Three months ended September 30, 2016
 
$
0.250
   
$
942,659
 
                 
   
$
0.250
   
$
942,659
 
Of the total dividend paid during the three months ended September 30, 2016, $463,950 was reinvested under the DRIP.

The following table reflects the dividend the Company paid on its common stock during the three months ended September 30, 2015:
 
   
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
                 
Three months ended September 30, 2015
 
$
0.300
   
$
623,394
 
                 
   
$
0.300
   
$
623,394
 
Of the total dividend paid during the three months ended September 30, 2015, $112,344 was reinvested under the DRIP.

On November 9, 2016, the Company's Board of Directors approved a quarterly dividend of $0.25 per share to the holders of record on September 30, 2016, which was paid on November 15, 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 for the tax year ended December 31, 2015, (the most recent tax year end completed and filed) were as follows:
 
 
 
   
December 31, 2015
 
Ordinary income - earnings and profits from pre REIT qualification
 
$
-