10-Q 1 mrc10q9302018.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 September 30, 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.)
 
 
89 Davis Road, Suite 100, Orinda, CA 94563
(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 every Interactive Data File required to be submitted 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 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 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 November 13, 2018 was 9,716,178.66.
 









TABLE OF CONTENTS


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




 
Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

 
 
September 30, 2018
   
June 30, 2018
 
Assets
   (Unaudited)        
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $63,606,316 and $64,558,777, respectively)
 
$
68,937,834
   
$
74,536,671
 
Non-controlled/affiliated investment (cost of $6,287 and $6,287, respectively)
   
6,613
     
6,613
 
Controlled investments (cost of $49,901 and $49,901, respectively)
   
41,945
     
41,222
 
Cash and cash equivalents
   
26,749,568
     
8,442,249
 
Accounts receivable
   
657,326
     
5,878,293
 
Other assets
   
644,738
     
374,634
 
Deferred offering costs, net
   
336,701
     
286,614
 
Total assets
 
$
97,374,725
   
$
89,566,296
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
85,802
   
$
38,170
 
Income tax payable
   
10,930
     
37,153
 
Dividend payable
   
1,571,551
     
1,438,808
 
Capital pending acceptance
   
835,135
     
646,300
 
Due to related entities
   
2,252,878
     
1,807,028
 
Deferred tax liability, net
   
3,518
     
3,518
 
Total liabilities
   
4,759,814
     
3,970,977
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 9,243,584.36 and 8,496,141.57 shares issued and outstanding, respectively
   
924
     
850
 
Capital in excess of par value
   
83,932,726
     
77,205,361
 
Accumulated undistributed net investment income
   
1,291,267
     
(1,580,433
)
Accumulated undistributed net realized gain
   
2,066,109
     
-
 
Accumulated undistributed net unrealized gain
   
5,323,885
     
9,969,541
 
Total net assets
   
92,614,911
     
85,595,319
 
 
               
Total liabilities and net assets
 
$
97,374,725
   
$
89,566,296
 
 
               
Net asset value per share
 
$
10.02
   
$
10.07
 
 
 
 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
1


MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
September 30, 2018
(Unaudited)
 
Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total
Fair Value
   
% of
Net Assets
 
American Finance Trust Inc., Class A
   
(3
)
Publicly Traded Company
   
10,661.86
   
$
169,494
   
$
162,701
     
0.18
 
Apartment Investment and Management Company
   
(3
)
Publicly Traded Company
   
30,000.00
     
1,325,822
     
1,323,900
     
1.43
 
Ashford Hospitality Trust, Inc.
   
(3
)
Publicly Traded Company
   
175,000.00
     
1,406,834
     
1,118,250
     
1.21
 
Bluerock Residential Growth REIT, Inc.
   
(3
)
Publicly Traded Company
   
145,000.00
     
1,383,080
     
1,421,000
     
1.53
 
Braemar Hotels & Resorts Inc.
   
(3
)
Publicly Traded Company
   
80,000.00
     
913,670
     
941,600
     
1.02
 
CBL & Associates Properties, Inc.
   
(3
)
Publicly Traded Company
   
90,000.00
     
499,361
     
359,100
     
0.39
 
City Office REIT, Inc.
   
(3
)
Publicly Traded Company
   
64,300.00
     
786,127
     
811,466
     
0.88
 
Independence Realty Trust, Inc.
   
(3
)
Publicly Traded Company
   
75,000.00
     
775,750
     
789,750
     
0.85
 
Omega Healthcare Investors, Inc.
   
(3
)
Publicly Traded Company
   
52,000.00
     
1,632,422
     
1,704,040
     
1.84
 
RLJ Lodging Trust
   
(3
)
Publicly Traded Company
   
42,000.00
     
914,814
     
925,260
     
1.00
 
Sabra Health Care REIT, Inc.
   
(3
)
Publicly Traded Company
   
75,000.00
     
1,669,232
     
1,734,000
     
1.87
 
VEREIT Inc.
   
(3
)
Publicly Traded Company
   
225,000.00
     
1,695,306
     
1,633,500
     
1.76
 
Total Publicly Traded Company
       
 
           
13,171,912
     
12,924,567
     
13.96
 
 
       
 
                               
American Finance Trust Inc., Class B1
   
(4
)
Non Traded Company
   
14,792.94
     
186,008
     
221,154
     
0.24
 
American Finance Trust Inc., Class B2
   
(4
)
Non Traded Company
   
14,792.94
     
176,621
     
210,060
     
0.23
 
American Realty Capital Healthcare Trust III, Inc.
   
(4)(
5)
Non Traded Company
   
25,266.41
     
40,120
     
49,522
     
0.05
 
American Realty Capital New York City REIT, Inc.
   
(4)(
5)
Non Traded Company
   
194,578.12
     
2,476,389
     
2,531,461
     
2.73
 
Benefit Street Partners Realty Trust, Inc.
   
(4
)
Non Traded Company
   
65,833.25
     
840,754
     
887,432
     
0.96
 
BRE Select Hotels Corp. - Preferred A
   
(4
)
Non Traded Company
   
508,031.00
     
887,011
     
883,974
     
0.95
 
Carter Validus Mission Critical REIT
   
(4
)
Non Traded Company
   
51,372.87
     
202,001
     
225,527
     
0.24
 
Cole Credit Property Trust IV, Inc.
   
(4
)
Non Traded Company
   
107,330.31
     
658,771
     
851,129
     
0.92
 
Corporate Property Associates  17 Global Inc.
   
(4
)
Non Traded Company
   
116,154.26
     
957,111
     
1,161,543
     
1.25
 
Corporate Property Associates  18 Global A Inc.
   
(4
)
Non Traded Company
   
4,695.14
     
39,627
     
37,749
     
0.04
 
First Capital Real Estate Trust, Inc.
   
(4)(
5)
Non Traded Company
   
3,792.51
     
15,161
     
21,276
     
0.02
 
FSP 1441 Main Street
   
(4)(
5)
Non Traded Company
   
15.73
     
8,559
     
29,568
     
0.03
 
FSP 303 East Wacker Drive Corp. Liquidating Trust
   
(4
)
Non Traded Company
   
3.00
     
30
     
30
     
-
 
FSP Energy Tower
   
(4)(
5)
Non Traded Company
   
7.25
     
303,500
     
320,262
     
0.35
 
FSP Grand Boulevard
   
(4)(
5)
Non Traded Company
   
7.50
     
42,929
     
15,034
     
0.02
 
FSP Satellite Place
   
(4)(
5)
Non Traded Company
   
13.78
     
395,313
     
515,903
     
0.56
 
Griffin-American Healthcare REIT III, Inc.
   
(4
)
Non Traded Company
   
686.48
     
4,494
     
5,396
     
0.01
 
Griffin Capital Essential Asset REIT, Inc.
   
(4
)
Non Traded Company
   
28,641.60
     
196,636
     
250,614
     
0.27
 
GTJ REIT, Inc.
   
(4
)
Non Traded Company
   
1,000.00
     
11,620
     
11,610
     
0.01
 
Healthcare Trust, Inc.
   
(4
)
Non Traded Company
   
257,860.50
     
2,950,007
     
3,553,318
     
3.84
 
Highlands REIT Inc.
   
(4)(
5)
Non Traded Company
   
14,738,697.90
     
2,908,658
     
2,505,579
     
2.71
 
InvenTrust Properties Corp.
   
(4
)
Non Traded Company
   
12,117.65
     
33,719
     
21,206
     
0.02
 
KBS Legacy Partners Apartment REIT, Inc.
   
(4)(
5)
Non Traded Company
   
79,630.53
     
15,926
     
15,926
     
0.02
 
KBS Real Estate Investment Trust II, Inc.
   
(4
)
Non Traded Company
   
1,611,656.52
     
5,886,576
     
6,559,442
     
7.08
 
KBS Real Estate Investment Trust III, Inc.
   
(4
)
Non Traded Company
   
46,397.55
     
369,236
     
392,059
     
0.42
 
NorthStar Healthcare Income, Inc.
   
(4
)
Non Traded Company
   
800.00
     
5,608
     
5,112
     
0.01
 
Phillips Edison & Company, Inc
   
(4
)
Non Traded Company
   
152,725.85
     
1,105,937
     
1,427,987
     
1.54
 
Phillips Edison Grocery Center REIT II, Inc.
   
(4
)
Non Traded Company
   
34,851.10
     
521,858
     
650,670
     
0.70
 
Steadfast Apartment REIT
   
(4
)
Non Traded Company
   
570.25
     
5,552
     
7,008
     
0.01
 
Steadfast Income REIT
   
(4
)
Non Traded Company
   
49,904.48
     
377,718
     
407,720
     
0.44
 
Strategic Realty Trust, Inc.
   
(4
)
Non Traded Company
   
148,104.91
     
581,147
     
676,839
     
0.73
 
Summit Healthcare REIT, Inc.
   
(4)(
5)
Non Traded Company
   
1,360,694.88
     
1,846,468
     
2,285,967
     
2.47
 
The Parking REIT Inc.
   
(4)(
5)
Non Traded Company
   
17,989.90
     
230,880
     
204,545
     
0.22
 
Total Non Traded Company (1)
       
 
           
24,281,945
     
26,942,622
     
29.09
 
 
       
 
                               
3100 Airport Way South LP
   
(4
)
LP Interest
   
1.00
     
355,000
     
380,226
     
0.40
 
5210 Fountaingate
   
(4
)
LP Interest
   
9.89
     
500,000
     
570,206
     
0.62
 
Addison NC, LLC
   
(4)(
5)
LP Interest
   
200,000.00
     
2,000,000
     
3,150,000
     
3.40
 
Arrowpoint Burlington LLC
   
(4
)
LP Interest
   
7.50
     
750,000
     
858,024
     
0.93
 
BR Cabrillo LLC
   
(4)(
5)
LP Interest
   
346,723.32
     
104,942
     
83,214
     
0.09
 
BR Jefferson Place Investment Co, LLC
   
(4
)
LP Interest
   
2,766,697.28
     
2,766,697
     
2,766,697
     
2.99
 
Britannia Preferred Members, LLC -Class 1
   
(4)(
5)
LP Interest
   
103.88
     
2,597,000
     
2,597,000
     
2.80
 
Britannia Preferred Members, LLC -Class 2
   
(4)(
5)
LP Interest
   
150,000.00
     
1,500,000
     
2,524,500
     
2.73
 
Capitol Hill Partners, LLC
   
(4
)
LP Interest
   
190,000.00
     
1,900,000
     
1,936,100
     
2.09
 
CRP I Roll Up, LLC
   
(4
)
LP Interest
   
4,500,000.00
     
4,500,000
     
4,770,000
     
5.15
 
CRP III Roll Up, LLC
   
(4
)
LP Interest
   
6,000,000.00
     
6,000,000
     
6,240,000
     
6.74
 
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
     
0.04
 
Satellite Investment Holdings, LLC - Class A
   
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
2.38
 
Secured Income, LP
   
(4)(
5)
LP Interest
   
64,670.00
     
316,890
     
325,290
     
0.35
 
The Weatherly Building, LLC
   
(4)(
5)
LP Interest
   
17.50
     
118,721
     
118,721
     
0.13
 
The Weatherly, LTD
   
(4)(
5)
LP Interest
   
60.00
     
184,761
     
184,761
     
0.20
 
Uniprop Manufactured Housing Income Fund II, LP
   
(4
)
LP Interest
   
155,070.00
     
328,748
     
328,748
     
0.35
 
Total LP Interest
       
 
           
26,158,746
     
29,077,258
     
31.40
 
 
       
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
   
(2)(
4)(5)
Investment Trust
   
72,320.00
     
49,901
     
41,945
     
0.05
 
Total Investment Trust
       
 
           
49,901
     
41,945
     
0.05
 
 
       
 
                               
Total Investments
       
 
         
$
63,662,504
   
$
68,986,392
     
74.50
 

 
 


(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 September 30, 2018, the total percentage of non-qualifying assets is 13.27%, and, as a business development company, non-qualifying assets may not exceed 30% of our total assets.
(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of September 30, 2018, 57.57% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of September 30, 2018, 18.00% 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.
 
2


MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
June 30, 2018
 
Name
     
Asset Type
 
Shares/Units
   
Cost Basis
   
Total
Fair Value
   
% of
Net Assets
 
Ashford Hospitality Trust, Inc.
   
(3
)
Publicly Traded Company
   
175,000.00
   
$
1,406,834
   
$
1,417,501
     
1.65
 
Bluerock Residential Growth REIT, Inc.
   
(3
)
Publicly Traded Company
   
20,600.00
     
182,202
     
183,752
     
0.21
 
Braemar Hotels & Resorts Inc.
   
(3
)
Publicly Traded Company
   
26,627.00
     
302,176
     
304,080
     
0.36
 
CBL & Associates Properties, Inc.
   
(3
)
Publicly Traded Company
   
90,000.00
     
499,361
     
501,300
     
0.59
 
Independence Realty Trust, Inc.
   
(3
)
Publicly Traded Company
   
75,000.00
     
775,750
     
773,250
     
0.90
 
Omega Healthcare Investors, Inc.
   
(3
)
Publicly Traded Company
   
40,000.00
     
1,240,862
     
1,240,000
     
1.45
 
RLJ Lodging Trust
   
(3
)
Publicly Traded Company
   
22,000.00
     
485,195
     
485,100
     
0.57
 
Sabra Health Care REIT, Inc.
   
(3
)
Publicly Traded Company
   
50,000.00
     
1,089,260
     
1,086,500
     
1.27
 
VEREIT Inc.
   
(3
)
Publicly Traded Company
   
90,000.00
     
671,176
     
669,600
     
0.78
 
Total Publicly Traded Company
       
 
           
6,652,816
     
6,661,083
     
7.78
 
 
       
 
                               
American Finance Trust, Inc.
   
(4
)
Non Traded Company
   
30,640.52
     
396,760
     
528,550
     
0.63
 
American Realty Capital Healthcare Trust III, Inc.
   
(4)(
5)
Non Traded Company
   
3,365.50
     
6,024
     
6,495
     
0.01
 
American Realty Capital New York City REIT, Inc.
   
(4)(
5)
Non Traded Company
   
94,009.22
     
1,248,021
     
1,222,120
     
1.43
 
Behringer Harvard Opportunity REIT I, Inc.
   
(4)(
5)
Non Traded Company
   
1,174,053.09
     
1,361,313
     
2,289,404
     
2.67
 
Benefit Street Partners Realty Trust, Inc.
   
(4
)
Non Traded Company
   
61,599.19
     
786,860
     
830,357
     
0.97
 
BRE Select Hotels Corp. - Preferred A
   
(4
)
Non Traded Company
   
271,720.00
     
472,572
     
472,793
     
0.55
 
Carter Validus Mission Critical REIT
   
(4
)
Non Traded Company
   
1,750.00
     
9,636
     
8,330
     
0.01
 
Cole Credit Property Trust IV, Inc.
   
(4
)
Non Traded Company
   
4,146.04
     
32,235
     
35,863
     
0.04
 
First Capital Real Estate Trust, Inc.
   
(4)(
5)
Non Traded Company
   
3,792.51
     
15,161
     
21,883
     
0.03
 
FSP 1441 Main Street
   
(4)(
5)
Non Traded Company
   
15.73
     
8,559
     
28,847
     
0.03
 
FSP 303 East Wacker Drive Corp.
   
(4
)
Non Traded Company
   
3.00
     
87,115
     
188,760
     
0.22
 
FSP Energy Tower
   
(4)(
5)
Non Traded Company
   
7.25
     
303,500
     
301,373
     
0.35
 
FSP Grand Boulevard
   
(4
)
Non Traded Company
   
7.50
     
294,179
     
239,625
     
0.28
 
FSP Satellite Place
   
(4)(
5)
Non Traded Company
   
13.78
     
395,313
     
499,140
     
0.58
 
Griffin-American Healthcare REIT III, Inc.
   
(4
)
Non Traded Company
   
686.48
     
4,494
     
4,469
     
0.01
 
Griffin Capital Essential Asset REIT, Inc.
   
(4
)
Non Traded Company
   
28,641.60
     
196,636
     
245,745
     
0.29
 
GTJ REIT, Inc.
   
(4
)
Non Traded Company
   
1,000.00
     
11,620
     
11,750
     
0.01
 
Healthcare Trust, Inc.
   
(4
)
Non Traded Company
   
166,597.06
     
1,932,444
     
2,329,027
     
2.72
 
Highlands REIT Inc.
   
(4)(
5)
Non Traded Company
   
14,105,177.43
     
2,798,421
     
2,397,880
     
2.80
 
Hospitality Investors Trust, Inc.
   
(4
)
Non Traded Company
   
154,881.43
     
1,084,916
     
1,355,213
     
1.58
 
InvenTrust Properties Corp.
   
(4
)
Non Traded Company
   
5,250,278.49
     
9,319,713
     
9,292,993
     
10.86
 
KBS Legacy Partners Apartment REIT, Inc.
   
(4)(
5)
Non Traded Company
   
79,630.53
     
15,926
     
15,926
     
0.02
 
KBS Real Estate Investment Trust II, Inc.
   
(4
)
Non Traded Company
   
1,556,922.33
     
5,699,860
     
6,336,674
     
7.40
 
KBS Real Estate Investment Trust III, Inc.
   
(4
)
Non Traded Company
   
46,397.55
     
368,523
     
400,411
     
0.47
 
NorthStar Healthcare Income, Inc.
   
(4
)
Non Traded Company
   
800.00
     
5,608
     
5,360
     
0.01
 
Phillips Edison & Company, Inc
   
(4
)
Non Traded Company
   
57,695.27
     
419,976
     
534,258
     
0.62
 
Phillips Edison Grocery Center REIT II, Inc.
   
(4
)
Non Traded Company
   
13,845.24
     
203,263
     
257,383
     
0.30
 
Steadfast Income REIT
   
(4
)
Non Traded Company
   
49,904.48
     
377,718
     
448,641
     
0.52
 
Strategic Realty Trust, Inc.
   
(4
)
Non Traded Company
   
123,181.24
     
484,741
     
561,706
     
0.66
 
Summit Healthcare REIT, Inc.
   
(4)(
5)
Non Traded Company
   
1,293,278.16
     
1,729,182
     
2,043,379
     
2.39
 
The Parking REIT Inc.
   
(4
)
Non Traded Company
   
13,045.00
     
164,282
     
182,760
     
0.21
 
Total Non Traded Company (1)
       
 
           
30,234,571
     
33,097,115
     
38.67
 
 
       
 
                               
3100 Airport Way South LP
   
(4
)
LP Interest
   
1.00
     
355,000
     
378,060
     
0.44
 
5210 Fountaingate
   
(4
)
LP Interest
   
9.89
     
500,000
     
555,728
     
0.65
 
Addison NC, LLC
   
(4)(
5)
LP Interest
   
200,000.00
     
2,000,000
     
3,000,000
     
3.50
 
Arrowpoint Burlington LLC
   
(4
)
LP Interest
   
7.50
     
750,000
     
869,072
     
1.02
 
BR Axis West Investment Co. LLC
   
(4
)
LP Interest
   
3,403,633.00
     
3,403,633
     
3,403,633
     
3.98
 
BR Cabrillo LLC
   
(4)(
5)
LP Interest
   
346,723.32
     
104,942
     
86,681
     
0.10
 
Britannia Preferred Members, LLC
   
(4)(
5)
LP Interest
   
150,000.00
     
1,500,000
     
2,547,000
     
2.98
 
Capitol Hill Partners, LLC
   
(4
)
LP Interest
   
190,000.00
     
1,900,000
     
1,919,000
     
2.24
 
CRP I Roll Up, LLC
   
(4
)
LP Interest
   
4,500,000.00
     
4,500,000
     
4,672,350
     
5.46
 
CRP III Roll Up, LLC
   
(4
)
LP Interest
   
6,000,000.00
     
6,000,000
     
6,101,400
     
7.13
 
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
     
0.04
 
Rosewood Hillsboro Holdings, LLC
   
(4
)
LP Interest
   
3,200,000.00
     
1,300,000
     
1,300,000
     
1.52
 
Satellite Investment Holdings, LLC - Class A
   
(4
)
LP Interest
   
22.00
     
2,200,000
     
2,200,000
     
2.57
 
Secured Income, LP
   
(4)(
5)
LP Interest
   
64,670.00
     
316,890
     
320,763
     
0.37
 
The Weatherly Building, LLC
   
(4)(
5)
LP Interest
   
17.50
     
392,000
     
1,784,033
     
2.08
 
The Weatherly, LTD
   
(4)(
5)
LP Interest
   
60.00
     
672,000
     
3,058,343
     
3.57
 
Uniprop Manufactured Housing Income Fund II, LP
   
(4
)
LP Interest
   
155,070.00
     
647,225
     
1,445,252
     
1.69
 
Total LP Interest
       
 
           
26,577,677
     
33,685,086
     
39.35
 
 
       
 
                               
Coastal Realty Business Trust, REEP, Inc. - A
   
(2)(
4)(5)
Investment Trust
   
72,320.00
     
49,901
     
41,222
     
0.05
 
Total Investment Trust
       
 
           
49,901
     
41,222
     
0.05
 
 
       
 
                               
OrCal and MIC Promissory Note
   
(4
)
Note
           
1,100,000
     
1,100,000
     
1.29
 
Total Note
       
 
           
1,100,000
     
1,100,000
     
1.29
 
 
       
 
                               
Total Investments
       
 
         
$
64,614,965
   
$
74,584,506
     
87.14
 

 
(1) Investments primarily in non-traded public REITs or their successors.
(2) Investments in affiliated companies. See additional disclosures in note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2018, the total percentage of non-qualifying assets is 7.44%, 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, 2018, 75.84 % of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of June 30, 2018, 21.96% 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.
3

MacKenzie Realty Capital, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
     
 
 
Three Months Ended
September 30,
 
 
 
2018
   
2017
 
Investment income
           
Non-controlled/non-affiliated investments:
           
Dividend and operational/sales distributions
 
$
5,437,141
   
$
603,019
 
Interest and other income
   
143,878
     
28,853
 
Non-controlled/affiliated investments:
               
Dividend and operational/sales distributions
   
-
     
789
 
Total investment income
   
5,581,019
     
632,661
 
 
               
Operating expenses
               
Base management fee (note 5)
   
512,179
     
388,917
 
Portfolio structuring fee (note 5)
   
211,692
     
201,902
 
Subordinated incentive fee (note 5)
   
1,565,729
     
-
 
Administrative cost reimbursements (note 5)
   
156,000
     
108,000
 
Amortization of deferred offering costs
   
105,179
     
122,702
 
Professional fees
   
86,075
     
110,997
 
Directors' fees
   
15,500
     
18,500
 
Printing and mailing
   
30,091
     
14,717
 
Other general and administrative
   
26,874
     
27,062
 
Total operating expenses
   
2,709,319
     
992,797
 
 
               
Net investment income before taxes
   
2,871,700
     
(360,136
)
Income tax provision (benefit) - (note 2)
   
-
     
13,210
 
Net investment income (loss)
   
2,871,700
     
(373,346
)
 
               
Realized and unrealized gain (loss) on investments
               
Net realized gain (loss)
               
Non-controlled/non-affiliated investments
   
3,637,660
     
848,583
 
Total net realized gain
   
3,637,660
     
848,583
 
Net unrealized gain (loss)
               
Non-controlled/non-affiliated investments
   
(4,646,379
)
   
649,246
 
Non-controlled/affiliated investments
   
-
     
(696
)
Controlled investments
   
723
     
313,223
 
Total net unrealized gain (loss)
   
(4,645,656
)
   
961,773
 
 
               
Total net realized and unrealized gain on investments
   
(1,007,996
)
   
1,810,356
 
 
               
Net increase in net assets resulting from operations
 
$
1,863,704
   
$
1,437,010
 
 
               
Net increase in net assets resulting from operations per share
 
$
0.21
   
$
0.22
 
 
               
Weighted average common shares outstanding
   
9,004,403
     
6,577,208
 

 
 

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
 
 
4


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


 
 
 
Three Months Ended
   
Year Ended June 30,
 
 
 
September 30, 2018
   
June 30, 2018
 
 
 
(Unaudited)
       
Operations
           
Net investment income
 
$
2,871,700
   
$
2,227,199
 
Net realized gain
   
3,637,660
     
2,691,773
 
Net unrealized gain (loss)
   
(4,645,656
)
   
5,846,839
 
Net increase in net assets resulting from operations
   
1,863,704
     
10,765,811
 
 
               
Dividends
               
Dividends to stockholders
   
(1,571,551
)
   
(6,759,484
)
 
               
Capital share transactions
               
Issuance of common stock
   
7,039,757
     
23,007,310
 
Issuance of common stock through reinvestment of dividends
   
655,801
     
2,340,042
 
Redemption of common stock
   
(284,131
)
   
(1,454,120
)
Selling commissions and fees
   
(683,988
)
   
(2,293,765
)
Net increase in net assets resulting from capital share transactions
   
6,727,439
     
21,599,467
 
 
               
Total increase in net assets
   
7,019,592
     
25,605,794
 
 
               
Net assets at beginning of the period
   
85,595,319
     
59,989,525
 
 
               
Net assets at end of the period
 
$
92,614,911
   
$
85,595,319
 

 

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
 
 
5


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

  
 
     
 
 
Three Months Ended
September 30,
 
 
 
2018
   
2017
 
 
           
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
1,863,704
   
$
1,437,010
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
20,026,294
     
15,372,752
 
Return of capital
   
7,220,964
     
96,702
 
Purchase of investments
   
(22,657,140
)
   
(23,867,620
)
Net realized gain on investments
   
(3,637,660
)
   
(848,583
)
Net unrealized (gain) loss on investments
   
4,645,656
     
(961,773
)
Amortization of deferred offering costs
   
105,179
     
122,702
 
Changes in assets and liabilities:
               
Accounts receivable
   
5,220,967
     
1,849,897
 
Other assets
   
(262,453
)
   
(792,622
)
Payment of deferred offering costs
   
(155,266
)
   
(27,544
)
Accounts payable and accrued liabilities
   
62,581
     
454,561
 
Income tax payable
   
(26,223
)
   
26,209
 
Due to related entities
   
445,850
     
(198,027
)
Deferred tax liability
   
-
     
(14,599
)
Net cash from operating activities
   
12,852,453
     
(7,350,935
)
 
               
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
7,039,757
     
6,730,057
 
Redemption of common stock
   
(284,131
)
   
(357,002
)
Dividends to stockholders
   
(783,007
)
   
(599,811
)
Payment of selling commissions and fees
   
(706,588
)
   
(592,653
)
Change in capital pending acceptance
   
188,835
     
(994,890
)
       Net cash from financing activities
   
5,454,866
     
4,185,701
 
 
               
Net increase (decrease)  in cash and cash equivalents
   
18,307,319
     
(3,165,234
)
 
               
Cash and cash equivalents at beginning of the period
   
8,442,249
     
11,849,712
 
 
               
Cash and cash equivalents at end of the period
 
$
26,749,568
   
$
8,684,478
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
655,801
   
$
434,005
 


 

 

The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
 
6


MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
September 30, 2018
(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the "Parent Company" together with its subsidiary as discussed below, the "Company") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It is a non-diversified, closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). The Parent 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 Parent 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 Parent Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30.

The Parent 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 its common stock. The IPO commenced in January 2014 and concluded in October 2016. The Parent 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 Parent 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 the Parent Company beginning with the year ended June 30, 2017. On December 20, 2017, a wholly owned subsidiary of TRS, MacKenzie NY Real Estate 2 Corp., ("MacKenzie NY 2"), was formed for the purpose of making certain limited investments in New York companies. The financial statements of MacKenzie NY 2 have been consolidated with the Company beginning with the quarter ended March 31, 2018.
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 amended and restated effective October 1, 2017, and subsequently amended October 23, 2018 (the "Amended and Restated 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 and limited liability companies.

As of September 30, 2018, the Company has raised approximately $89.1 million from the public offerings, including proceeds from the Company's dividend reinvestment plan ("DRIP") of approximately $5.9 million. Of the shares issued by the Company in exchange for the total capital raised as of September 30, 2018, approximately $4.2 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 an investment company or a controlled operating company which provides substantially all of its services to benefit 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, 2018, 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, 2018, other than those expanded upon and described below.

 
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 September 30, 2018, and June 30, 2018.
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 September 30, 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 September 30, 2018, and June 30, 2018, capital pending acceptance was $835,135 and $646,300, 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 twelve-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.


The offering costs incurred in connection with the current public offering through September 30, 2018, were $1,130,821. 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 months ended September 30, 2018 and 2017 were $105,179 and $122,702, respectively. Accumulated amortization of these deferred costs as of September 30, 2018, and June 30, 2018, were $794,120 and $688,941, respectively.


 
Income Taxes and Deferred Tax Liability

The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, it 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 it 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 Parent Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2017. Therefore, it did not incur any tax expense or excise tax during the quarterly periods within the tax year 2017. Similarly, for the tax year 2018, the Parent Company plans to pay the requisite amounts of dividends to stockholders during the year such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during the quarterly periods within the tax year 2018.

The Parent Company is subject to tax on built-in gains it realizes during the first five years following REIT election. Prior to the REIT effective date, the Parent Company recorded an estimated built-in gains liability on the entire unrealized built-in gains as deferred tax liabilities. Therefore, in each subsequent period it only records the difference between the actual and the previously recorded estimated tax liability on the built-in gains it realizes during the period as built-in gain tax adjustment. For the three months ended September 30, 2018, the Parent Company did not realize any built-in gains. Therefore, there was no built-in gain tax adjustment. The built-in gain tax adjustment for the three months ended September 30, 2017, was $13,210 and it was recorded as an income tax provision on the consolidated statements of operations.

The remaining net unrealized built-in gains, which are subject to tax, as of September 30, 2018 and June 30, 2018 were $8,025. The deferred tax liabilities relating to those net unrealized built-in gains as of September 30, 2018 and June 30, 2018, were $3,518.

TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of September 30, 2018, they did not have any taxable income for tax year 2018. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during the quarterly periods within the tax year 2018.
The Company and its subsidiaries follow ASC 740, Income Taxes, ("ASC 740") to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of September 30, 2018, and June 30, 2018, 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.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014‑09, Revenue from Contracts with Customers (Topic 606). ASU 2014‑09 supersedes the revenue recognition requirements under ASC 605, Revenue Recognition, and most industry‑specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All of the Company's income is not within the scope of ASU 2014-09. As a result, the Company's timing of its revenue recognition remains the same and the adoption of the standard did not have any impact on the Company's consolidated financial statements.
In August 2018, the FASB issued guidance which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way it is calculated. The guidance also eliminated the following disclosures: (1) amount and reason for transfers between Level I and Level II, (2) policy for timing of transfers between levels of the fair value hierarchy and (3) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities for interim and annual periods beginning after December 15, 2019. Early adoption is permitted upon issuance of the guidance. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
 
NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company's investments at cost and fair value as of September 30, 2018, and June 30, 2018:

   
 
 
September 30, 2018
   
June 30, 2018
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
13,171,912
   
$
12,924,567
   
$
6,652,816
   
$
6,661,083
 
Non Traded Companies
   
24,281,945
     
26,942,622
     
30,234,571
     
33,097,115
 
LP Interests
   
26,158,746
     
29,077,258
     
26,577,677
     
33,685,086
 
Investment Trusts
   
49,901
     
41,945
     
49,901
     
41,222
 
Note
   
-
     
-
     
1,100,000
     
1,100,000
 
Total
 
$
63,662,504
   
$
68,986,392
   
$
64,614,965
   
$
74,584,506
 
 
The following table presents fair value measurements of the Company's investments as of September 30, 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
 
$
12,924,567
   
$
12,924,567
   
$
-
   
$
-
 
Non Traded Companies
   
26,942,622
     
-
     
431,214
     
26,511,408
 
LP Interests
   
29,077,258
     
-
     
-
     
29,077,258
 
Investment Trusts
   
41,945
     
-
     
-
     
41,945
 
Total
 
$
68,986,392
   
$
12,924,567
   
$
431,214
   
$
55,630,611
 
 
 
The following table presents fair value measurements of the Company's investments as of June 30, 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
 
$
6,661,083
   
$
6,661,083
   
$
-
   
$
-
 
Non Traded Companies
   
33,097,115
     
-
     
-
     
33,097,115
 
LP Interests
   
33,685,086
     
-
     
-
     
33,685,086
 
Investment Trusts
   
41,222
     
-
     
-
     
41,222
 
Notes
   
1,100,000
     
-
     
-
     
1,100,000
 
Total
 
$
74,584,506
   
$
6,661,083
   
$
-
   
$
67,923,423
 
 
 
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 three months ended September 30, 2018:

  
Balance at July 1, 2018
 
$
67,923,423
 
Purchases of investments
   
12,201,495
 
Transfers to Level I and II
   
(396,760
)
Proceeds from sales, net
   
(15,365,903
)
Return of capital
   
(7,220,962
)
Net realized gains
   
2,947,946
 
Net unrealized gains
   
(4,458,628
)
Ending balance at September 30, 2018
 
$
55,630,611
 
 
The transfers of $396,760 from Level III to Level I and II categories during the three months ended September 30, 2018 results from one of the Company's investments converting from a private REIT to publicly traded REIT.
 
For the three months ended September 30, 2018, changes in unrealized loss included in earnings relating to Level III investments still held at September 30, 2018, were $3,128,451.
 
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 three months ended September 30, 2017:

   
Balance at July 1, 2017
 
$
31,023,069
 
Purchases of investments
   
11,664,924
 
Proceeds from sales, net
   
(3,294,495
)
Return of capital
   
(96,702
)
Net realized gains
   
1,273,402
 
Net unrealized gains
   
774,001
 
Ending balance at September 30, 2017
 
$
41,344,199
 

 
For the three months ended September 30, 2017, changes in unrealized gains included in earnings relating to Level III investments still held at September 30, 2017 were $1,598,718.



The following table shows quantitative information about significant unobservable inputs related to the Level II and III fair value measurements used at September 30, 2018:
Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
                     
Level II
                   
                     
Non Traded Companies
 
 $                   431,214
 
Market Activity
 
Publicly traded price of convertable security
     
                     
   
 $                   431,214
               
                     
Level III
                   
                     
Non Traded Companies
 
 $    24,214,773
 
Market Activity
 
Acquisition Cost
       
           
Secondary market industry publication
       
                     
Non Traded Companies
 
         2,296,635
 
Net Asset Value (1)
 
Capitalization rate
 
5.5% - 8.9%
 
7.9%
           
Liquidity discount
 
5.0% - 65.0%
 
28.4%
           
Sponsor provided value
       
                     
LP Interests
 
         5,363,698
 
Market Activity
 
Acquisition Cost
       
                     
LP Interests
 
       15,734,500
 
Discounted Cash Flow
 
Underlying note discount rate
 
15.0% - 20.0%
 
15.9%
           
Discount term (months)
 
22.0 - 27.0
 
26.1
                     
LP Interests
 
         7,979,060
 
Net Asset Value (1)
 
Capitalization rate
 
5.4% - 7.5%
 
5.5%
           
Discount rate
 
30.0%
   
           
Discount term (months)
 
10.0
   
           
Liquidity discount
 
5.0% - 50.0%
 
18.9%
           
Sponsor provided value
       
           
Contracted sale price of underlying property
     
                     
                     
Investment Trust
 
              41,945
 
Net Asset Value (1)
 
Capitalization rate
 
6.0%
   
           
Liquidity discount
 
25.0%
   
   
 $              55,630,611
               

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, 2018:

 
Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
                     
Non Traded Companies
 
 $              28,675,305
 
Market Activity
 
Acquisition Cost
       
           
Secondary market industry publication
       
           
Contracted sale price of security
       
                     
Non Traded Companies
 
         4,421,810
 
Net Asset Value (1)
 
Capitalization rate
 
8.0% - 8.9%
 
8.6%
           
Liquidity discount
 
10.0% - 64.0%
 
25.4%
           
Sponsor provided value
       
                     
LP Interests
 
         4,703,633
 
Market Activity
 
Acquisition Cost
       
                     
LP Interests
 
       12,973,750
 
Discounted Cash Flow
 
Underlying note discount rate
 
15%
   
           
Discount term (months)
 
30.0
   
                     
LP Interests
 
       16,007,703
 
Net Asset Value (1)
 
Capitalization rate
 
5.4% - 8.0%
 
5.6%
           
Discount rate
 
20.0% - 30.0%
 
25.4%
           
Liquidity discount
 
6.0% - 50.0%
 
11.9%
           
Discount term (months)
 
4.0 - 13.0
 
8.9
           
Sponsor provided value
       
           
Contracted sale price of underlying property
     
                     
                     
Investment Trust
 
              41,222
 
Net Asset Value (1)
 
Capitalization rate
 
6.00%
   
           
Liquidity discount
 
25.0%
   
                     
Note
 
         1,100,000
 
Discounted Cash Flow
 
Discount rate
 
24.0%
   
           
Discount term (months)
 
2.0
   
   
 $              67,923,423
               
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. As of September 30, 2018, the Company had $8,225,945 of margin credit available for cash withdrawal or the ability to purchase up to $16,451,890 in additional shares. As of June 30, 2018, the Company had $10,946,343 of margin credit available for cash withdrawal or the ability to purchase up to $22,198,676 in additional shares. As of September 30, 2018, and June 30, 2018, the Company had not drawn any amount or purchased any shares under this short-term credit line.
 
 


NOTE 5 –RELATED PARTY TRANSACTIONS

Amended and Restated Investment Advisory Agreement:

Under the Amended and Restated 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 invested capital ("Gross Invested Capital"), which equals the number of shares issued, multiplied by the offering price of the shares sold ($10.00, regardless of whether or not shares were issued with volume or commission discounts), plus any borrowed funds. 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 plus any borrowing for investment purposes. The base management fees range from 1.5% to 3.0%, depending on the level of Gross Invested Capital.

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 ("Income 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" (which equals the number of shares issued multiplied by the maximum public offering price at the time such shares were sold, regardless of whether or not shares were issued with volume or commission discounts or through the DRIP, as such amount is computed from time to time) 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 ("Capital Gains 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 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 months ended September 30, 2018 and 2017, were $211,692 and $201,902, respectively.
 

 
The base management fees for the three months ended September 30, 2018 and 2017, were $512,179 and $388,917, respectively. These base management fees were based on the following quarter ended Gross Invested Capital segregated in two columns based on the annual fee rate:
Base Management Fee Annual %
                    3.0%
            2.0%
 
 Total Gross Invested Capital
         
Quarter ended:
       
September 30, 2018
 $               20,000,000
 $               72,435,844
 
 $                    92,435,844
         
Quarter ended:
       
September 30, 2017
 $               20,000,000
 $               47,783,337
 
 $                    67,783,337
 
Organization and Offering Costs Reimbursement:


As provided in the Amended and Restated Investment Advisory Agreement, offering costs incurred and paid by the Company in excess of $1,650,000 on the second public offering will be reimbursed by the Adviser. The offering costs incurred in connection with this public offering as of September 30, and June 30, 2018 were $1,130,821 and $975,555, respectively, both of which were below the reimbursement threshold. Accordingly, there were no amounts reimbursable from the Adviser as of September 30, and June 30, 2018. Of the total offering costs incurred by the Company as of September 30, 2018 and June 30, 2018, MacKenzie had paid $125,252 and $237,149 on behalf of the Company. Therefore, these amounts were recorded as payable to MacKenzie and included as a part of due to related entities in the statements of assets and liabilities as of September 30 and June 30, 2018.


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 months ended September 30, 2018 and 2017, were $156,000 and $108,000, respectively.


The table below outlines the related party expenses incurred for the three months ended September 30, 2018, and 2017 and unpaid as of September 30, 2018, and June 30, 2018.
 
 
 
Three Months Ended
   
Unpaid as of
 
Types and Recipient
 
September 30, 2018
   
September 30, 2017
   
September 30, 2018
   
June 30, 2018
 
 
                       
Portfolio Structuring fee- the Adviser
 
$
211,692
   
$
201,902
   
$
-
   
$
-
 
Base Management fees- the Adviser
   
512,179
     
388,917
     
512,179
     
474,807
 
Subordinated Incentive fee - the Adviser
   
1,565,729
     
-
     
1,565,729
     
1,092,351
 
Administrative Cost Reimbursements- MacKenzie
   
156,000
     
108,000
     
48,000
     
-
 
Organization & Offering Cost (2) - MacKenzie
                   
125,252
     
237,149
 
Other expenses (1)- MacKenzie
                   
1,718
     
2,721
 
 
                               
Due to related entities
                 
$
2,252,878
   
$
1,807,028
 

(2) Offering costs paid by MacKenzie- discussed in Note 5 under organization and offering costs reimbursements. These are amortized over twelve-month period as discussed in Note 2.

Investments in Affiliated Companies:
 
September 30, 2018
                                   
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
Year Ended
 
 
 
June 30, 2018
                     
September 30, 2018
   
September 30, 2018
 
Non-Controlled/Affiliate Investment:
                                   
MPF Pacific Gateway - Class B
 
$
6,613
   
$
-
   
$