10-Q 1 mrc10q03312018.htm FORM 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2018
 
 
 
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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer               Accelerated filer                 Non-accelerated filer                   Smaller reporting company 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period of  for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
 
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 11, 2018 was 8,194,227.12.
 



TABLE OF CONTENTS
 
     
 
 
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Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

     
 
 
March 31, 2018
   
June 30, 2017
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $65,852,052 and $41,144,520, respectively)
 
$
69,179,742
   
$
44,594,061
 
Non-controlled/affiliated investment (cost of $6,287 and $6,287, respectively)
   
6,613
     
7,309
 
Controlled investments (cost of $1,999,901 and $2,612,019, respectively)
   
1,984,714
     
3,284,157
 
Cash and cash equivalents
   
4,464,674
     
11,849,712
 
Accounts receivable
   
540,152
     
2,240,815
 
Other assets
   
443,445
     
284,991
 
Deferred offering costs, net
   
109,404
     
243,807
 
Total assets
 
$
76,728,744
   
$
62,504,852
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
37,384
   
$
78,865
 
Income tax payable
   
44,679
     
-
 
Dividend payable
   
1,345,491
     
-
 
Capital pending acceptance
   
701,700
     
1,803,090
 
Due to related entities
   
446,827
     
588,009
 
Deferred tax liability, net
   
3,518
     
45,363
 
Total liabilities
   
2,579,599
     
2,515,327
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 7,847,491.12 and 6,096,772.85 shares issued and outstanding, respectively
   
785
     
610
 
Capital in excess of par value
   
71,367,391
     
55,606,134
 
Accumulated distribution in excess of net investment income
   
(1,099,810)
 
   
(1,354,197)
 
Accumulated undistributed net realized gain
   
567,950
     
1,614,277
 
Accumulated undistributed net unrealized gain
   
3,312,829
     
4,122,701
 
Total net assets
   
74,149,145
     
59,989,525
 
 
               
Total liabilities and net assets
 
$
76,728,744
   
$
62,504,852
 
 
               
Net asset value per share
 
$
9.45
   
$
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
March 31, 2018
(Unaudited)
 
Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total Fair Value
   
% of
Net Assets
 
Ashford Hospitality Prime, Inc.
   
(3)
 
Publicly Traded Company
   
76,915.00
   
$
738,029
   
$
747,613
 
0.99
 
Ashford Hospitality Trust, Inc.
   
(3)
 
Publicly Traded Company
   
188,000.00
     
1,188,646
     
1,214,480
 
1.64
 
Bluerock Residential Growth REIT, Inc.
   
(3)
 
Publicly Traded Company
   
97,422.00
     
1,060,379
     
828,087
 
1.12
 
CBL & Associates Properties, Inc.
   
(3)
 
Publicly Traded Company
   
108,000.00
     
903,943
     
450,360
 
0.61
 
City Office REIT, Inc.
   
(3)
 
Publicly Traded Company
   
50,000.00
     
688,636
     
578,000
 
0.78
 
Independence Realty Trust, Inc.
   
(3)
 
Publicly Traded Company
   
175,000.00
     
1,687,924
     
1,606,500
 
2.17
 
Omega Healthcare Investors, Inc.
   
(3)
 
Publicly Traded Company
   
52,000.00
     
1,643,993
     
1,406,080
 
1.90
 
One Liberty Properties, Inc.
   
(3)
 
Publicly Traded Company
   
39,400.00
     
929,182
     
870,740
 
1.17
 
RLJ Lodging Trust
   
(3)
 
Publicly Traded Company
   
22,800.00
     
498,046
     
443,232
 
0.60
 
Sabra Health Care REIT, Inc.
   
(3)
 
Publicly Traded Company
   
75,000.00
     
1,625,618
     
1,323,750
 
1.79
 
Store Capital Corp.
   
(3)
 
Publicly Traded Company
   
47,000.00
     
1,168,644
     
1,166,540
 
1.57
 
VEREIT Inc.
   
(3)
 
Publicly Traded Company
   
131,000.00
     
1,077,558
     
911,760
 
1.23
 
Washington Prime Group Inc.
   
(3)
 
Publicly Traded Company
   
44,000.00
     
367,060
     
293,480
 
0.40
 
Total Publicly Traded Company
       
 
           
13,577,658
     
11,840,622
 
15.97
 
 
     
 
                           
American Finance Trust, Inc.
   
(4)
 
Non Traded Company
   
205,640.52
     
2,993,684
     
3,277,910
 
4.40
 
American Realty Capital Healthcare Trust III, Inc.
   
(4)(5)
 
Non Traded Company
   
3,365.50
     
6,024
     
5,721
 
0.01
 
American Realty Capital New York City REIT, Inc.
   
(4)(5)
 
Non Traded Company
   
99,812.75
     
1,327,391
     
1,471,240
 
1.98
 
Behringer Harvard Opportunity REIT I, Inc.
   
(4)(5)
 
Non Traded Company
   
1,174,053.09
     
1,361,313
     
2,066,333
 
2.79
 
Benefit Street Partners Realty Trust, Inc.
   
(4)
 
Non Traded Company
   
12,016.08
     
162,207
     
159,934
 
0.22
 
BRE Select Hotels Corp. - Preferred A
   
(4)
 
Non Traded Company
   
251,064.00
     
435,756
     
419,277
 
0.57
 
Carter Validus Mission Critical REIT
   
(4)
 
Non Traded Company
   
1,750.00
     
9,636
     
8,645
 
0.01
 
Cole Credit Property Trust IV, Inc.
   
(4)
 
Non Traded Company
   
214,146.04
     
1,273,393
     
1,852,363
 
2.50
 
First Capital Real Estate Trust, Inc.
   
(4)(5)
 
Non Traded Company
   
3,792.51
     
15,161
     
19,456
 
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
   
3.00
     
87,115
     
83,514
 
0.11
 
FSP Energy Tower
   
(4)(5)
 
Non Traded Company
   
7.25
     
303,500
     
222,519
 
0.30
 
FSP Grand Boulevard
   
(4)
 
Non Traded Company
   
7.50
     
294,179
     
187,645
 
0.25
 
FSP Satellite Place
   
(4)(5)
 
Non Traded Company
   
12.78
     
370,863
     
456,395
 
0.62
 
Griffin Capital Essential Asset REIT, Inc.
   
(4)
 
Non Traded Company
   
28,641.60
     
196,636
     
198,773
 
0.27
 
Healthcare Trust, Inc.
   
(4)
 
Non Traded Company
   
96,364.93
     
1,063,666
     
1,373,200
 
1.85
 
Highlands REIT Inc.
   
(4)(5)
 
Non Traded Company
   
9,372,566.43
     
1,929,159
     
1,687,062
 
2.28
 
Hospitality Investors Trust, Inc.
   
(4)
 
Non Traded Company
   
154,881.43
     
1,084,916
     
1,045,450
 
1.41
 
InvenTrust Properties Corp.
   
(4)
 
Non Traded Company
   
3,810,481.72
     
6,990,987
     
7,125,601
 
9.61
 
KBS Legacy Partners Apartment REIT, Inc.
   
(4)(5)
 
Non Traded Company
   
79,630.53
     
274,725
     
315,337
 
0.43
 
KBS Real Estate Investment Trust II, Inc.
   
(4)
 
Non Traded Company
   
856,314.25
     
3,217,049
     
3,116,984
 
4.20
 
KBS Real Estate Investment Trust III, Inc.
   
(4)
 
Non Traded Company
   
1,250.00
     
12,448
     
9,750
 
0.01
 
Phillips Edison Grocery Center REIT I, Inc
   
(4)
 
Non Traded Company
   
8,075.94
     
59,531
     
70,664
 
0.10
 
Phillips Edison Grocery Center REIT II, Inc.
   
(4)
 
Non Traded Company
   
982.89
     
6,282
     
17,938
 
0.02
 
Steadfast Income REIT
   
(4)
 
Non Traded Company
   
49,904.48
     
377,718
     
502,039
 
0.68
 
Strategic Realty Trust, Inc.
   
(4)
 
Non Traded Company
   
63,594.65
     
250,060
     
292,535
 
0.39
 
Summit Healthcare REIT, Inc.
   
(4)(5)
 
Non Traded Company
   
1,253,113.04
     
1,665,326
     
1,779,421
 
2.40
 
Total Non Traded Company (1)
       
 
           
25,777,284
     
27,791,921
 
37.48
 
 
       
 
                           
3100 Airport Way South LP
   
(4)
 
LP Interest
   
1.00
     
355,000
     
375,304
 
0.50
 
5210 Fountaingate
   
(4)
 
LP Interest
   
9.89
     
500,000
     
529,436
 
0.71
 
Addison NC, LLC
   
(4)(5)
 
LP Interest
   
200,000.00
     
2,000,000
     
2,850,000
 
3.84
 
Arrowpoint Burlington LLC
   
(4)
 
LP Interest
   
7.50
     
750,000
     
843,526
 
1.14
 
BR Cabrillo LLC
   
(4)(5)
 
LP Interest
   
346,723.32
     
104,942
     
86,681
 
0.12
 
BR Grand at Westside Investment Company
   
(4)
 
LP Interest
   
3,558,420.45
     
3,558,420
     
3,558,420
 
4.80
 
Britannia Preferred Members, LLC
   
(4)(5)
 
LP Interest
   
150,000.00
     
1,500,000
     
2,497,500
 
3.37
 
Capitol Hill Partners, LLC
   
(4)
 
LP Interest
   
190,000.00
     
1,900,000
     
1,900,000
 
2.56
 
CRP I Roll Up, LLC
   
(4)
 
LP Interest
   
4,500,000.00
     
4,500,000
     
4,590,000
 
6.19
 
CRP III Roll Up, LLC
   
(4)
 
LP Interest
   
6,000,000.00
     
6,000,000
     
6,000,000
 
8.09
 
MC 15 Preferred Equity, LLC
   
(2)(4)(5)
 
LP Interest
   
250,000.00
     
1,950,000
     
1,950,000
 
2.63
 
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
     
37,158
 
0.05
 
Satellite Investment Holdings, LLC - Class A
   
(4)
 
LP Interest
   
22.00
     
2,200,000
     
2,200,000
 
2.97
 
Secured Income, LP
   
(4)(5)
 
LP Interest
   
64,520.00
     
316,335
     
270,984
 
0.37
 
The Weatherly Building, LLC
   
(4)(5)
 
LP Interest
   
17.50
     
392,000
     
705,880
 
0.95
 
The Weatherly, LTD
   
(4)(5)
 
LP Interest
   
60.00
     
672,000
     
1,210,079
 
1.63
 
Uniprop Manufactured Housing Income Fund II, LP
   
(4)
 
LP Interest
   
149,196.00
     
618,713
     
792,231
 
1.07
 
Total LP Interest
       
 
           
27,353,397
     
30,403,812
 
41.00
 
 
       
 
                           
Coastal Realty Business Trust, REEP, Inc. - A
   
(2)(4)(5)
 
Investment Trust
   
72,320.00
     
49,901
     
34,714
 
0.05
 
Total Investment Trust
       
 
           
49,901
     
34,714
 
0.05
 
 
       
 
                           
OrCal and MIC Promissory Note
   
(4)
 
Note
           
1,100,000
     
1,100,000
 
1.48
 
Total Note
       
 
           
1,100,000
     
1,100,000
 
1.48
 
 
       
 
                           
Total Investments
       
 
         
$
67,858,240
   
$
71,171,069
 
95.98
 

(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, 2018, the total percentage of non-qualifying assets is 15.43%, 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, 2018, 77.32% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of March 31, 2018, 23.02% 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
March 31,
   
Nine Months Ended
March 31,
 
   
2018
   
2017
   
2018
   
2017
 
Investment income
                       
Non-controlled/non-affiliated investments:
                       
Dividend and operational/sales distributions
 
$
1,125,653
   
$
2,081,212
   
$
3,497,518
   
$
3,753,001
 
Interest and other income
   
139,339
     
9,538
     
379,751
     
10,902
 
Non-controlled/affiliated investments:
                               
Dividend and operational/sales distributions
   
-
     
-
     
789
     
-
 
Controlled investments:
                               
Dividend and operational/sales distributions
   
1,650,000
     
32,756
     
1,650,000
     
35,120
 
Total investment income
   
2,914,992
     
2,123,506
     
5,528,058
     
3,799,023
 
                                 
Operating expenses
                               
Base management fee (note 5)
   
442,375
     
324,180
     
1,250,366
     
912,235
 
Portfolio structuring fee (note 5)
   
135,746
     
144,600
     
508,867
     
403,522
 
Subordinated incentive fee (note 5)
   
-
     
737,349
     
-
     
759,914
 
Administrative cost reimbursements (note 5)
   
108,000
     
55,000
     
324,000
     
165,000
 
Amortization of deferred offering costs
   
38,073
     
170,446
     
302,186
     
170,446
 
Professional fees
   
45,567
     
52,660
     
182,362
     
213,945
 
Directors' fees
   
15,500
     
19,500
     
49,500
     
44,500
 
Printing and mailing
   
2,562
     
120
     
36,948
     
28,751
 
Other general and administrative
   
36,158
     
25,425
     
93,774
     
77,854
 
Total operating expenses
   
823,981
     
1,529,280
     
2,748,003
     
2,776,167
 
                                 
Net investment income (loss) before taxes
   
2,091,011
     
594,226
     
2,780,055
     
1,022,856
 
Income tax provision - (note 2)
   
7,526
     
-
     
3,431
     
-
 
Net investment income
   
2,083,485
     
594,226
     
2,776,624
     
1,022,856
 
                                 
Realized and unrealized gain (loss) on investments
                               
Net realized gain (loss)
                               
Non-controlled/non-affiliated investments
   
53,645
     
754,352
     
1,806,531
     
2,372,199
 
Controlled investments
   
-
     
-
     
(54,413)
 
   
-
 
Total net realized gain
   
53,645
     
754,352
     
1,752,118
     
2,372,199
 
Net unrealized gain (loss)
                               
Non-controlled/non-affiliated investments
   
(327,970)
 
   
(1,365,300)
 
   
(121,856)
 
   
(648,399)
 
Non-controlled/affiliated investments
   
-
     
-
     
(696)
 
   
-
 
Controlled investments
   
(1,250,724)
 
   
173,543
     
(687,326)
 
   
677,243
 
Total net unrealized gain (loss)
   
(1,578,694)
 
   
(1,191,757)
 
   
(809,878)
 
   
28,844
 
                                 
Total net realized and unrealized gain (loss) on investments
   
(1,525,049)
 
   
(437,405)
 
   
942,240
     
2,401,043
 
                                 
Net increase in net assets resulting from operations
 
$
558,436
   
$
156,821
   
$
3,718,864
   
$
3,423,899
 
                                 
Net increase in net assets resulting from operations per share
 
$
0.07
   
$
0.03
   
$
0.52
   
$
0.69
 
                                 
Weighted average common shares outstanding
   
7,723,757
     
5,297,788
     
7,164,877
     
4,932,088
 
 

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


   
Nine Months Ended
   
Year Ended June 30,
 
   
March 31, 2018
   
June 30, 2017
 
   
(Unaudited)
       
Operations
           
Net investment income
 
$
2,776,624
   
$
1,733,806
 
Net realized gain
   
1,752,118
     
1,596,367
 
Net unrealized gain (loss)
   
(809,878)
 
   
2,023,069
 
Net increase in net assets resulting from operations
   
3,718,864
     
5,353,242
 
                 
Dividends
               
Dividends to stockholders
   
(5,320,676)
 
   
(4,046,021)
 
                 
Capital share transactions
               
Issuance of common stock
   
16,650,630
     
19,296,300
 
Issuance of common stock through reinvestment of dividends
   
1,719,987
     
1,903,677
 
Redemption of common stock
   
(949,089)
 
   
(915,267)
 
Selling commissions and fees
   
(1,660,096)
 
   
(1,934,597)
 
Net increase in net assets resulting from capital share transactions
   
15,761,432
     
18,350,113
 
                 
Total increase in net assets
   
14,159,620
     
19,657,334
 
                 
Net assets at beginning of the period
   
59,989,525
     
40,332,191
 
                 
Net assets at end of the period
 
$
74,149,145
   
$
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)

 
 
 
     
 
  
 
Nine Months Ended
March 31,
 
 
 
 
2018
   
2017
 
 
 
           
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
3,718,864
   
$
3,423,899
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
25,181,336
     
11,932,194
 
Return of capital
   
9,712,523
     
1,521,318
 
Purchase of investments
   
(57,237,161
)
   
(17,928,572
)
Net realized gain on investments
   
(1,752,118
)
   
(2,372,199
)
Net unrealized (gain) loss on investments
   
809,878
     
(28,844
)
Amortization of deferred offering costs
   
302,186
     
121,904
 
Changes in assets and liabilities:
               
Accounts receivable
   
1,700,663
     
(7,363
)
Other assets
   
(227,454
)
   
181,643
 
Payment of deferred offering costs
   
(167,783
)
   
(487,615
)
Accounts payable and accrued liabilities
   
(38,425
)
   
52,031
 
Income tax payable
   
44,679
     
-
 
Due to related entities
   
(141,182
)
   
858,187
 
Deferred tax liability
   
(41,845
)
   
-
 
Net cash from operating activities
   
(18,135,839
)
   
(2,733,417
)
 
 
               
Cash flows from financing activities:
               
Borrowing on margin loan
 
   
6,012,413
     
-
 
Payment on margin loan
 
   
(6,012,413
)
   
-
 
Proceeds from issuance of common stock
   
16,650,630
     
13,450,719
 
Redemption of common stock
     
(949,089
)
   
(663,179
)
Dividends to stockholders
   
(2,255,198
)
   
(1,544,609
)
Payment of selling commissions and fees
   
(1,594,152
)
   
(1,426,043
)
Change in capital pending acceptance
   
(1,101,390
)
   
160,403
 
       Net cash from financing activities
   
10,750,801
     
9,977,291
 
 
 
               
Net increase (decrease)  in cash and cash equivalents
   
(7,385,038
)
   
7,243,874
 
 
 
               
Cash and cash equivalents at beginning of the period
   
11,849,712
     
2,350,435
 
 
 
               
Cash and cash equivalents at end of the period
 
$
4,464,674
   
$
9,594,309
 
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
1,719,987
   
$
1,394,040
 
 
 
               
Supplemental disclosures:
               
Taxes paid
 
$
20,026
   
$
800
 
 
 
               
 

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, 2018
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the "Company") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It is a non-diversified, closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). The Company has elected to be treated as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share. The Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30.
 
The Company 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.The Company 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.

The Company'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. On December 20, 2017, a wholly owned subsidiary of TRS, MacKenzie NY Real Estate 2 Corp., ("MacKenzie NY 2"), was formed. The Financial statements of MacKenzie NY 2 have been consolidated with the Company and its subsidiary beginning with the quarter ended March 31, 2018.

The Company and its subsidiaries are 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 March 31, 2018, the Company has raised approximately $74.42 million from the public offerings, including proceeds from the Company's dividend reinvestment plan ("DRIP") of approximately $4.64 million. Of the shares issued by the Company in exchange for the total capital raised as of March 31, 2018, approximately $3.39 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 and its subsidiaries 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 March 31, 2018. 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 March 31, 2018. The prior periods have been reclassified to conform to this presentation as of March 31, 2018.

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 March 31, 2018, 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 March 31, 2018, 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 March 31, 2018, and June 30, 2017, capital pending acceptance was $701,700 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 March 31, 2018, were $726,416. 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 nine months ended March 31, 2018, were $38,073 and $302,186, respectively. Accumulated amortization of these deferred costs as of March 31, 2018, and June 30, 2017, were $617,012 and $314,826, respectively.
 
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. 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. Similarly, for tax year 2018, the Company plans to pay the requisite amount of dividends to stockholders during the year such that the Company will not owe any income taxes. Therefore, Company did not record any income tax provisions during the quarterly periods within the tax year ended December 31, 2017.

The income tax provision amounts in the consolidated statements of operation for the three and nine months ended March 31, 2018, relate to the Company's built-in gain tax adjustment and TRS' income tax expense for tax year 2017 as follows:

   
3 months ended
   
9 months ended
 
   
March 31, 2018
   
March 31, 2018
 
MacKenzie Realty Capital, Inc - built-in gain tax adjustment
 
$
-
   
$
(3,292)
 
MRC TRS, Inc - income tax expense
   
7,526
     
6,723
 
Total Income Tax Provision
 
$
7,526
   
$
3,431
 
 
The built-in gain tax adjustment amount is the difference between the actual and the 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 March 31, 2018 and June 30, 2017 were $8,025 and $125,345, respectively. The deferred tax liabilities relating to those net unrealized built-in gains as of March 31, 2018 and June 30, 2017, were $3,518 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. Accordingly, it recorded an income tax provision of $7,526 during the three months ended March 31, 2018, for tax year 2017.

The Company did not have any built-in gain tax adjustments for the three months and nine months ended March 31, 2017. Additionally, TRS did record any income tax expenses as of March 31, 2017, as it did not have any taxable transactions as of March 31, 2017.
 
The Company and its subsidiaries 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, 2018, 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 March 31, 2018, and June 30, 2017:
   
March 31, 2018   
   
June 30, 2017   
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
13,577,658
   
$
11,840,622
   
$
16,839,158
   
$
16,862,458
 
Non Traded Companies
   
25,777,284
     
27,791,921
     
14,122,019
     
15,071,280
 
LP Interests
   
27,353,397
     
30,403,812
     
12,689,630
     
15,917,632
 
Investment Trusts
   
49,901
     
34,714
     
112,019
     
34,157
 
Note
   
1,100,000
     
1,100,000
     
-
     
-
 
Total
 
$
67,858,240
   
$
71,171,069
   
$
43,762,826
   
$
47,885,527
 

The following table presents fair value measurements of the Company's investments as of March 31, 2018, 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
 
$
11,840,622
   
$
11,840,622
   
$
-
   
$
-
 
Non Traded Companies
   
27,791,921
     
-
     
-
     
27,791,921
 
LP Interests
   
30,403,812
     
-
     
-
     
30,403,812
 
Investment Trusts
   
34,714
     
-
     
-
     
34,714
 
Note
   
1,100,000
     
-
     
-
     
1,100,000
 
Total
 
$
71,171,069
   
$
11,840,622
   
$
-
   
$
59,330,447
 

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 nine months ended March 31, 2018:

Balance at July 1, 2017
 
$
31,023,069
 
Purchases of investments
   
43,173,032
 
Proceeds from sales, net
   
(9,103,926)
 
Return of capital
   
(9,255,060)
 
Net realized gains
   
2,542,873
 
Net unrealized gains
   
950,459
 
Ending balance at March 31, 2018
 
$
59,330,447
 
For the nine months ended March 31, 2018, changes in unrealized gains included in earnings relating to Level III investments still held at March 31, 2018, were $1,833,283.

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
 

For the nine months ended March 31, 2017, changes in unrealized gains are included in earnings relating to Level III investments still held at March 31, 2017 were $1,228,832.


The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2018:
 
  
Asset Type
 
Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
   
Wt. Average
 
                         
Non Traded Companies
 
$
24,248,852
 
Market Activity
 
Acquisition Cost
           
               
Secondary market industry publication
           
               
Contracted sale price of security
           
                           
Non Traded Companies
   
3,543,069
 
Net Asset Value (1)
 
Capitalization rate
   
6.8% - 9.0%
 
   
8.1%
 
               
Liquidity discount
   
10.0% - 68.0%
 
   
15.5%
 
               
Sponsor provided value
               
                               
LP Interests
   
4,642,231
 
Market Activity
 
Acquisition Cost
               
               
Secondary market industry publication
               
                               
LP Interests
   
10,590,000
 
Discounted Cash Flow
 
Underlying note discount rate
   
15%
 
       
                               
LP Interests
   
15,171,581
 
Net Asset Value (1)
 
Acquisition Cost
               
               
Capitalization rate
   
5.4% - 8.5%
 
   
6.9%
 
               
Discount rate
   
30.0%
 
       
               
Liquidity discount
   
10.0% - 50.0%
 
   
18.3%
 
               
Discount term (months)
   
7.0 - 21.0
     
14.5
 
               
Sponsor provided value
               
               
Contracted sale price of underlying property
               
                               
Investment Trust
   
34,714
 
Net Asset Value (1)
 
Capitalization rate
   
6.00%
 
       
               
Liquidity discount
   
25.0%
 
       
                               
Note
   
1,100,000
 
Market Activity
 
Acquisition Cost
               
                               
   
$
59,330,447
                       
 
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 March 31, 2018, the Company had $6,584,893 of margin credit available for cash withdrawal or the ability to purchase up to $14,489,366 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. In December 2017, the Company borrowed $6,012,413 which was paid back in full in January 2018, under this short-term credit line. The Company hasn't drawn any amount or purchased any shares under this credit line since then.
 


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 nine months ended March 31, 2018, were $135,746 and $508,867, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2017, were $144,600 and $403,522, respectively.



The base management fees for the three and nine months ended March 31, 2018, were $442,375 and $1,250,366, respectively. The base management fees for the three and nine months ended March 31, 2017, were $324,180 and $912,235, 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
 
March 31, 2018
   
20,000,000
     
58,474,911
     
78,474,911
 
                         
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
 

There was no subordinated incentive capital gain or income fee for the three and nine months ended March 31, 2018. The subordinated capital gain fee for the three and nine months ended March 31, 2017, were $737,349 and $759,914, respectively. There was no subordinated income fee for the three and nine months ended March 31, 2017.

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 March 31, 2018, and June 30, 2017, the offering costs incurred and paid by the Company is below the threshold of $1,650,000 and the Company does not anticipate that costs will exceed the threshold. 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 nine months ended March 31, 2018, were $108,000 and $324,000, respectively. The administrative cost reimbursements for the three and nine months ended March 31, 2017, were $55,000 and $165,000, respectively.


The table below outlines the related party expenses incurred for the nine months ended March 31, 2018, and 2017 and unpaid as of March 31, 2018, and June 30, 2017.
   
For The Nine Months Ended
   
Unpaid as of   
 
Types and Recipient
 
March 31, 2018
   
March 31, 2017
   
March 31, 2018
   
June 30, 2017