10-Q 1 mrc10q12312017.htm FORM 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended December 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 February 14, 2018 was 7,776,862.50.
 


TABLE OF CONTENTS
 
 
 
Page
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Consolidated Financial Statements (unaudited)
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
     
     
     
PART II.
OTHER INFORMATION
 
     
     
   
 
     
     
   
     
   
 
 

 
 
Part I. FINANCIAL INFORMATION
 

Item 1. Consolidated Financial Statements

MacKenzie Realty Capital, Inc.
Consolidated Statements of Assets and Liabilities
 
 
 
December 31, 2017
   
June 30, 2017
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $63,093,484 and $41,144,520, respectively)
 
$
66,749,143
   
$
44,594,061
 
Non-controlled/affiliated investment (cost of $6,287 and $6,287, respectively)
   
6,613
     
7,309
 
Controlled investments (cost of $2,549,901 and $2,612,019, respectively)
   
3,785,437
     
3,284,157
 
Cash and cash equivalents
   
6,332,517
     
11,849,712
 
Accounts receivable
   
2,540,769
     
2,240,815
 
Other assets
   
443,891
     
284,991
 
Deferred offering costs, net
   
141,583
     
243,807
 
Total assets
 
$
79,999,953
   
$
62,504,852
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
227,522
   
$
78,865
 
Margin loan
   
6,012,413
     
-
 
Income tax payable
   
26,209
     
-
 
Dividend payable
   
1,796,515
     
-
 
Capital pending acceptance
   
758,200
     
1,803,090
 
Due to related entities
   
422,657
     
588,009
 
Deferred tax liability, net
   
14,262
     
45,363
 
Total liabilities
   
9,257,778
     
2,515,327
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 7,381,488.51 and 6,096,772.85 shares issued and outstanding, respectively
   
738
     
610
 
Capital in excess of par value
   
67,173,413
     
55,606,134
 
Accumulated distribution in excess of net investment income
   
(1,061,737
)
   
(1,354,197
)
Accumulated distribution in excess of net realized gain
   
(261,760
)
   
1,614,277
 
Accumulated undistributed net unrealized gain
   
4,891,521
     
4,122,701
 
Total net assets
   
70,742,175
     
59,989,525
 
 
               
Total liabilities and net assets
 
$
79,999,953
   
$
62,504,852
 
 
               
Net asset value per share
 
$
9.58
   
$
9.84
 
 
 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

    

MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
December 31, 2017
(Unaudited)
 
Name
 
Asset Type
 Shares/Units
 Cost Basis
 Total Fair Value
 
 % of Net Assets
Apartment Investment and Management Company
(3)
Publicly Traded Company
          34,000.00
 $                                    1,477,221
 
 $                                             1,486,139
 
            2.12
Ashford Hospitality Prime, Inc.
(3)
Publicly Traded Company
          76,915.00
              738,029
 
                   748,383
 
            1.06
Ashford Hospitality Trust, Inc.
(3)
Publicly Traded Company
        188,000.00
           1,188,646
 
                1,265,240
 
            1.79
Bluerock Residential Growth REIT, Inc.
(3)
Publicly Traded Company
          97,422.00
           1,060,379
 
                   984,936
 
            1.39
CBL & Associates Properties, Inc.
(3)
Publicly Traded Company
        108,000.00
              903,943
 
                   611,280
 
            0.86
City Office REIT, Inc.
(3)
Publicly Traded Company
          50,000.00
              688,636
 
                   650,500
 
            0.92
Equity Residential
(3)
Publicly Traded Company
          18,000.00
           1,183,520
 
                1,147,860
 
            1.62
Independence Realty Trust, Inc.
(3)
Publicly Traded Company
          98,323.00
              968,483
 
                   992,079
 
            1.40
Omega Healthcare Investors, Inc.
(3)
Publicly Traded Company
          52,000.00
           1,643,993
 
                1,432,080
 
            2.02
One Liberty Properties, Inc.
(3)
Publicly Traded Company
          39,400.00
              929,182
 
                1,021,248
 
            1.44
RLJ Lodging Trust
(3)
Publicly Traded Company
          22,800.00
              498,046
 
                   500,916
 
            0.71
Sabra Health Care REIT, Inc.
(3)
Publicly Traded Company
          75,000.00
           1,625,618
 
                1,407,750
 
            1.99
Store Capital Corp.
(3)
Publicly Traded Company
          47,000.00
           1,168,644
 
                1,223,880
 
            1.73
VEREIT Inc.
(3)
Publicly Traded Company
        131,000.00
           1,077,558
 
                1,020,490
 
            1.44
Washington Prime Group Inc.
(3)
Publicly Traded Company
          44,000.00
              367,060
 
                   313,280
 
            0.44
Total Publicly Traded Company
     
         15,518,958
 
              14,806,061
 
          20.93
                 
American Finance Trust, Inc.
(4)
Non Traded Company
        185,037.64
           2,729,328
 
                2,966,153
 
            4.19
American Realty Capital Healthcare Trust III, Inc.
(4)
Non Traded Company
            3,365.50
                  6,024
 
                       6,024
 
            0.01
American Realty Capital New York City REIT, Inc.
(4)
Non Traded Company
          36,532.38
              488,720
 
                   440,580
 
            0.62
Behringer Harvard Opportunity REIT I, Inc.
(4)(5)
Non Traded Company
     1,131,140.71
           1,303,415
 
                1,628,843
 
            2.30
Benefit Street Partners Realty Trust, Inc.
(4)
Non Traded Company
          12,016.08
              162,207
 
                   159,934
 
            0.23
BRE Select Hotels Corp. - Preferred A
(4)
Non Traded Company
        119,792.00
              200,438
 
                   182,084
 
            0.26
Carter Validus Mission Critical REIT
(4)
Non Traded Company
            1,750.00
                14,886
 
                     16,188
 
            0.02
Cole Credit Property Trust IV, Inc.
(4)
Non Traded Company
        180,755.45
           1,072,337
 
                1,549,074
 
            2.19
First Capital Real Estate Trust, Inc.
(4)(5)
Non Traded Company
            3,792.51
                15,161
 
                     18,242
 
            0.03
FSP 1441 Main Street
(4)(5)
Non Traded Company
                 15.73
                  8,559
 
                     26,215
 
            0.04
FSP 303 East Wacker Drive Corp.
(4)
Non Traded Company
                   2.75
                80,025
 
                     79,490
 
            0.11
FSP Energy Tower
(4)(5)
Non Traded Company
                   7.00
              294,350
 
                   237,841
 
            0.34
FSP Grand Boulevard
(4)
Non Traded Company
                   7.50
              294,179
 
                   234,536
 
            0.33
FSP Satellite Place
(4)(5)
Non Traded Company
                   5.00
              195,035
 
                   199,814
 
            0.28
Healthcare Trust, Inc.
(4)
Non Traded Company
          90,436.14
              989,006
 
                1,317,655
 
            1.86
Highlands REIT Inc.
(4)(5)
Non Traded Company
     8,801,825.90
           1,823,843
 
                1,848,383
 
            2.61
Hospitality Investors Trust, Inc.
(4)
Non Traded Company
        110,863.73
              774,170
 
                   748,330
 
            1.06
InvenTrust Properties Corp.
(4)
Non Traded Company
     3,448,647.02
           6,440,842
 
                6,621,402
 
            9.36
KBS Legacy Partners Apartment REIT, Inc.
(4)
Non Traded Company
          79,630.53
              274,725
 
                   280,299
 
            0.40
KBS Real Estate Investment Trust II, Inc.
(4)
Non Traded Company
        439,890.91
           1,731,735
 
                1,636,394
 
            2.31
Phillips Edison Grocery Center REIT I, Inc
(4)
Non Traded Company
        172,503.44
           1,129,496
 
                1,633,608
 
            2.31
Steadfast Income REIT
(4)
Non Traded Company
          28,543.63
              217,502
 
                   286,863
 
            0.41
Strategic Realty Trust, Inc.
(4)
Non Traded Company
          43,161.64
              171,109
 
                   200,702
 
            0.28
Summit Healthcare REIT, Inc.
(4)(5)
Non Traded Company
     1,125,556.10
           1,482,582
 
                1,598,290
 
            2.26
Total Non Traded Company (1)
     
         21,899,674
 
              23,916,944
 
          33.81
                 
3100 Airport Way South LP
(4)
LP Interest
                   1.00
              355,000
 
                   355,000
 
            0.50
5210 Fountaingate
(4)
LP Interest
                   9.89
              500,000
 
                   507,860
 
            0.72
Addison NC, LLC
(4)(5)
LP Interest
        200,000.00
           2,000,000
 
                2,700,000
 
            3.82
Arrowpoint Burlington LLC
(4)
LP Interest
                   7.50
              750,000
 
                   846,221
 
            1.20
BR Cabrillo LLC
(4)(5)
LP Interest
        346,723.32
              104,942
 
                     86,681
 
            0.12
BR Glenwood Investment Co, LLC
(4)
LP Interest
     2,664,436.00
           2,664,436
 
                2,664,436
 
            3.77
Britannia Preferred Members, LLC
(4)(5)
LP Interest
        150,000.00
           1,500,000
 
                2,497,500
 
            3.53
Capitol Hill Partners, LLC
(4)
LP Interest
        200,000.00
           2,000,000
 
                2,000,000
 
            2.83
CRP I Roll Up, LLC
(4)
LP Interest
     4,500,000.00
           4,500,000
 
                4,500,000
 
            6.36
CRP III Roll Up, LLC
(4)
LP Interest
     6,000,000.00
           6,000,000
 
                6,000,000
 
            8.48
Inland Land Appreciation Fund II, L.P.
(4)(5)
LP Interest
               210.97
                  2,700
 
                     13,713
 
            0.02
MC 15 Preferred Equity, LLC
(2)(4)(5)
LP Interest
        250,000.00
           2,500,000
 
                3,750,000
 
            5.30
MPF Pacific Gateway - Class B
(2)(4)(5)
LP Interest
                 23.20
                  6,287
 
                       6,613
 
            0.01
Redwood Mortgage Investors VIII
(4)
LP Interest
          56,300.04
                29,700
 
                     38,847
 
            0.05
Satellite Investment Holdings, LLC - Class A
(4)
LP Interest
                 22.00
           2,200,000
 
                2,200,000
 
            3.11
Secured Income, LP
(4)(5)
LP Interest
          64,520.00
              316,335
 
                   275,500
 
            0.39
Strategic Realty Operating Partnership, LP
(4)
LP Interest
          20,433.01
                78,951
 
                     95,014
 
            0.13
The Weatherly Building, LLC
(4)(5)
LP Interest
                 17.50
              392,000
 
                   602,950
 
            0.85
The Weatherly, LTD
(4)(5)
LP Interest
                 60.00
              672,000
 
                1,033,628
 
            1.46
Uniprop Manufactured Housing Income Fund II, LP
(4)
LP Interest
        146,696.00
              608,788
 
                   608,788
 
            0.86
Total LP Interest
     
         27,181,139
 
              30,782,751
 
          43.51
                 
Coastal Realty Business Trust, REEP, Inc. - A
(2)(4)(5)
Investment Trust
          72,320.00
                49,901
 
                     35,437
 
            0.05
Total Investment Trust
     
                49,901
 
                     35,437
 
            0.05
                 
OrCal and MIC Promissory Note
(4)
Note
 
           1,000,000
 
                1,000,000
 
            1.41
Total Note
     
           1,000,000
 
                1,000,000
 
            1.41
                 
Total Investments
     
 $                                    65,649,672
 
 $                                         70,541,193
 
          99.71

(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 December 31, 2017, the total percentage of non-qualifying assets is 18.51%, 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 December 31, 2017, 69.67% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of December 31, 2017, 20.70% 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, 2017
 
Name
 
Asset Type
 Shares/Units
 Cost Basis
 
 Total Fair Value
 
 % of Net Assets
Ambase Corporation
(5)
Publicly Traded Company
        201,200.00
 $                                    333,468
 
 $                                                195,164
 
            0.31
Apartment Investment and Management Company
(3)
Publicly Traded Company
          34,000.00
           1,477,221
 
                1,460,980
 
            2.44
Ashford Hospitality Prime, Inc.
(3)
Publicly Traded Company
        156,000.00
           1,594,743
 
                1,605,240
 
            2.68
Ashford Hospitality Trust, Inc.
(3)
Publicly Traded Company
        188,000.00
           1,188,646
 
                1,143,040
 
            1.91
Care Capital Properties Inc.
(3)
Publicly Traded Company
          65,200.00
           1,700,409
 
                1,740,840
 
            2.90
CBL & Associates Properties, Inc.
(3)
Publicly Traded Company
        108,000.00
              915,434
 
                   910,440
 
            1.52
Chatham Lodging Trust
(3)
Publicly Traded Company
          33,000.00
              666,902
 
                   662,970
 
            1.11
Equity Commonwealth
(3)(5)
Publicly Traded Company
          12,150.00
              311,114
 
                   383,940
 
            0.64
Equity Residential
(3)
Publicly Traded Company
          15,000.00
              995,497
 
                   987,450
 
            1.65
Independence Realty Trust, Inc.
(3)
Publicly Traded Company
        160,000.00
           1,479,050
 
                1,579,200
 
            2.63
New York REIT, Inc.
(3)
Publicly Traded Company
        152,000.00
           1,308,259
 
                1,313,280
 
            2.19
Omega Healthcare Investors, Inc.
(3)
Publicly Traded Company
          52,000.00
           1,699,573
 
                1,717,040
 
            2.86
One Liberty Properties, Inc.
(3)
Publicly Traded Company
          32,561.00
              745,499
 
                   762,904
 
            1.27
Store Capital Corp.
(3)
Publicly Traded Company
          43,000.00
              980,329
 
                   965,350
 
            1.61
VEREIT Inc.
(3)
Publicly Traded Company
        131,000.00
           1,072,538
 
                1,066,340
 
            1.78
Washington Prime Group Inc.
(3)
Publicly Traded Company
          44,000.00
              370,476
 
                   368,280
 
            0.61
Total Publicly Traded Company
     
         16,839,158
 
              16,862,458
 
          28.11
                 
American Finance Trust, Inc.
(4)
Non Traded Company
          80,424.07
           1,369,194
 
                1,467,735
 
            2.44
American Realty Capital New York City REIT, Inc.
(4)
Non Traded Company
          29,037.15
              388,505
 
                   465,466
 
            0.78
Behringer Harvard Opportunity REIT I, Inc.
(4)(5)
Non Traded Company
        764,723.91
              843,192
 
                   963,552
 
            1.61
Benefit Street Partners Realty Trust, Inc.
(4)
Non Traded Company
          12,016.08
              162,207
 
                   144,794
 
            0.24
Carter Validus Mission Critical REIT
(4)
Non Traded Company
            1,750.00
                14,886
 
                     16,695
 
            0.03
Cole Credit Property Trust IV, Inc.
(4)
Non Traded Company
          68,963.94
              404,177
 
                   578,607
 
            0.96
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
 
                   270,177
 
            0.45
FSP Grand Boulevard
(4)
Non Traded Company
                   7.00
              279,104
 
                   228,207
 
            0.38
FSP 1441 Main Street
(4)
Non Traded Company
                 15.73
                  8,559
 
                       8,555
 
            0.01
FSP Satellite Place
(4)(5)
Non Traded Company
                   5.00
              195,035
 
                   193,117
 
            0.32
FSP South 10th Street Corp. Liquidating Trust
(4)(5)
Non Traded Company
                   0.25
                     151
 
                              1
 
               -
Healthcare Trust, Inc.
(4)
Non Traded Company
          61,158.56
              669,205
 
                1,072,110
 
            1.79
Highlands REIT Inc.
(4)(5)
Non Traded Company
     2,084,327.91
              508,857
 
                   458,552
 
            0.76
Hospitality Investors Trust, Inc.
(4)
Non Traded Company
               114.02
                  1,137
 
                       1,112
 
               -
InvenTrust Properties Corp.
(4)
Non Traded Company
     2,031,268.94
           4,262,262
 
                4,021,912
 
            6.70
KBS Legacy Partners Apartment REIT, Inc.
(4)
Non Traded Company
          20,158.17
              122,938
 
                   121,151
 
            0.20
KBS Real Estate Investment Trust, Inc.
(4)
Non Traded Company
     1,640,455.20
           3,132,551
 
                3,231,697
 
            5.39
Phillips Edison Grocery Center REIT I, Inc
(4)
Non Traded Company
            1,950.00
                17,439
 
                     15,912
 
            0.03
Sentio Healthcare Properties, Inc.
(4)
Non Traded Company
          71,693.46
              530,655
 
                   813,004
 
            1.36
Strategic Realty Trust, Inc.
(4)
Non Traded Company
          42,288.14
              167,662
 
                   161,118
 
            0.27
Summit Healthcare REIT, Inc.
(4)(5)
Non Traded Company
        587,596.80
              734,792
 
                   822,636
 
            1.37
Total Non Traded Company (1)
     
         14,122,019
 
              15,071,280
 
          25.12
                 
5210 Fountaingate
(4)(5)
LP Interest
                   9.89
              500,000
 
                   511,730
 
            0.84
Addison NC, LLC
(4)(5)
LP Interest
        200,000.00
           2,000,000
 
                2,400,000
 
            4.00
Arrowpoint Burlington LLC
(4)
LP Interest
                   7.50
              750,000
 
                   736,394
 
            1.23
BR Cabrillo LLC
(4)(5)
LP Interest
        346,723.32
              104,942
 
                     86,681
 
            0.14
Britannia Preferred Members, LLC
(4)(5)
LP Interest
        150,000.00
           1,500,000
 
                2,017,500
 
            3.36
Inland Land Appreciation Fund II, L.P.
(4)(5)
LP Interest
               210.97
                  2,700
 
                     21,099
 
            0.04
MC 15 Preferred Equity, LLC
(2)(4)(5)
LP Interest
        250,000.00
           2,500,000
 
                3,250,000
 
            5.42
MPF Pacific Gateway - Class B
(2)(4)(5)
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
 
                     36,327
 
            0.06
Redwood Mortgage Investors VIII
(4)
LP Interest
          53,848.09
                29,070
 
                     35,540
 
            0.06
Resource Real Estate Investors 6, L.P.
(4)
LP Interest
          42,600.00
              101,814
 
                   101,814
 
            0.17
Satellite Investment Holdings, LLC - Class A
(4)
LP Interest
                 22.00
           2,200,000
 
                2,200,000
 
            3.67
Secured Income, LP
(4)(5)
LP Interest
          64,177.00
              315,109
 
                   235,530
 
            0.39
Strategic Realty Operating Partnership, LP
(4)
LP Interest
          20,433.01
                78,951
 
                     77,850
 
            0.13
The Weatherly, LTD
(4)(5)
LP Interest
                 60.00
              672,000
 
                1,065,862
 
            1.78
The Weatherly Building, LLC
(4)(5)
LP Interest
                 17.50
              392,000
 
                   621,753
 
            1.04
Uniprop Manufactured Housing Income Fund II, LP
(4)
LP Interest
        133,191.00
              705,450
 
                1,174,745
 
            1.96
VWC Savannah, LLC
(4)(5)
LP Interest
                   8.25
              825,000
 
                1,337,498
 
            2.23
Total LP Interest
     
         12,689,630
 
              15,917,632
 
          26.53
                 
Coastal Realty Business Trust, REEP, Inc. - A
(2)(4)(5)
Investment Trust
          72,320.00
                49,901
 
                     30,374
 
            0.05
Coastal Realty Business Trust, Series H2- A
(2)(4)(5)
Investment Trust
          47,284.16
                62,118
 
                       3,783
 
            0.01
Total Investment Trust
     
              112,019
 
                     34,157
 
            0.06
                 
Total Investments
     
 $                               43,762,826
 
 $                                           47,885,527
 
          79.82
 
 
(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, 2017, the total percentage of non-qualifying assets is 26.67%, 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, 2017, 49.63% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of June 30, 2017, 23.88% 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)
 
 
           
 
 
Three Months Ended
December 31,
   
Six Months Ended
December 31,
 
 
 
2017
   
2016
   
2017
   
2016
 
Investment income
                       
Non-controlled/non-affiliated investments:
                       
Dividend and operational/sales distributions
 
$
1,768,846
   
$
883,824
   
$
2,371,865
   
$
1,671,789
 
Interest and other income
   
211,559
     
1,364
     
240,412
     
1,364
 
Non-controlled/affiliated investments:
                               
Dividend and operational/sales distributions
   
-
     
-
     
789
     
-
 
Controlled investments:
                               
Dividend and operational/sales distributions
   
-
     
-
     
-
     
2,364
 
Total investment income
   
1,980,405
     
885,188
     
2,613,066
     
1,675,517
 
 
                               
Operating expenses
                               
Base management fee (note 5)
   
419,074
     
300,639
     
807,991
     
588,055
 
Portfolio structuring fee (note 5)
   
171,219
     
61,714
     
373,121
     
258,922
 
Subordinated incentive fee (note 5)
   
-
     
22,565
     
-
     
22,565
 
Administrative cost reimbursements (note 5)
   
108,000
     
55,000
     
216,000
     
110,000
 
Amortization of deferred offering costs
   
141,411
     
-
     
264,113
     
-
 
Professional fees
   
25,798
     
44,806
     
136,795
     
161,285
 
Directors' fees
   
15,500
     
14,500
     
34,000
     
25,000
 
Printing and mailing
   
19,669
     
12,754
     
34,386
     
28,631
 
Other general and administrative
   
30,554
     
29,048
     
57,616
     
52,429
 
Total operating expenses
   
931,225
     
541,026
     
1,924,022
     
1,246,887
 
 
                               
Net investment income (loss) before taxes
   
1,049,180
     
344,162
     
689,044
     
428,630
 
Income tax benefit - (note 2)
   
(17,305
)
   
-
     
(4,095
)
   
-
 
Net investment income (loss)
   
1,066,485
     
344,162
     
693,139
     
428,630
 
 
                               
Realized and unrealized gain (loss) on investments
                               
Net realized gain (loss)
                               
Non-controlled/non-affiliated investments
   
904,303
     
601,001
     
1,752,886
     
1,617,847
 
Controlled investments:
   
(54,413
)
   
-
     
(54,413
)
   
-
 
Total net realized gain
   
849,890
     
601,001
     
1,698,473
     
1,617,847
 
Net unrealized gain (loss)
                               
Non-controlled/non-affiliated investments
   
(443,132
)
   
271,761
     
206,114
     
716,901
 
Non-controlled/affiliated investments
   
-
     
-
     
(696
)
   
-
 
Controlled investments
   
250,175
     
196,703
     
563,398
     
503,700
 
Total net unrealized gain (loss)
   
(192,957
)
   
468,464
     
768,816
     
1,220,601
 
 
                               
Total net realized and unrealized gain on investments
   
656,933
     
1,069,465
     
2,467,289
     
2,838,448
 
 
                               
Net increase in net assets resulting from operations
 
$
1,723,418
   
$
1,413,627
   
$
3,160,428
   
$
3,267,078
 
 
                               
Net increase in net assets resulting from operations per share
 
$
0.24
   
$
0.28
   
$
0.46
   
$
0.69
 
 
                               
Weighted average common shares outstanding
   
7,205,816
     
4,972,455
     
6,891,512
     
4,753,213
 
 
 


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
 
 
 
Six Months Ended
   
Year Ended June 30,
 
 
 
December 31, 2017
   
June 30, 2017
 
 
 
(Unaudited)
       
Operations
           
Net investment income
 
$
693,139
   
$
1,733,806
 
Net realized gain
   
1,698,473
     
1,596,367
 
Net unrealized gain
   
768,816
     
2,023,069
 
Net increase in net assets resulting from operations
   
3,160,428
     
5,353,242
 
 
               
Dividends
               
Dividends to stockholders
   
(3,975,185
)
   
(4,046,021
)
 
               
Capital share transactions
               
Issuance of common stock
   
12,437,349
     
19,296,300
 
Issuance of common stock through reinvestment of dividends
   
927,663
     
1,903,677
 
Redemption of common stock
   
(558,837
)
   
(915,267
)
Selling commissions and fees
   
(1,238,768
)
   
(1,934,597
)
Net increase in net assets resulting from capital share transactions
   
11,567,407
     
18,350,113
 
 
               
Total increase in net assets
   
10,752,650
     
19,657,334
 
 
               
Net assets at beginning of the period
   
59,989,525
     
40,332,191
 
 
               
Net assets at end of the period
 
$
70,742,175
   
$
59,989,525
 
 
 
 

 
  

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)
 
 
     
 
 
Six Months Ended
December 31,
 
 
 
2017
   
2016
 
 
           
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
3,160,428
   
$
3,267,078
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
21,350,928
     
8,872,365
 
Return of capital
   
6,492,837
     
689,537
 
Purchase of investments
   
(48,032,142
)
   
(13,978,569
)
Net realized gain on investments
   
(1,698,473
)
   
(1,617,847
)
Net unrealized gain on investments
   
(768,816
)
   
(1,220,601
)
Amortization of deferred offering costs
   
264,113
     
-
 
Changes in assets and liabilities:
               
Accounts receivable
   
(299,954
)
   
(407,955
)
Other assets
   
(245,980
)
   
146,322
 
Payment of deferred offering costs
   
(161,889
)
   
(487,615
)
Accounts payable and accrued liabilities
   
139,837
     
7,043
 
Income tax payable
   
26,209
     
-
 
Due to related entities
   
(165,352
)
   
98,791
 
Deferred tax liability
   
(31,101
)
   
-
 
Net cash from operating activities
   
(19,969,355
)
   
(4,631,451
)
 
               
Cash flows from financing activities:
               
Net borrowing on margin loan
   
6,012,413
     
-
 
Proceeds from issuance of common stock
   
12,437,349
     
8,630,719
 
Redemption of common stock
   
(558,837
)
   
(161,197
)
Dividends to stockholders
   
(1,251,007
)
   
(1,081,048
)
Payment of selling commissions and fees
   
(1,142,868
)
   
(822,056
)
Change in capital pending acceptance
   
(1,044,890
)
   
(1,600,990
)
       Net cash from financing activities
   
14,452,160
     
4,965,428
 
 
               
Net increase (decrease)  in cash and cash equivalents
   
(5,517,195
)
   
333,977
 
 
               
Cash and cash equivalents at beginning of the period
   
11,849,712
     
2,350,435
 
 
               
Cash and cash equivalents at end of the period
 
$
6,332,517
   
$
2,684,412
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
927,663
   
$
992,726
 


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
December 31, 2017
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (together with its subsidiaries 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. MRC TRS, Inc. also has a wholly owned subsidiary MacKenzie NY Real Estate 2 Corp. formed on December 20, 2017. As of December 31, 2017, the subsidiary does not have any assets or liabilities.

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"). Pursuant to 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, and subsequently amended on August 6, 2014, and October 1, 2017 (the "Investment Advisory Agreement"). 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 December 31, 2017, the Company has raised approximately $69.41 million from the public offerings, including proceeds from the Company's dividend reinvestment plan ("DRIP") of approximately $3.85 million. Of the shares issued by the Company in exchange for the total capital raised as of December 31, 2017, approximately $3.00 million worth of shares have been repurchased under the Company's share repurchase program.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation Policy

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 or 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 these exceptions. 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 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, 2017, included in the Company's annual report on Form 10-K filed with the SEC.

There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2017, other than those expanded upon and described below.

Reclassifications

Certain amounts in the consolidated statements of assets and liabilities related to non-controlled/affiliated and controlled investments have been disaggregated from the non-controlled/non-affiliated investments, as of December 31, 2017. Similarly, investment income, net realized gains (losses) and net unrealized gains (losses) from non-controlled/affiliated and controlled investments have been disaggregated from the corresponding line items from non-controlled/non-affiliated investments in the consolidated statements of operations. In addition, printing and mailing in the consolidated statements of operations have been disaggregated from other general and administrative expenses as of December 31, 2017. The prior periods have been reclassified to conform to this presentation as of December 31, 2017.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of December 31, 2017, and June 30, 2017.

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 Company monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. The Company has determined that all account receivable balances outstanding as of December 31, 2017, are collectible and do not require recording any uncollectible allowance.

Capital Pending Acceptance

The Company conducts closings for new purchases of the Company's common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are effective only upon the Company's acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated statements of assets and liabilities. As of December 31, 2017, and June 30, 2017, capital pending acceptance was $758,200 and $1,803,090, 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 IPO and the initial statement of assets and liabilities. These costs are expensed as incurred. Offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. Offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a 12-month period. Any deferred offering costs that have not been amortized upon the expiration or earlier termination of an offering will be accelerated and expensed upon such expiration or termination.

In August 2016, the Company filed a 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 public offering through December 31, 2017, were $720,522. These offering costs are deferred and expensed over a twelve-month period beginning from the date the registration was declared effective by the SEC. The offering costs incurred and paid by the Company in excess of $1,650,000 on this public offering will be reimbursed by the Adviser as discussed in note 5. Amortization of these deferred costs for the three and six months ended December 31, 2017, were $141,411 and $264,113, respectively. Accumulated amortization of these deferred costs as of December 31, 2017, and June 30, 2017, were $578,939 and $314,826, respectively. The offering costs on the IPO were fully amortized as of July 2014; thus, there was no amortization expense in three and six months ended December 31, 2016.
 
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, 2016, and 2015. Therefore, the Company did not incur any tax expense or excise tax during the quarterly periods within those tax years. For the tax year ended December 31, 2017, we believe the Company paid the requisite amount of dividends to stockholders such that the Company will not owe 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, 2017.

The income tax benefit of $17,305 and $4,095 reflected in the statements of operations for the three and six months ended December 31, 2017, were the adjustment for the difference between the actual and estimated tax liability on the built-in gains realized during the period of January 1, 2017 through December 31, 2017. 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 December 31, 2017 and June 30, 2017 were $32,532 and $125,345, respectively. The deferred tax liabilities relating to those net unrealized built-in gains as of December 31, 2017 and June 30, 2017, were $14,262 and $45,363, respectively.

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. However, as of December 31, 2017, the subsidiary did not have any taxable income for tax year ended December 31, 2017. Accordingly, no tax provision has been recorded by the Company as of December 31, 2017.
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 December 31, 2017, and June 30, 2017, 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 December 31, 2017, and June 30, 2017:
 
 
 
December 31, 2017
   
June 30, 2017
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
15,518,958
   
$
14,806,061
   
$
16,839,158
   
$
16,862,458
 
Non Traded Companies
   
21,899,674
     
23,916,944
     
14,122,019
     
15,071,280
 
LP Interests
   
27,181,139
     
30,782,751
     
12,689,630
     
15,917,632
 
Investment Trusts
   
49,901
     
35,437
     
112,019
     
34,157
 
Note
   
1,000,000
     
1,000,000
     
-
     
-
 
Total
 
$
65,649,672
   
$
70,541,193
   
$
43,762,826
   
$
47,885,527
 

The following table presents fair value measurements of the Company's investments as of December 31, 2017, according to the fair value hierarchy that is described in our annual report on Form 10-K:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Companies
 
$
14,806,061
   
$
14,806,061
   
$
-
   
$
-
 
Non Traded Companies
   
23,916,944
     
-
     
-
     
23,916,944
 
LP Interests
   
30,782,751
     
-
     
-
     
30,782,751
 
Investment Trusts
   
35,437
     
-
     
-
     
35,437
 
Note
   
1,000,000
     
-
     
-
     
1,000,000
 
Total
 
$
70,541,193
   
$
14,806,061
   
$
-
   
$
55,735,132
 
 
The following table presents fair value measurements of the Company's investments as of June 30, 2017, according to the fair value hierarchy that is described in our annual report on Form 10-K:
 
Asset Type
 
Total
   
Level I
   
Level II
   
Level III
 
Publicly Traded Companies
 
$
16,862,458
   
$
16,667,294
   
$
195,164
   
$
-
 
Non Traded Companies
   
15,071,280
     
-
     
-
     
15,071,280
 
LP Interests
   
15,917,632
     
-
     
-
     
15,917,632
 
Investment Trusts
   
34,157
     
-
     
-
     
34,157
 
Total
 
$
47,885,527
   
$
16,667,294
   
$
195,164
   
$
31,023,069
 
 
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 six months ended December 31, 2017:
 
Balance at July 1, 2017
 
$
31,023,069
 
Purchases of investments
   
34,687,453
 
Proceeds from sales, net
   
(7,619,607
)
Return of capital
   
(6,035,374
)
Net realized gains
   
2,174,577
 
Net unrealized gains
   
1,505,014
 
Ending balance at December 31, 2017
 
$
55,735,132
 
 
For the six months ended December 31, 2017, changes in unrealized gains included in earnings relating to Level III investments still held at December 31, 2017, was $2,370,541.

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 six months ended December 31, 2016:
 
Balance at July 1, 2016
 
$
24,881,461
 
Purchases of investments
   
11,605,920
 
Proceeds from sales, net
   
(3,803,597
)
Return of capital
   
(689,537
)
Net realized gains
   
65,005
 
Net unrealized gains
   
1,760,353
 
Ending balance at December 31, 2016
 
$
33,819,605
 
 
For the six months ended December 31, 2016, changes in unrealized gains are included in earnings relating to Level III investments still held at December 31, 2016 was $1,759,215.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at December 31, 2017:
 
Asset Type
 
Fair Value
 
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
 
     
 
 
           
Non Traded Companies
 
$
22,674,549
 
Market Activity
Acquisition Cost
           
 
       
   
Secondary market industry publication
           
Non Traded Companies
   
1,242,395
 
Net Asset Value (1)
Capitalization rate
   
6.6% - 8.5
%
   
7.7%
 
 
       
   
Liquidity discount
   
10.0% - 70.0
%
   
23.4%
 
 
       
   
Sponsor provided value
               
 
       
 
                 
LP Interests
   
16,236,952
 
Market Activity
Acquisition Cost
               
 
       
   
Secondary market industry publication
               
 
       
 
 
               
LP Interests
   
14,545,799
 
Net Asset Value (1)
Capitalization rate
   
5.5% - 9.4
%
   
7.1%
 
 
       
   
Discount rate
   
27.0% - 30.0
%
   
28.7%
 
 
       
   
Liquidity discount
   
10.0% - 50.0
%
   
21.3%
 
 
       
   
Discount term (months)
   
3.0 - 12.0
     
11.3
 
 
       
   
Sponsor provided value
               
 
       
   
Contracted sale price of underlying property
               
 
       
 
 
               
Investment Trust
   
35,437
 
Net Asset Value (1)
Capitalization rate
   
6.00
%
       
 
       
   
Liquidity discount
   
25.0
%
       
 
       
 
 
               
Note
   
1,000,000
 
Market Activity
Acquisition Cost
               
 
       
 
 
               
 
 
$
55,735,132
 
 
 
               
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, 2017:
 
Asset Type
Fair Value
Primary Valuation Techniques
Unobservable Inputs Used
 
Range
   
Wt. Average
 
 
     
 
 
           
Level II
     
 
 
           
 
     
 
 
           
Publicly Traded Company
 
$
195,164
 
Market Activity
10 day average trading price
           
 
       
 
 
           
 
 
$
195,164
 
 
 
           
 
       
 
 
           
Level III
       
 
 
           
 
       
 
 
           
Non Traded Company
 
$
14,355,312
 
Market Activity
Secondary market industry publication
           
 
       
 
 
           
Non Traded Company
   
715,968
 
Net Asset Value (1)
Capitalization rate
   
6.2% - 8.5
%
   
7.4%
 
 
       
   
Liquidity discount
   
20.0% - 30.0
%
   
22.7%
 
 
       
   
Sponsor provided value
               
 
       
 
                 
LP Interest
   
2,611,192
 
Market Activity
Contracted sale price of underlying asset
               
 
       
   
Liquidity discount
   
20.0
%
       
 
       
   
Secondary market industry publication
               
 
       
 
 
               
LP Interest
   
13,306,440
 
Net Asset Value (1)
Capitalization rate
   
5.4% - 8.8
%
   
7.1%
 
 
       
   
Discount rate
   
30.0% - 37.0
%
   
34.0%
 
 
       
   
Liquidity discount
   
10.0% - 50.0
%
   
20.5%
 
 
       
   
Discount term (months)
   
13.0 - 50.0
     
13.9
 
 
       
   
Sponsor provided value
               
 
       
   
Contracted sale price of underlying property
               
 
       
 
 
               
Investment Trust
   
3,783
 
Market Activity
Secondary market industry publication
               
Investment Trust
   
30,374
 
Net Asset Value (1)
Capitalization rate
   
6.0
%
       
 
       
   
Liquidity discount
   
25.0
%
       
 
       
 
 
               
 
 
$
31,023,069
 
 
 
               
 
       
 
 
               
 
Valuation Technique Terms:
(1)
The net asset value of the issuer's shares was calculated by the Company.

NOTE 4—MARGIN LOANS

The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow 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 December 31, 2017, the Company had $3,693,788 of margin credit available for cash withdrawal or the ability to purchase up to $7,387,576 in additional shares. As of June 30, 2017, the Company had $11,686,296 of margin credit available for cash withdrawal or the ability to purchase up to $23,372,592 in additional shares. As of December 31, 2017, the Company had a margin loan of $6,012,413 outstanding under this short-term credit line. The outstanding loan balance was fully repaid as of January 31, 2018. As of June 30, 2017, 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 assets. The fee equals 3.0% of the gross proceeds from the sale of the Company's shares. These 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 "gross invested capital," which equals the number of shares issued multiplied by 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—income and capital gains. The incentive fee components (other than during liquidation) are designed so that neither the income incentive fee nor the capital gains incentive fee is payable to the Adviser unless our stockholders have first received dividends at a rate of at least 7.0% per annum for the relevant measurement period (a fiscal quarter, for the income incentive fee; a fiscal year, for the capital gains incentive fee).
 
The income incentive fee is calculated and payable quarterly in arrears as follows: (i) the sum of preliminary net investment income for each fiscal quarter since the effective date of the Amended and Restated Investment Advisory Agreement (October 1, 2017) exceeding  7% of the "contributed capital" on an annualized basis up to 8.75% of contributed capital;  and (ii)  20.0% of our preliminary net investment income for each fiscal quarter after the effective date exceeding  8.75% of contributed capital at an annualized rate; minus (iii) the sum of all previously paid income incentive fees since the effective date, plus (iv) any incremental income incentive fee payable resulting from the reanalysis after calculation of the capital gains incentive fee.
 
The capital gains incentive fee is calculated and payable in arrears as of the end of each fiscal year as follows: (i) the sum of all "capital gains" (calculated as net realized capital gains less unrealized capital depreciation) for each fiscal year after the effective date exceeding 7% of the "contributed capital" on an annualized basis up to 8.75% of contributed capital, which thresholds are reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income);  and (ii)  20.0% of all capital gains for each fiscal quarter after the effective date exceeding  8.75% of contributed capital at an annualized rate, which threshold is reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); minus (iii) the sum of all previously paid income incentive fees since the effective date and prior to the end of such fiscal year; less (iv) the aggregate amount of all capital gains incentive fees paid in prior fiscal years ending after the effective date. To the extent that such calculation would result in a capital gains incentive fee that exceeds 20% of all realized capital gains for the measurement period, the capital gains incentive fee shall be capped so that under no circumstance does it exceed 20% of the realized capital gains for the measurement period.

The portfolio structuring fees for the three and six months ended December 31, 2017, were $171,219 and $373,121, respectively. The portfolio structuring fees for the three and six months ended December 31, 2016, were $61,714 and $258,922, respectively.


As discussed above, 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 six months ended December 31, 2017, were $419,074 and $807,991, respectively. The base management fees for the three and six months ended December 31, 2016, were $300,639 and $588,055, respectively. These base management fees were based on the following quarter ended managed funds segregated in two columns based on the annual fee rate:
 
Base Management Fee Annual %
   
3.0%
 
   
2.0%
 
 
Total Managed Funds
 
 
                     
 
                     
Quarter ended:
                     
September 30, 2017
 
$
20,000,000
   
$
47,783,337
   
$
67,783,337
 
December 31, 2017
   
20,000,000
     
53,814,885
     
73,814,885
 
 
                       
                       
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
 
 
                       
There was no subordinated incentive capital gain or income fee for the three and six months ended December 31, 2017. The subordinated capital gain fee for the three and six months ended December 31, 2016, was $22,565. There was no subordinated income fee for the three and six months ended December 31, 2016.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred by the Company on the IPO in excess of $550,000 are reimbursed by the Adviser. As of October 28, 2016 (the termination date of the IPO) the Company had incurred organization and offering costs of $1,066,226, of which $516,226 was reimbursed by the Adviser as of June 30, 2017 in accordance with the Investment Advisory Agreement.

In August 2016, the Company filed a registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of the Company's common stock. As provided in the Investment Advisory Agreement, offering costs incurred and paid by the Company in excess of $1,650,000 on this public offering will be reimbursed by the Adviser. As of December 31, 2017, and June 30, 2017, the offering costs incurred and paid by the Company is below the threshold of $1,650,000. Accordingly, no amount was reimbursable from the Adviser.

Administration Agreement:

Under the Administration Agreement, the Company reimburses MacKenzie for the Company's allocable portion of overhead and other expenses that MacKenzie incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services, 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 six months ended December 31, 2017, were $108,000 and $216,000, respectively. The administrative cost reimbursements for the three and six months ended December 31, 2016, were $55,000 and $110,000, respectively.

The table below outlines the related party expenses incurred for the six months ended December 31, 2017, and 2016 and unpaid as of December 31, 2017, and June 30, 2017.
 
 
 
For The Six Months Ended
   
Unpaid as of
 
Types and Recipient
 
December 31, 2017
   
December 31, 2016
   
December 31, 2017
   
June 30, 2017
 
 
                       
Portfolio Structuring fee- the Adviser
 
$
373,121
   
$
258,922
   
$
-
   
$
-
 
Base Management fees- the Adviser
   
807,991
     
588,055
     
419,074
     
354,839
 
Subordinated Incentive fee - the Adviser (2)
   
-
     
22,565
     
-
     
232,198
 
Administrative Cost Reimbursements- MacKenzie
   
216,000
     
110,000
     
-
     
-
 
Other expenses (1)- MacKenzie
                   
3,583
     
972
 
 
                               
Due to related entities
                 
$
422,657
   
$
588,009
 
  
(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.
(2) Subordinated Incentive fee payable as of June 30, 2017 was the capital gains fee accrued for the year ended June 30, 2017. The fee was paid as of December 31, 2017.

Investments in Affiliated Companies:
 
December 31, 2017
                                   
Name of issuer and title of issue
 
Fair Value at
   
Gross Reductions (1)
   
Net Realized Gains (losses)
   
Net Change in Unrealized Gains/(Losses)
   
Fair Value at
   
Interest/Dividend/Other income
Six Months Ended
 
 
 
June 30, 2017
                     
December 31, 2017
   
December 31, 2017
 
Non-Controlled/Affiliate Investment:
                                   
MPF Pacific Gateway - Class B
 
$
7,309
   
$
-
   
$
-
   
$
(696
)
 
$
6,613
   
$
789
 
 
                                               
 
 
$
7,309
   
$
-
   
$
-
   
$
(696
)
 
$
6,613
   
$
789
 
Controlled Investments:
                                               
Coastal Realty Business Trust, REEP, Inc. - A
 
$
30,374
   
$
-
   
$
-
   
$
5,063
   
$
35,437
   
$
-
 
Coastal Realty Business Trust, Series H2- A
   
3,783
     
(7,705
)
   
(54,413
)
   
58,335
     
-
     
-
 
MC 15 Preferred Equity, LLC
   
3,250,000
     
-
     
-
     
500,000
     
3,750,000
     
-
 
 
                                               
 
 
$
3,284,157
   
$
(7,705
)
 
$
(54,413
)
 
$
563,398
   
$
3,785,437
   
$
-
 
 
June 30, 2017
                             
Name of issuer and title of issue
 
Fair Value at
   
Gross Reductions (1)
   
Net Change in Unrealized Gains/(Losses)
   
Fair Value at
   
Interest/Dividend/Other income
Year Ended
 
 
 
June 30, 2016
               
June 30, 2017
   
June 30, 2017
 
Non-Controlled/Affiliate Investment:
                             
MPF Pacific Gateway - Class B
 
$
7,309
   
$
-
   
$
-
   
$
7,309
   
$
-
 
 
                                       
 
 
$
7,309
   
$
-
   
$
-
   
$
7,309
   
$
-
 
Controlled Investments:
                                       
Coastal Realty Business Trust, REEP, Inc. - A
 
$
99,078
   
$
(23,654
)
 
$
(45,050
)
 
$
30,374
   
$
56,410
 
Coastal Realty Business Trust, Series H2- A
   
95,987
     
(122,763
)
   
30,559
     
3,783
     
26,006
 
MC 15 Preferred Equity, LLC
   
2,500,000
     
-
     
750,000
     
3,250,000
     
-
 
 
                                       
 
 
$
2,695,065
   
$
(146,417
)
 
$
735,509
   
$
3,284,157
   
$
82,416
 
 
                                       
(1) Gross reductions include decreases in the cost basis of investments resulting from return of capital distributions.
 

Beginning with the quarter ended September 30, 2017, the Company has decided to include all gross additions and deductions, realized gains (losses), and net change in unrealized gain (losses), if any, for all affiliated investments for the periods presented in the consolidated financial statements. Accordingly, we have disclosed gross reductions and net change in unrealized gains/(losses) for the year ended June 30, 2017, which were previously not presented in the notes of the consolidated financial statements included in the Form 10-K for the year ended June 30, 2017. This additional information presented for the prior year does not have any impact on the consolidated financial statements and the financial highlights disclosed previously.

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 Company 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 Company and TRS are the sole beneficiaries of the following series as of December 31, 2017, and June 30, 2017:

·
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. During the quarter ended December 31, 2017, the underlying REIT made a liquidating distributions of $7,705 and dissolved. The Company had a cost basis of $62,118 at the time of the final liquidation.

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 December 31, 2017, and June 30, 2017, 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 December 31, 2017, and the year ended June 30, 2017.
 
 
           
 
 
For The Six Months Ended
   
For The Year Ended
 
 
 
December 31, 2017
   
June 30, 2017
 
Per Share Data:
 
(Unaudited)
       
 
           
Beginning net asset value ("NAV")
 
$
9.84
   
$
9.94
 
 
               
Net investment income (1)
   
0.10
     
0.33
 
Net realized gain (1)
   
0.25
     
0.31
 
Net unrealized gain (1)
   
0.11
     
0.39
 
Net increase in net assets resulting from operations
   
0.46
     
1.03
 
 
               
Issuance of common stock above (below) NAV (1) (4)
   
(0.15
)
   
(0.37
)
Redemption of common stock below NAV (1) (6)
   
0.01
     
0.02
 
Dividends to stockholders (1) (5) (8)
   
(0.58
)
   
(0.78
)
Ending NAV
 
$
9.58
   
$
9.84
 
 
               
Weighted average common Shares outstanding
   
6,891,512
     
5,183,166
 
Shares outstanding at the end of period
   
7,381,489
     
6,096,773
 
Net assets at the end of period
 
$
70,742,175
   
$
59,989,525
 
Average net assets (2)
 
$
65,365,850
   
$
50,160,858
 
 
               
Ratios to average net assets
               
Total expenses (7)
   
2.94
%
   
6.05
%
Net investment income (7)
   
1.05
%
   
3.46
%
Total rate of return (2) (3) (7)
   
4.83
%
   
10.67
%
 

(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)       Amounts based on differences between the actual redemption price and the NAVs preceding the redemptions.
(7)       Not annualized for interim reporting periods.
(8)       Includes dividend of $0.25 per share declared as of December 31, 2017, and paid on January 25, 2018.
 
 
 
 
 
 

NOTE 7 – SHARE OFFERINGS AND FEES

During the six months ended December 31, 2017, the Company issued 1,243,735 shares with gross proceeds of $12,437,349 and 103,073.88 shares under the DRIP at $9 per share with gross proceeds of $927,663. For the six months ended December 31, 2017, the Company incurred selling commissions and fees of $1,238,768.

During the six months ended December 31, 2016, the Company issued 863,072 shares with gross proceeds of $8,630,719 and 110,302.86 shares under the DRIP at $9 per share with gross proceeds of $992,726. For the six months ended December 31, 2016, the Company incurred selling commissions and fees of $863,072.

NOTE 8 – SHARE REPURCHASE PLAN

Pursuant to the Company's share repurchase program, during the six months ended December 31, 2017, the Company made two tender offers to purchase its own shares at $9 per share. The Company repurchased a total of 62,092.99 shares for a total of $558,837. During the six months ended December 31, 2016, the Company made a tender offer and repurchased a total of 17,910.76 of its shares for a total of $161,197.

NOTE 9 –STOCKHOLDER DIVIDENDS AND INCOME TAXES

The following table reflects the dividends the Company paid or declared on its common stock during the three months ended December 31, 2017:
 
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2017
 
$
0.175
   
$
1,033,816
 
Three months ended December 31, 2017 (1)
   
0.425
     
2,941,369
 
 
 
$
0.600
   
$
3,975,185
 
 
(1)
Includes $0.25 per share of dividend declared as of December 31, 2017 with record holder date of December 31, 2017.
Of the total dividend declared for the six months ended December 31, 2017, $927,663 was reinvested under the DRIP.

The following table reflects the dividends the Company paid on its common stock during the six months ended December 31, 2016:
 
 
 
Dividends
 
During the Quarter Ended
 
Per Share
   
Amount
 
Three months ended September 30, 2016
 
$
0.250
   
$
942,659
 
Three months ended December 31, 2016
   
0.250
     
1,131,115
 
 
 
$
0.500
   
$
2,073,774
 
 
Of the total dividend declared for the six months ended December 31, 2016, $992,726 was reinvested under the DRIP.

On January 31, 2018, the Company's Board of Directors approved a quarterly dividend of $0.175 per share to the holders of record on March 31, 2018.

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 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 years ended December 31, 2016, (the most recent tax year end completed and filed) were as follows:
 
 
 
December 31, 2016
 
Capital gain
 
$
2,275,740
 
Ordinary income- Post REIT qualification
   
985,410
 
Total dividends
 
$
3,261,150