10-Q 1 mrc10q3312017.htm
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, 2017
 
 
 
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 15, 2017 was 5,933,674.59.
 







TABLE OF CONTENTS

   
Page
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. Consolidated Financial Statements

MacKenzie Realty Capital, Inc.
Consolidated Statements of Assets and Liabilities

 
 
March 31, 2017
   
June 30, 2016
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value (cost of $43,924,396 and $37,077,138, respectively)
 
$
46,052,875
   
$
39,176,772
 
Cash and cash equivalents
   
9,594,309
     
2,350,435
 
Accounts receivable
   
446,319
     
438,956
 
Other assets
   
238,334
     
349,058
 
Deferred offering costs
   
365,711
     
-
 
Total assets
 
$
56,697,548
   
$
42,315,221
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
132,935
   
$
90,956
 
Capital pending acceptance
   
1,776,893
     
1,616,490
 
Due to related entities
   
1,088,408
     
230,221
 
Deferred tax liability, net
   
45,363
     
45,363
 
Total liabilities
   
3,043,599
     
1,983,030
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 5,483,598.24 and 4,057,319.49 shares issued and outstanding, respectively
   
548
     
406
 
Capital in excess of par value
   
50,092,591
     
37,256,225
 
Accumulated undistributed net investment gain (loss)
   
402,981
     
(619,875
)
Accumulated undistributed net realized gain
   
1,029,351
     
1,595,801
 
Accumulated undistributed net unrealized gain
   
2,128,478
     
2,099,634
 
Total net assets
   
53,653,949
     
40,332,191
 
 
               
Total liabilities and net assets
 
$
56,697,548
   
$
42,315,221
 
 
               
Net asset value per Share
 
$
9.78
   
$
9.94
 
 
               

 

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

MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
March 31, 2017
(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
   
$
340,000
     
0.63
 
Apple Hospitality REIT, Inc.
     
Publicly Traded Company
   
203,574.00
     
3,855,692
     
3,888,263
     
7.25
 
Ashford Hospitality Prime, Inc.
 
(3
)
Publicly Traded Company
   
83,027.00
     
1,092,364
     
880,916
     
1.64
 
Ashford Hospitality Trust, Inc.
 
(3
)
Publicly Traded Company
   
110,000.00
     
693,910
     
700,700
     
1.31
 
Bluerock Residential Growth REIT, Inc.
     
Publicly Traded Company
   
147,858.00
     
1,621,715
     
1,820,132
     
3.39
 
Care Capital Properties Inc.
 
(3
)
Publicly Traded Company
   
20,200.00
     
497,960
     
542,774
     
1.01
 
CBL & Associates Properties, Inc.
 
(3
)
Publicly Traded Company
   
74,000.00
     
929,327
     
705,960
     
1.32
 
Chatham Lodging Trust
 
(3
)
Publicly Traded Company
   
30,000.00
     
663,653
     
592,500
     
1.10
 
Equity Commonwealth
 
(3
)(5)
Publicly Traded Company
   
12,150.00
     
311,114
     
379,323
     
0.71
 
New York REIT, Inc.
 
(3
)
Publicly Traded Company
   
129,000.00
     
1,345,475
     
1,250,010
     
2.33
 
One Liberty Properties, Inc.
 
(3
)
Publicly Traded Company
   
32,561.00
     
745,499
     
760,625
     
1.42
 
TIER REIT, Inc.
     
Publicly Traded Company
   
55,000.00
     
713,455
     
954,800
     
1.78
 
VEREIT Inc.
 
(3
)
Publicly Traded Company
   
126,800.00
     
1,104,741
     
1,076,532
     
2.01
 
Washington Prime Group Inc.
 
(3
)
Publicly Traded Company
   
30,000.00
     
374,993
     
260,700
     
0.49
 
Total Publicly Traded Company
     
 
           
14,374,295
     
14,153,235
     
26.39
 
 
     
 
                               
American Finance Trust, Inc.
 
(4
)
Non Traded Company
   
80,424.07
     
1,369,194
     
1,507,147
     
2.80
 
American Realty Capital New York City REIT, Inc.
 
(4
)
Non Traded Company
   
17,424.83
     
231,860
     
285,767
     
0.53
 
Behringer Harvard Opportunity REIT I, Inc.
 
(4
)(5)
Non Traded Company
   
549,137.81
     
600,359
     
752,319
     
1.40
 
Carter Validus Mission Critical REIT
 
(4
)
Non Traded Company
   
1,750.00
     
14,886
     
15,418
     
0.03
 
Cole Credit Property Trust IV, Inc.
 
(4
)
Non Traded Company
   
676.40
     
5,448
     
5,797
     
0.01
 
First Capital Real Estate Trust, Inc.
 
(4
)(5)
Non Traded Company
   
3,792.51
     
15,161
     
15,170
     
0.03
 
FSP Energy Tower
 
(4
)(5)
Non Traded Company
   
7.00
     
294,350
     
220,375
     
0.41
 
FSP Grand Boulevard
 
(4
)
Non Traded Company
   
7.00
     
279,104
     
287,236
     
0.54
 
FSP 1441 Main Street
 
(4
)
Non Traded Company
   
15.73
     
552,866
     
696,493
     
1.30
 
FSP Satellite Place
 
(4
)
Non Traded Company
   
5.00
     
195,035
     
195,642
     
0.36
 
FSP South 10th Street Corp. Liquidating Trust
 
(4
)(5)
Non Traded Company
   
0.25
     
151
     
1
     
-
 
Highlands REIT Inc.
 
(4
)(5)
Non Traded Company
   
2,084,327.91
     
508,857
     
437,709
     
0.82
 
InvenTrust Properties Corp.
 
(4
)
Non Traded Company
   
2,031,268.94
     
4,262,262
     
4,225,039
     
7.87
 
KBS Legacy Partners Apartment REIT, Inc.
 
(4
)
Non Traded Company
   
2,500.00
     
18,687
     
18,750
     
0.03
 
KBS Real Estate Investment Trust, Inc.
 
(4
)
Non Traded Company
   
1,589,272.98
     
3,066,154
     
3,035,511
     
5.66
 
Phillips Edison Grocery Center REIT I, Inc
 
(4
)
Non Traded Company
   
1,950.00
     
17,439
     
17,004
     
0.03
 
Sentio Healthcare Properties, Inc.
 
(4
)
Non Traded Company
   
29,355.50
     
222,507
     
277,116
     
0.52
 
Strategic Realty Trust, Inc.
 
(4
)
Non Traded Company
   
42,288.14
     
167,662
     
195,371
     
0.36
 
Summit Healthcare REIT, Inc.
 
(4
)(5)
Non Traded Company
   
585,055.97
     
731,504
     
789,826
     
1.47
 
Total Non Traded Company (1)
     
 
           
12,553,486
     
12,977,691
     
24.17
 
 
     
 
                               
5210 Fountaingate
 
(4
)
LP Interest
   
9.89
     
500,000
     
511,997
     
0.94
 
Addison NC, LLC
 
(4
)(5)
LP Interest
   
200,000.00
     
2,000,000
     
2,250,000
     
4.19
 
Arrowpoint Burlington LLC
 
(4
)
LP Interest
   
7.50
     
750,000
     
709,086
     
1.32
 
BR Big Creek
 
(4
)
LP Interest
   
3,850,000.00
     
3,850,000
     
3,965,500
     
7.39
 
BR Cabrillo LLC
 
(4
)(5)
LP Interest
   
346,723.32
     
104,942
     
90,148
     
0.17
 
Britannia Preferred Members, LLC
 
(4
)(5)
LP Interest
   
150,000.00
     
1,500,000
     
1,929,000
     
3.60
 
DRV Holding Company, LLC
 
(4
)(5)
LP Interest
   
250.00
     
250,000
     
-
     
-
 
Inland Land Appreciation Fund II, L.P.
 
(4
)(5)
LP Interest
   
210.97
     
2,700
     
14,875
     
0.03
 
MC 15 Preferred Equity, LLC
 
(4)
(5)(2)
LP Interest
   
250,000.00
     
2,500,000
     
3,190,000
     
5.95
 
MPF Pacific Gateway - Class B
 
(4)
(5)(2)
LP Interest
   
23.20
     
6,287
     
7,309
     
0.01
 
Rancon Realty Fund IV Liquidating Trust
 
(4
)(5)
LP Interest
   
8,408.97
     
6,307
     
21,191
     
0.04
 
Redwood Mortgage Investors VIII
 
(4
)
LP Interest
   
53,848.09
     
29,020
     
35,001
     
0.07
 
Resource Real Estate Investors 6, L.P.
 
(4
)
LP Interest
   
42,600.00
     
101,814
     
62,819
     
0.12
 
Satellite Investment Holdings, LLC - Class A
 
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
4.10
 
Secured Income, LP
 
(4
)(5)
LP Interest
   
64,177.00
     
315,109
     
338,855
     
0.63
 
Strategic Realty Operating Partnership, LP
 
(4
)
LP Interest
   
20,433.01
     
78,951
     
94,401
     
0.18
 
The Weatherly, LTD
 
(4
)(5)
LP Interest
   
60.00
     
672,000
     
761,920
     
1.42
 
The Weatherly Building, LLC
 
(4
)(5)
LP Interest
   
17.50
     
392,000
     
444,453
     
0.83
 
Uniprop Manufactured Housing Income Fund II, LP
 
(4
)
LP Interest
   
132,691.00
     
701,345
     
1,001,817
     
1.87
 
VWC Savannah, LLC
 
(4
)(5)
LP Interest
   
8.25
     
825,000
     
1,158,565
     
2.16
 
Total LP Interest
     
 
           
16,785,475
     
18,786,937
     
35.02
 
 
     
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
 
(2)
(4)(5)
Investment Trust
   
72,320.00
     
49,901
     
49,901
     
0.09
 
Coastal Realty Business Trust, Series H2- A
 
(2)
(4)(5)
Investment Trust
   
47,284.16
     
161,239
     
85,111
     
0.16
 
Total Investment Trust
     
 
           
211,140
     
135,012
     
0.25
 
 
     
 
                               
Total Investments
     
 
         
$
43,924,396
   
$
46,052,875
     
85.83
 
 
     
 
                               


(1) Investments primarily in non-traded public REITs or their successors.
(2) Investment in affiliated companies. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of March 31, 2017, the total percentage of non-qualifying assets is 12.61%, 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, 2017, 56.26% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of March 31, 2017, 24.66% of the Company's total assets are in non-income producing securities.
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

MacKenzie Realty Capital, Inc.
Consolidated 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) Investment 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 Consolidated Financial Statements are an integral part of these consolidated financial statements.


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

  
 
 
For The Three Months Ended
March 31,
   
For The Nine Months Ended
March 31,
 
 
 
2017
   
2016
   
2017
   
2016
 
Investment income
                       
Dividend and operational/sales distributions
 
$
2,113,968
   
$
346,569
   
$
3,788,121
   
$
1,727,016
 
Interest and other income
   
9,538
     
32,517
     
10,902
     
108,658
 
Total investment income
   
2,123,506
     
379,086
     
3,799,023
     
1,835,674
 
 
                               
Operating expenses
                               
Base management fee
   
324,180
     
217,886
     
912,235
     
592,398
 
Portfolio structuring fee
   
144,600
     
160,845
     
403,522
     
363,848
 
Subordinated incentive fee
   
737,349
     
285,577
     
759,914
     
821,023
 
Administrative cost reimbursements
   
55,000
     
30,000
     
165,000
     
90,000
 
Offering costs
   
48,542
     
-
     
48,542
     
-
 
Amortization of deferred offering costs
   
121,904
     
-
     
121,904
     
-
 
Professional fees
   
52,660
     
25,815
     
213,945
     
116,599
 
Other general and administrative
   
45,045
     
40,402
     
151,105
     
110,010
 
Total operating expenses
   
1,529,280
     
760,525
     
2,776,167
     
2,093,878
 
 
                               
Net investment income (loss)
   
594,226
     
(381,439
)
   
1,022,856
     
(258,204
)
 
                               
Realized and unrealized gain (loss) on investments
                               
Net realized gain
   
754,352
     
864,576
     
2,372,199
     
2,272,551
 
Net unrealized gain (loss)
   
(1,191,757
)
   
(309,836
)
   
28,844
     
(177,025
)
Total net realized and unrealized gain (loss) on investments
   
(437,405
)
   
554,740
     
2,401,043
     
2,095,526
 
 
                               
Income tax benefit (note 2)
   
-
     
-
     
-
     
1,412
 
 
                               
Net increase in net assets resulting from operations
 
$
156,821
   
$
173,301
   
$
3,423,899
   
$
1,838,734
 
 
                               
Net increase in net assets resulting from operations per share
 
$
0.03
   
$
0.05
   
$
0.69
   
$
0.65
 
 
                               
Weighted average common shares outstanding
   
5,297,788
     
3,236,743
     
4,932,088
     
2,829,003
 
 
                               
 

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

MacKenzie Realty Capital, Inc.
Consolidated Statements of Changes in Net Assets

  
 
 
For The Nine Months Ended
   
For The Year
Ended
 
 
 
March 31, 2017
   
June 30, 2016
 
 
 
(Unaudited)
       
Operations
           
Net investment income
 
$
1,022,856
   
$
807,987
 
Net realized gain
   
2,372,199
     
2,809,740
 
Net unrealized gain (loss)
   
28,844
     
(16,668
)
Income tax benefit
   
-
     
1,412
 
Net increase in net assets resulting from operations
   
3,423,899
     
3,602,471
 
 
               
Dividends
               
Dividends to stockholders from net realized gain
   
(2,938,649
)
   
(2,377,506
)
 
               
Capital share transactions
               
Issuance of common stock
   
13,450,719
     
19,248,674
 
Issuance of common stock through reinvestment of dividends
   
1,394,040
     
937,158
 
Redemption of common stock
   
(663,179
)
   
(1,526,467
)
Selling commissions and fees
   
(1,345,072
)
   
(1,912,368
)
Net increase in net assets resulting from capital share transactions
   
12,836,508
     
16,746,997
 
 
               
Total increase in net assets
   
13,321,758
     
17,971,962
 
 
               
Net assets at beginning of the period
   
40,332,191
     
22,360,229
 
 
               
Net assets at end of the period
 
$
53,653,949
   
$
40,332,191
 
 
               
 
 
 

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

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


 
 
For The Nine Months Ended
March 31,
 
 
 
2017
   
2016
 
 
           
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
3,423,899
   
$
1,838,734
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
11,932,194
     
10,208,993
 
Return of capital
   
1,521,318
     
121,447
 
Purchase of investments
   
(17,928,572
)
   
(17,293,912
)
Net realized gain on investments
   
(2,372,199
)
   
(2,272,551
)
Net unrealized (gain) loss on investments
   
(28,844
)
   
177,025
 
Amortization of deferred offering costs
   
121,904
     
-
 
Changes in assets and liabilities:
               
Accounts receivable
   
(7,363
)
   
(235,088
)
Other assets
   
181,643
     
(83,027
)
Deferred offering costs
   
(487,615
)
   
-
 
Accounts payable and accrued liabilities
   
52,031
     
3,559
 
Due to related entities
   
858,187
     
795,085
 
Deferred tax liability
   
-
     
1,611
 
Net cash from operating activities
   
(2,733,417
)
   
(6,738,124
)
 
               
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
13,450,719
     
12,128,268
 
Redemption of common stock
   
(663,179
)
   
(1,136,524
)
Dividends to stockholders
   
(1,544,609
)
   
(1,155,627
)
Payment of selling commissions and fees
   
(1,426,043
)
   
(1,232,088
)
Change in capital pending acceptance
   
160,403
     
276,960
 
       Net cash from financing activities
   
9,977,291
     
8,880,989
 
 
               
Net increase  in cash and cash equivalents
   
7,243,874
     
2,142,865
 
 
               
Cash and cash equivalents at beginning of the period
   
2,350,435
     
4,297,086
 
 
               
Cash and cash equivalents at end of the period
 
$
9,594,309
   
$
6,439,951
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
1,394,040
   
$
664,218
 
 
 
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
March 31, 2017
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (together with its subsidiary as discussed below, 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"). MacKenzie Realty Capital, Inc. 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 commenced its operations on February 28, 2013, and its fiscal year-end is June 30.



MacKenzie Realty Capital, Inc. filed its initial registration statement in June 2012 with the Securities and Exchange Commission ("SEC") to register the initial public offering ("IPO") of 5,000,000 shares of the its common stock. The IPO commenced in January 2014 and concluded in October 2016. MacKenzie Realty Capital, Inc. filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on December 20, 2016, and the offering commenced shortly thereafter.

MacKenzie Realty Capital, Inc.'s wholly owned subsidiary, MRC TRS, Inc., ("TRS") was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary. TRS started its operation on January 1, 2017, and the financial statements of TRS have been consolidated with MacKenzie Realty Capital, Inc. beginning with the quarter ended March 31, 2017.



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 March 31, 2017, the Company has raised approximately $49.7 million from the public offerings, including proceeds from the Company's dividend reinvestment plan ("DRIP") of approximately $2.4 million. Of the total capital raised as of March 31, 2017, approximately $2.2 million has been redeemed under the Company's share repurchase program.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company's wholly-owned consolidated subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Under the 1940 Act rules, regulations pursuant to Article 6 of Regulation S-X and Topic 946 of the Accounting Standards Codification, as amended (the "ASC"), of the Financial Accounting Standards Board ("FASB"), Financial Services-Investment Companies, the Company is precluded from consolidating portfolio company investments, including those in which the Company has a controlling interest, unless the portfolio company is a wholly-owned investment company. An exception to this general principle occurs if the Company owns a controlled operating company whose purpose is to provide services to the Company such as an investment adviser or transfer agent. None of the Company's investments qualifies for this exception. Therefore, the Company's portfolio company investments, including those in which the Company has a controlling interest, are carried on the consolidated statements of assets and liabilities at fair value, as discussed below, with changes to fair value recognized as "Net Unrealized gain (loss)" on the Consolidated Statements of Operations until the investment is realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company will include required financial information for such subsidiary in the notes or as an attachment to its consolidated financial statements.

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

These unaudited consolidated 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 within 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 consolidated statements of assets and liabilities and the consolidated statements of changes in net assets reflect the restated amounts. Similarly, the three and nine months ended March 31, 2016, in the accompanying consolidated 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 March 31, 2017, 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. The Company has determined that all account receivable balances outstanding as of March 31, 2017, are collectible and do not require recording any uncollectible allowance.

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 consolidated statements of assets and liabilities. As of March 31, 2017, and June 30, 2016, capital pending acceptance was $1,776,893 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 organization costs are expensed as incurred. Offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. Offering costs incurred through the date of SEC effectiveness of the registration statement are deferred and expensed over a twelve month period. Offering costs incurred after the SEC effectiveness date are expensed as incurred.

In August 2016, the Company filed a new registration statement with the SEC to register a public offering of 15,000,000 shares of the Company's common stock. The offering costs incurred in connection with this registration statement through the SEC effectiveness date, were $487,615. These offering costs were deferred and expensed over a twelve-month period beginning from the date the registration was declared effective by the SEC. Amortization of these deferred costs for the three months ended March 31, 2017, was $121,904. During the three months ended March 31, 2017, the Company incurred additional offering costs of $48,542, which were expensed as incurred as they were incurred after the SEC effectiveness date.
 
 
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 year ended December 31, 2015. Therefore, the Company did not incur any tax expense or excise tax during the quarterly periods within the tax year ended December 31, 2015. For the tax year ended December 31, 2016, we believe we have paid the requisite amount of dividends to stockholders such that the Company would not pay any income taxes on its income. Similarly, the Company intends to pay requisite amount of dividends to stockholders such that the Company would not pay any income taxes on its income for tax year 2017. Therefore, the Company did not record any income tax provisions during the quarterly periods within the tax year ended December 31, 2016 and quarter ended March 31, 2017.


The income tax benefit of $1,412 reflected in the statements of operations for 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. 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 March 31, 2017 and June 30, 2016 was $113,893. The deferred tax liabilities relating to those net unrealized built-in gains as of March 31, 2017 and June 30, 2016, was $45,363.

The Company's wholly owned subsidiary, MRC TRS, Inc. is subject to corporate federal and state income tax on its taxable income at regular statutory rates. Therefore, we have analyzed taxable income of the subsidiary for three months ended March 31, 2017 (the period of its operation). We determined that the subsidiary's entire income for this period was considered to be return of capital for tax purposes. Therefore, no tax provision was deemed necessary for this period.
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 March 31, 2017 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 March 31, 2017, and June 30, 2016:

 
 
March 31, 2017
   
June 30, 2016
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
14,374,295
   
$
14,153,235
   
$
10,917,013
   
$
11,475,174
 
Non Traded Companies
   
12,553,486
     
12,977,691
     
11,406,586
     
11,609,041
 
LP Interests
   
16,785,475
     
18,786,937
     
14,390,162
     
15,793,475
 
Investment Trusts
   
211,140
     
135,012
     
258,435
     
195,065
 
Notes
   
-
     
-
     
104,942
     
104,017
 
Total
 
$
43,924,396
   
$
46,052,875
   
$
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 March 31, 2017, according to the fair value hierarchy that is described in our annual report on Form 10-K/A:

Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Companies
 
$
14,153,235
   
$
13,813,235
   
$
340,000
   
$
-
 
Non Traded Companies
   
12,977,691
     
-
     
-
     
12,977,691
 
LP Interests
   
18,786,937
     
-
     
-
     
18,786,937
 
Investment Trusts
   
135,012
     
-
     
-
     
135,012
 
Total
 
$
46,052,875
   
$
13,813,235
   
$
340,000
   
$
31,899,640
 
 
                               

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 that is described in our annual report on Form 10-K/A:
 
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 of the fair value hierarchy) for the nine months ended March 31, 2017:

Balance at July 1, 2016
 
$
24,881,461
 
Purchases of investments
   
13,365,420
 
Proceeds from sales, net
   
(6,763,101
)
Return of capital
   
(1,521,318
)
Net realized gains
   
719,033
 
Net unrealized gains
   
1,218,145
 
Ending balance at March 31, 2017
 
$
31,899,640
 

 
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 of the fair value hierarchy) for the nine months 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
 


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 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 March 31, 2017:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
 
     
 
 
           
Level II
     
 
 
           
 
     
 
 
           
Publicly Traded Company
 
$
340,000
 
Market Activity
10 day average trading price
           
 
       
 
 
           
 
 
$
340,000
 
 
 
           
 
       
 
 
           
Level III
       
 
 
           
 
       
 
 
           
Non Traded Company
 
$
11,577,945
 
Market Activity
Secondary market industry publication
           
 
       
 
 
           
Non Traded Company
   
1,399,746
 
Net Asset Value (1)
Capitalization rate
   
6.4% - 8.2
%
   
7.6
%
 
       
   
Liquidity discount
   
20.0% -30.0
%
   
21.4
%
 
       
   
Sponsor provided value
               
 
       
 
                 
LP Interest
   
1,111,093
 
Market Activity
Contracted sale price of underlying asset
               
 
       
   
Liquidity discount
   
20.0
%
       
 
       
   
Secondary market industry publication
               
 
       
 
 
               
LP Interest
   
17,675,844
 
Net Asset Value (1)
Capitalization rate
   
6.3% - 9.0
%
   
7.5
%
 
       
   
Discount rate
   
9.0% - 30
%
   
18.4
%
 
       
   
Liquidity discount
   
20.0% - 50.0
%
   
23.1
%
 
       
   
Sponsor provided value
               
 
       
   
Contracted sale price of underlying property
               
 
       
 
 
               
Investment Trust
   
85,111
 
Market Activity
Secondary market industry publication
               
Investment Trust
   
49,901
 
Net Asset Value (1)
Capitalization rate
   
6.0
%
       
 
       
   
Liquidity discount
   
25.0
%
       
 
       
 
 
               
 
 
$
31,899,640
 
 
 
               

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 on 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, 2017, the Company had $7,706,285 of margin credit available for cash withdrawal or the ability to purchase up to $18,030,977 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 March 31, 2017, 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 gains 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 gains 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 and nine months ended March 31, 2017, were $144,600 and $403,522, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2016, were $160,845 and $363,848, respectively

The base management fee is calculated on a quarterly basis at the end of each quarter based on the quarter ended managed funds and is payable in arrears. The base management fees for the three and nine months ended March 31, 2017, were $324,180 and $912,235, respectively. The base management fees for the three and nine months ended March 31, 2016, were $217,886 and $592,398, respectively. These base management fees were based on the following quarter ended managed funds segregated in two columns based on the annual percentages the Company paid:

 
 
 
Annual base management fee percentages
   
Total Managed Funds
 
 
   
3.0%
 
   
2.0%
 
     
For the Nine Months Ended March 31, 2017
               
Quarter ended:
                     
September 30, 2016
 
$
20,000,000
   
$
27,483,207
   
$
47,483,207
 
December 31, 2016
 
 
20,000,000
     
30,127,836
     
50,127,836
 
March 31, 2017
 
 
20,000,000
     
34,835,982
     
54,835,982
 
 
                       
For the Nine Months Ended March 31, 2016
                 
Quarter ended:
                       
September 30, 2015
 
$
20,000,000
   
$
5,777,367
   
$
25,777,367
 
December 31, 2015
   
20,000,000
     
9,125,012
     
29,125,012
 
March 31, 2016
   
20,000,000
     
13,577,239
     
33,577,239
 
 
                       

The estimated subordinated incentive capital gains fee accrued for the three and nine months ended March 31, 2017, were $737,349 and $759,914, respectively based on the cumulative net realized gains, net of unrealized losses since inception through March 31, 2017. The estimated fee is subject to change since the fee is computed and paid annually at the end of each fiscal year. There was no subordinated incentive income fee for the three and nine months ended March 31, 2017.
The estimated subordinated incentive capital gains fee accrued for the three and nine months ended March 31, 2016, were $285,577 and $818,043, respectively, based on the cumulative net realized gains, net of unrealized losses since inception through March 31, 2016. Both three and nine months ended estimated capital fees were fully reversed during the quarter ended June 30, 2016, after the Company recorded a large unrealized depreciation during the three months ended June 30, 2016. The subordinated incentive (income fee) for the three and nine months ended March 31, 2016, were $0 and $2,980, respectively.
 

 
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 June 30, 2016, the Company had incurred organization and offering costs of $1,055,350, which increased to $1,066,226 as of October 28, 2016 (the termination date of the Company's initial offering). Thus, according to the agreement, the amount reimbursable from the Adviser was $505,350 as of June 30, 2016, and $516,226 as of October 28, 2016. As of March 31, 2017, the Adviser reimbursed the Company the full amount reimbursable under the agreement for the initial offering.

The organization and offering costs incurred by the Company with respect to its current public offering in excess of $1,650,000 will be reimbursed by the Adviser. As of March 31, 2017, the total organization and offering costs incurred by the Company on its current public offering was $536,158. Therefore, as of March 31, 2017, there are no amounts reimbursable from the Adviser.

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 and nine months ended March 31, 2017, were $55,000 and $165,000, respectively. The administrative cost reimbursements for the three and nine months ended March 31, 2016, were $30,000 and $90,000, respectively.

The table below outlines the related party expenses incurred for the nine months ended March 31, 2017, and 2016 and unpaid as of March 31, 2017, and June 30, 2016.
 
 
 
For The Nine Months Ended
 
Unpaid as of
 
Types and Recipient
 
March 31, 2017
   
March 31, 2016
 
March 31, 2017
   
June 30, 2016
 
 
                     
Portfolio Structuring fee- the Adviser
 
$
403,522
   
$
363,848
 
$
-
   
$
-
 
Base Management fees- the Adviser
   
912,235
     
592,398
   
324,180
     
252,866
 
Subordinated Incentive fee on Capital Gains- the Adviser
   
759,914
     
821,023
 (3)  
759,914
     
-
 
Administrative Cost Reimbursements- MacKenzie
   
165,000
     
90,000
   
-
     
30,000
 
Other expenses (1)- MacKenzie
                 
4,314
     
-
 
Organization & Offering Cost Reimbursement by the Adviser
                 
-
     
(15,886
)
Due from related entities (2)
                 
-
     
(36,759
)
 
                             
Due to related entities
               
$
1,088,408