10-Q 1 mrc10q033119.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, 2019
 
 
 
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    

Securities registered under Section 12(b) of the Act: None
 
 
The number of the shares of issuer's Common Stock outstanding as of May 13, 2019 was 10,845,985.
 




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, 2019
   
June 30, 2018
 
   
(Unaudited)
       
Assets
           
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $47,999,830 and $55,163,892, respectively)
 
$
51,003,914
   
$
62,481,216
 
Affiliated investments (cost of $6,792,247 and $4,001,172, respectively)
   
8,004,934
     
4,596,068
 
Controlled investments (cost of $38,666,173 and $5,449,901, respectively)
   
41,364,386
     
7,507,222
 
Total investments, at fair value (cost of $93,458,250 and $64,614,965, respectively)
   
100,373,234
     
74,584,506
 
Cash and cash equivalents
   
1,788,298
     
8,442,249
 
Accounts receivable
   
2,032,419
     
5,878,293
 
Other assets
   
249,329
     
374,634
 
Deferred offering costs, net
   
445,925
     
286,614
 
Total assets
 
$
104,889,205
   
$
89,566,296
 
                 
                 
Liabilities
               
Accounts payable and accrued liabilities
 
$
35,500
   
$
38,170
 
Income tax payable
   
1,280
     
37,153
 
Dividend payable
   
1,794,012
     
1,438,808
 
Capital pending acceptance
   
1,000,108
     
646,300
 
Due to related entities
   
2,004,548
     
1,807,028
 
Deferred tax liability, net
   
-
     
3,518
 
Total liabilities
   
4,835,448
     
3,970,977
 
                 
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 10,471,987.24 and 8,496,141.57 shares issued and outstanding, respectively
   
1,047
     
850
 
Capital in excess of par value
   
94,988,358
     
77,205,361
 
Total distributable earnings (loss)
   
5,064,352
     
8,389,108
 
Total net assets
   
100,053,757
     
85,595,319
 
                 
Total liabilities and net assets
 
$
104,889,205
   
$
89,566,296
 
                 
Net asset value per share
 
$
9.55
   
$
10.07
 







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, 2019
(Unaudited)


Name
 
Asset Type
 
 Shares/Units
 
 Cost Basis
 
 Total Fair Value
 
 % of Net Assets
                     
American Finance Trust Inc., Class A
(3)
Publicly Traded Company
 
        258,889.40
 
 $                    3,118,754
 
 $                           2,796,006
 
          2.79
Total Publicly Traded Company
         
        3,118,754
 
             2,796,006
 
          2.79
                     
American Realty Capital New York City REIT, Inc.
(4)(5)
Non Traded Company
 
        240,137.33
 
        3,019,225
 
             3,100,173
 
          3.09
Benefit Street Partners Realty Trust, Inc.
(4)
Non Traded Company
 
        201,429.04
 
        3,013,141
 
             2,983,164
 
          2.98
BRE Select Hotels Corp. - Preferred A
(4)
Non Traded Company
 
        613,271.00
 
        1,050,451
 
             1,122,286
 
          1.12
Carter Validus Mission Critical REIT
(4)
Non Traded Company
 
        137,666.92
 
           497,712
 
                589,214
 
          0.59
Cole Credit Property Trust IV, Inc.
(4)
Non Traded Company
 
        174,223.97
 
        1,055,210
 
             1,277,062
 
          1.28
Cole Credit Property Trust V, Inc.
(4)
Non Traded Company
 
            8,631.50
 
           120,776
 
                112,555
 
          0.11
Cole Credit Property Trust V, Inc. Class T
(4)
Non Traded Company
 
                395.88
 
               5,492
 
                     5,162
 
          0.01
CNL Healthcare Properties, Inc.
(4)(5)
Non Traded Company
 
        104,158.67
 
           866,933
 
                908,264
 
          0.91
Hines Global REIT, Inc.
(4)
Non Traded Company
 
          17,936.21
 
           107,939
 
                  89,681
 
          0.09
Corporate Property Associates  18 Global A Inc.
(4)
Non Traded Company
 
            4,695.14
 
             39,627
 
                  39,580
 
          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
 
                  31,010
 
          0.03
FSP 303 East Wacker Drive Corp. Liquidating Trust
(4)(5)
Non Traded Company
 
                    3.00
 
                     30
 
                          30
 
              -
FSP Energy Tower
(2)(4)(5)
Non Traded Company
 
                  19.35
 
           718,874
 
                891,660
 
          0.89
FSP Grand Boulevard Liquidating Trust
(4)(5)
Non Traded Company
 
                    7.50
 
                       8
 
                            8
 
              -
FSP Satellite Place
(2)(4)(5)
Non Traded Company
 
                  14.03
 
           401,138
 
                571,192
 
          0.57
Griffin-American Healthcare REIT III, Inc.
(4)
Non Traded Company
 
                686.48
 
               4,494
 
                     5,258
 
          0.01
Griffin Capital Essential Asset REIT, Inc.
(4)
Non Traded Company
 
          28,641.60
 
           196,636
 
                246,318
 
          0.25
GTJ REIT, Inc.
(4)
Non Traded Company
 
            1,000.00
 
             11,620
 
                  11,680
 
          0.01
Healthcare Trust, Inc.
(4)
Non Traded Company
 
        304,034.25
 
        3,459,195
 
             3,991,970
 
          3.99
Highlands REIT Inc.
(4)(5)
Non Traded Company
 
  21,164,760.26
 
        3,952,202
 
             3,598,009
 
          3.60
Hospitality Investors Trust, Inc.
(4)(5)
Non Traded Company
 
                716.18
 
               5,232
 
                     6,517
 
          0.01
InvenTrust Properties Corp.
(4)
Non Traded Company
 
          14,799.52
 
             22,603
 
                  27,379
 
          0.03
KBS Real Estate Investment Trust II, Inc.
(4)
Non Traded Company
 
     2,354,544.43
 
        8,527,425
 
             9,559,450
 
          9.55
KBS Real Estate Investment Trust III, Inc.
(4)
Non Traded Company
 
          62,516.45
 
           515,050
 
                606,410
 
          0.61
NorthStar Healthcare Income, Inc.
(4)(5)
Non Traded Company
 
          43,573.29
 
           161,927
 
                180,829
 
          0.18
Phillips Edison & Company, Inc
(4)
Non Traded Company
 
        430,203.03
 
        3,166,644
 
             3,704,048
 
          3.70
Steadfast Apartment REIT
(4)
Non Traded Company
 
            2,083.29
 
             17,197
 
                  25,624
 
          0.03
Steadfast Income REIT
(4)
Non Traded Company
 
        109,471.94
 
           735,436
 
                813,376
 
          0.81
Strategic Realty Trust, Inc.
(4)
Non Traded Company
 
        148,104.91
 
           581,147
 
                660,548
 
          0.66
Summit Healthcare REIT, Inc.
(2)(4)(5)
Non Traded Company
 
     1,362,256.55
 
        1,849,058
 
             2,479,307
 
          2.48
The Parking REIT Inc.
(4)(5)
Non Traded Company
 
          17,989.90
 
           230,880
 
                242,504
 
          0.24
Total Non Traded Company (1)
         
     34,357,022
 
           37,901,544
 
        37.89
                     
3100 Airport Way South LP
(4)
LP Interest
 
                    1.00
 
           355,000
 
                385,355
 
          0.38
5210 Fountaingate, LP
(2)(4)
LP Interest
 
                    9.89
 
           500,000
 
                564,598
 
          0.56
Addison NC, LLC
(2)(4)(5)
LP Interest
 
        200,000.00
 
        2,000,000
 
             3,450,000
 
          3.45
Addison Property Member, LLC
(2)(4)
LP Interest
 
        731,485.60
 
        7,316,326
 
             7,314,856
 
          7.31
Arrowpoint Burlington LLC
(2)(4)
LP Interest
 
                    7.50
 
           750,000
 
                889,584
 
          0.89
Bandon PV Holdings, LLC
(2)(4)
LP Interest
 
     5,250,000.00
 
           650,000
 
                649,950
 
          0.65
Bishop Berkeley, LLC
(2)(4)
LP Interest
 
            4,050.00
 
        4,050,000
 
             4,050,000
 
          4.05
BP3 Affliliate, LLC
(2)(4)(5)
LP Interest
 
            1,250.00
 
        1,250,000
 
             1,250,000
 
          1.25
BR Cabrillo LLC
(4)
LP Interest
 
        346,723.32
 
           104,942
 
                  83,214
 
          0.08
BR Gate Investment Co, LLC
(2)(4)
LP Interest
 
     2,475,000.00
 
        2,475,000
 
             2,475,000
 
          2.47
Britannia Preferred Members, LLC -Class 1
(2)(4)(5)
LP Interest
 
                103.88
 
        2,597,000
 
             2,856,700
 
          2.86
Britannia Preferred Members, LLC -Class 2
(2)(4)(5)
LP Interest
 
        514,858.30
 
        6,826,931
 
             7,882,481
 
          7.88
Capitol Hill Partners, LLC
(2)(4)(5)
LP Interest
 
        190,000.00
 
        1,900,000
 
             1,844,900
 
          1.84
CRP I Roll Up, LLC
(4)
LP Interest
 
     4,500,000.00
 
        4,500,000
 
             4,950,000
 
          4.95
CRP III Roll Up, LLC
(4)
LP Interest
 
     6,000,000.00
 
        6,000,000
 
             6,480,000
 
          6.48
Dimensions28 LLP
(2)(4)(5)
LP Interest
 
          10,800.00
 
     10,801,015
 
           10,800,000
 
        10.79
Lakemont Partners, LLC
(2)(4)
LP Interest
 
            1,000.00
 
        1,000,000
 
             1,035,530
 
          1.03
MPF Pacific Gateway - Class B
(2)(4)(5)
LP Interest
 
                  23.20
 
               6,287
 
                     7,473
 
          0.01
Redwood Mortgage Investors VIII
(4)
LP Interest
 
          56,300.04
 
             29,700
 
                  38,847
 
          0.04
Satellite Investment Holdings, LLC - Class A
(4)
LP Interest
 
                  22.00
 
        2,200,000
 
             2,200,000
 
          2.20
Secured Income, LP
(2)(4)(5)
LP Interest
 
          64,670.00
 
           316,890
 
                315,590
 
          0.32
The Weatherly Building, LLC
(4)(5)
LP Interest
 
                  17.50
 
           118,721
 
                  47,846
 
          0.05
The Weatherly, LTD
(4)(5)
LP Interest
 
                  60.00
 
           184,761
 
                  63,261
 
          0.06
Total LP Interest
         
     55,932,573
 
           59,635,185
 
        59.60
                     
Coastal Realty Business Trust, REEP, Inc. - A
(2)(4)(5)
Investment Trust
 
          72,320.00
 
             49,901
 
                  40,499
 
          0.04
Total Investment Trust
         
             49,901
 
                  40,499
 
          0.04
                     
Total Investments
         
 $                  93,458,250
 
 $                       100,373,234
 
      100.32
(1) Investments primarily in non-traded public REITs or their successors.
(2) Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of March 31, 2019, the Company is deemed to be either “affiliated” with, or in “control” of, these portfolio companies despite that fact that the Company does not have the power to exercise control over the management or policies of such portfolio companies. See additional disclosures in Note 5.
(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of March 31, 2019, the total percentage of non-qualifying assets is 2.67%, 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 March 31, 2019, 93.03% of the Company's total assets are in illiquid securities.
(5) Investments in non-income producing securities. As of March 31, 2019, 38.70% of the Company's total assets are in non-income producing securities.
 




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


MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
June 30, 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
(2)(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
(2)(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.
(2)(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, LP
(2)(4)
LP Interest
 
                    9.89
 
           500,000
 
                555,728
 
          0.65
Addison NC, LLC
(2)(4)(5)
LP Interest
 
        200,000.00
 
        2,000,000
 
             3,000,000
 
          3.50
Arrowpoint Burlington LLC
(2)(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 -Class 2
(2)(4)(5)
LP Interest
 
        150,000.00
 
        1,500,000
 
             2,547,000
 
          2.98
Capitol Hill Partners, LLC
(2)(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
(2)(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.

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

 
   
Three Months Ended
March 31,
   
Nine Months Ended
March 31,
 
   
2019
   
2018
   
2019
   
2018
 
Investment income
                       
Non-controlled/non-affiliated investments:
                       
Dividend and operational/sales distributions
 
$
879,815
   
$
1,085,916
   
$
7,382,313
   
$
3,369,524
 
Interest and other income
   
139,490
     
139,339
     
351,678
     
379,751
 
Affiliated investments:
                               
Dividend and operational/sales distributions
   
111,162
     
39,737
     
168,474
     
128,783
 
Controlled investments:
                               
Dividend and operational/sales distributions
   
610,679
     
1,650,000
     
610,679
     
1,650,000
 
Total investment income
   
1,741,146
     
2,914,992
     
8,513,144
     
5,528,058
 
                                 
Operating expenses
                               
Base management fee (note 5)
   
567,699
     
442,375
     
1,621,490
     
1,250,366
 
Portfolio structuring fee (note 5)
   
186,343
     
135,746
     
557,366
     
508,867
 
Subordinated incentive fee (reversal) (note 5)
   
81,620
     
-
     
1,291,168
     
-
 
Administrative cost reimbursements (note 5)
   
156,000
     
108,000
     
468,000
     
324,000
 
Amortization of deferred offering costs
   
149,545
     
38,073
     
384,347
     
302,186
 
Professional fees
   
17,767
     
45,567
     
129,795
     
182,362
 
Directors' fees
   
15,500
     
15,500
     
46,500
     
49,500
 
Printing and mailing
   
7,995
     
2,562
     
49,493
     
36,948
 
Other general and administrative
   
49,766
     
36,158
     
109,089
     
93,774
 
Total operating expenses
   
1,232,235
     
823,981
     
4,657,248
     
2,748,003
 
                                 
Net investment income before taxes
   
508,911
     
2,091,011
     
3,855,896
     
2,780,055
 
Income tax provision (benefit) - (note 2)
   
-
     
7,526
     
(12,968
)
   
3,431
 
Net investment income
   
508,911
     
2,083,485
     
3,868,864
     
2,776,624
 
                                 
Realized and unrealized gain (loss) on investments
                               
Net realized gain (loss)
                               
Non-controlled/non-affiliated investments
   
(812,058
)
   
53,645
     
1,221,474
     
1,806,531
 
Controlled investments
   
-
     
-
     
-
     
(54,413
)
Total net realized gain (loss)
   
(812,058
)
   
53,645
     
1,221,474
     
1,752,118
 
Net unrealized gain (loss)
                               
Non-controlled/non-affiliated investments
   
(119,004
)
   
(547,004
)
   
(4,313,240
)
   
(1,267,815
)
Affiliated investments
   
346,276
     
69,033
     
617,790
     
215,263
 
Controlled investments
   
(75,091
)
   
(1,100,723
)
   
640,891
     
242,674
 
Total net unrealized gain (loss)
   
152,181
     
(1,578,694
)
   
(3,054,559
)
   
(809,878
)
                                 
Total net realized and unrealized gain (loss) on investments
   
(659,877
)
   
(1,525,049
)
   
(1,833,085
)
   
942,240
 
                                 
Net increase (decrease) in net assets resulting from operations
 
$
(150,966
)
 
$
558,436
   
$
2,035,779
   
$
3,718,864
 
                                 
Net increase (decrease) in net assets resulting from operations per share
 
$
(0.01
)
 
$
0.07
   
$
0.21
   
$
0.52
 
                                 
Weighted average common shares outstanding
   
10,314,925
     
7,723,757
     
9,655,180
     
7,164,877
 







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
(Unaudited)


 
   
Three Months Ended
   
Nine Months Ended
 
   
March 31, 2019
   
March 31, 2018
   
March 31, 2019
   
March 31, 2018
 
Operations
                       
Net investment income
 
$
508,911
   
$
2,083,485
   
$
3,868,864
   
$
2,776,624
 
Net realized gain (loss)
   
(812,058
)
   
53,645
     
1,221,474
     
1,752,118
 
Net unrealized gain (loss)
   
152,181
     
(1,578,694
)
   
(3,054,559
)
   
(809,878
)
Net increase (decrease) in net assets resulting from operations
   
(150,966
)
   
558,436
     
2,035,779
     
3,718,864
 
                                 
Dividends
                               
Dividends to stockholders
   
(1,794,012
)
   
(1,345,491
)
   
(5,360,535
)
   
(5,320,676
)
                                 
Capital share transactions
                               
Issuance of common stock
   
6,075,689
     
4,213,281
     
18,334,137
     
16,650,630
 
Issuance of common stock through reinvestment of dividends
   
870,438
     
792,324
     
2,223,629
     
1,719,987
 
Redemption of common stock
   
(704,268
)
   
(390,252
)
   
(1,167,903
)
   
(949,089
)
Selling commissions and fees
   
(483,917
)
   
(421,328
)
   
(1,606,669
)
   
(1,660,096
)
Net increase in net assets resulting from capital share transactions
   
5,757,942
     
4,194,025
     
17,783,194
     
15,761,432
 
                                 
Total increase in net assets
   
3,812,964
     
3,406,970
     
14,458,438
     
14,159,620
 
                                 
Net assets at beginning of the period
   
96,240,793
     
70,742,175
     
85,595,319
     
59,989,525
 
                                 
Net assets at end of the period
 
$
100,053,757
   
$
74,149,145
   
$
100,053,757
   
$
74,149,145
 







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,
 
   
2019
   
2018
 
             
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
2,035,779
   
$
3,718,864
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
51,649,110
     
25,181,336
 
Return of capital
   
15,442,937
     
9,712,523
 
Purchase of investments
   
(94,713,860
)
   
(57,237,161
)
Net realized gain on investments
   
(1,221,474
)
   
(1,752,118
)
Net unrealized loss on investments
   
3,054,559
     
809,878
 
Amortization of deferred offering costs
   
384,347
     
302,186
 
Changes in assets and liabilities:
               
Accounts receivable
   
3,845,874
     
1,700,663
 
Other assets
   
173,901
     
(227,454
)
Payment of deferred offering costs
   
(543,658
)
   
(167,783
)
Accounts payable and accrued liabilities
   
7,601
     
(38,425
)
Income tax payable
   
(35,873
)
   
44,679
 
Due to related entities
   
197,520
     
(141,182
)
Deferred tax liability
   
(3,518
)
   
(41,845
)
Net cash from operating activities
   
(19,726,755
)
   
(18,135,839
)
                 
Cash flows from financing activities:
               
Borrowings on margin loan
   
-
     
6,012,413
 
Payments on margin loan
   
-
     
(6,012,413
)
Proceeds from issuance of common stock
   
18,334,137
     
16,650,630
 
Redemption of common stock
   
(1,167,903
)
   
(949,089
)
Dividends to stockholders
   
(2,781,702
)
   
(2,255,198
)
Payment of selling commissions and fees
   
(1,665,536
)
   
(1,594,152
)
Change in capital pending acceptance
   
353,808
     
(1,101,390
)
       Net cash from financing activities
   
13,072,804
     
10,750,801
 
                 
Net decrease in cash and cash equivalents
   
(6,653,951
)
   
(7,385,038
)
                 
Cash and cash equivalents at beginning of the period
   
8,442,249
     
11,849,712
 
                 
Cash and cash equivalents at end of the period
 
$
1,788,298
   
$
4,464,674
 
                 
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
2,223,629
   
$
1,719,987
 
                 
Supplemental disclosures:
               
Taxes paid
 
$
800
   
$
20,026
 




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, 2019
(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 March 31, 2019, the Company has raised approximately $102.0 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan ("DRIP") of approximately $7.5 million. Of the shares issued by the Company in exchange for the total capital raised as of March 31, 2019, approximately $5.1 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 March 31, 2019, 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 March 31, 2019, 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, 2019, and June 30, 2018, capital pending acceptance was $1,000,108 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 March 31, 2019, was $1,519,213. 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 nine months ended March 31, 2019 and 2018 were $384,347 and $302,186, respectively. Accumulated amortization of these deferred costs as of March 31, 2019, and June 30, 2018, were $1,073,288 and $688,941, respectively.

Reclassifications
Certain amounts in the consolidated statements of assets and liabilities as of June 30, 2018 related to non-controlled/non-affiliated investments have been reclassified as affiliated or controlled investments. In addition, the corresponding investment income, net realized gains (losses) and net unrealized gains (losses) from those non-controlled/non-affiliated investments have been reclassified to respective line items under affiliated or controlled investments in the consolidated statements of operations for the three and nine months ended March 31, 2018.

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 on its income from operations during the quarterly periods within the tax year 2017. Similarly, for the tax year 2018, we believe the Parent Company paid the requisite amounts of dividends 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 was subject to tax on built-in gains it realized 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 and in each subsequent period it only recorded the difference between the actual and the previously recorded estimated tax liability on the built-in gains it realized during the period as built-in gain tax adjustment. As of December 31, 2018, the final date realized built-in gains were taxable, the company recorded a tax liability of $1,280 for the built-in gains realized during tax year 2018 and reversed the remaining deferred tax liabilities of $12,968 as income tax benefit in the consolidated statements of operations since the remaining unrealized built-in gains are not taxable after December 31, 2018. The Parent Company had elected to be treated as a REIT effective January 1, 2014.

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 March 31, 2019, they did not have any taxable income for tax year 2018 or 2019. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during the nine months ended March 31, 2019.
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 March 31, 2019, 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.
SEC Disclosure Update and Simplification
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. As a result of the amendments, we are required to present a reconciliation of changes in stockholders’ equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. In October 2018, the SEC announced that this final rule will become effective on November 5, 2018. In light of the timing of effectiveness of the amendments and proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC staff commented that it would not object if the first presentation of the changes in shareholders’ equity is included in a filer’s Form 10-Q for the quarter that begins after the effective date of the amendments. Accordingly, the Company changed the periods presented in the consolidated statements of changes in net assets beginning our third quarter ended March 31, 2019.
NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company's investments at cost and fair value as of March 31, 2019, and June 30, 2018:

   
March 31, 2019
   
June 30, 2018
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
3,118,754
   
$
2,796,006
   
$
6,652,816
   
$
6,661,083
 
Non Traded Companies
   
34,357,022
     
37,901,544
     
30,234,571
     
33,097,115
 
LP Interests
   
55,932,573
     
59,635,185
     
26,577,677
     
33,685,086
 
Investment Trust
   
49,901
     
40,499
     
49,901
     
41,222
 
Note
   
-
     
-
     
1,100,000
     
1,100,000
 
Total
 
$
93,458,250
   
$
100,373,234
   
$
64,614,965
   
$
74,584,506
 


The following table presents fair value measurements of the Company's investments as of March 31, 2019, 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 Company
 
$
2,796,006
   
$
2,796,006
   
$
-
   
$
-
 
Non Traded Companies
   
37,901,544
     
-
     
-
     
37,901,544
 
LP Interests
   
59,635,185
     
-
     
-
     
59,635,185
 
Investment Trust
   
40,499
     
-
     
-
     
40,499
 
Total
 
$
100,373,234
   
$
2,796,006
   
$
-
   
$
97,577,228
 

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 Trust
   
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 nine months ended March 31, 2019:

Balance at July 1, 2018
 
$
67,923,423
 
Purchases of investments
   
62,969,383
 
Transfers to Level I
   
(1,991,230
)
Proceeds from sales, net
   
(16,072,651
)
Return of capital
   
(15,442,938
)
Net realized gains
   
2,914,784
 
Net unrealized losses
   
(2,723,543
)
Ending balance at March 31, 2019
 
$
97,577,228
 

The transfers of $1,991,230 from Level III to Level I category during the nine months ended March 31, 2019 resulted from two of the Company's investments converting from a private REIT to publicly traded REIT. Transfers are assumed to have occurred at the beginning of the year.

For the nine months ended March 31, 2019, changes in unrealized loss included in earnings relating to Level III investments still held at March 31, 2019, were $811,045.


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 table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2019:

Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
                     
Non Traded Companies
 
 $                   3,570,658
 
Direct Capitalization Method
 
Capitalization rate
 
5.2% - 7.7%
 
6.9%
           
Liquidity discount
 
19.0% - 34.0%
 
21.0%
Non Traded Companies
 
      1,122,286
 
Discounted Cash Flow
 
Discount rate
 
24.0%
   
           
Discount term (months)
 
18.0
   
Non Traded Companies
 
            52,324
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Liquidity discount
 
14.0% - 65.0%
 
34.7%
Non Traded Companies
 
    33,156,276
 
Market Activity
 
Contracted sale price of security
       
           
Secondary market industry publication
       
                     
LP Interests
 
    12,918,039
 
Direct Capitalization Method
 
Capitalization rate
 
4.0% - 7.5%
 
5.8%
           
Liquidity discount
 
19.0% - 25.0%
 
19.3%
LP Interests
 
    30,376,506
 
Discounted Cash Flow
 
Discount rate
 
9.0% - 30.0%
 
16.8%
           
Discount term (months)
 
2.0 - 24.0
 
20.1
LP Interests
 
         201,793
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Underlying contracted agreement
       
           
Liquidity discount
 
19.0% - 50.0%
 
47.4%
LP Interests
 
    16,138,847
 
Market Activity
 
Acquisition Cost
       
           
Book value of underlying loans
       
           
Liquidity discount
 
30.0%
   
                     
Investment Trust
 
            40,499
 
Direct Capitalization Method
 
Capitalization rate
 
6.0%
   
           
Liquidity discount
 
25.0%
   
   
 $                 97,577,228
               

The following table shows quantitative information about significant unobservable inputs related to the 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 March 31, 2019, the Company had $62,083 of margin credit available for cash withdrawal or the ability to purchase up to $259,214 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. 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 borrowed any amount or purchased any shares under this credit line since then.


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 and nine months ended March 31, 2019, were $186,343 and $557,336, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2018, were $135,746 and $508,867, respectively.


The base management fees for the three and nine months ended March 31, 2019, were $567,699 and $1,621,490, respectively. The base management fees for the three and nine months ended March 31, 2018, were $442,375 and $1,250,366, 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%

   
1.5%
 
Total Gross Invested Capital
 
                           
Quarter ended:
                         
September 30, 2018
 
$
20,000,000
 
$
72,435,844
   
$
-
 
$
92,435,844
 
December 31, 2018
   
20,000,000
   
78,322,307
     
-
   
98,322,307
 
March 31, 2019
   
20,000,000
   
80,000,000
     
4,719,872
   
104,719,872
 
                             
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
 

The Company records the Capital Gains Fee accrual on the consolidated statements of operations and statements of assets and liabilities when net realized capital gains less unrealized capital depreciation on its investments exceed the incentive fee threshold of 7% of Contributed Capital. However, the actual incentive fee payable to the Adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year.
The Capital Gains fee accrual for the three and nine months ended March 31, 2019, were $81,620 and $1,291,168, respectively. There was no Income Fee for the three or nine months ended March 31, 2019. There was no Income Fee or Capital Gains Fee accrual for the three and nine months ended March 31, 2018.

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 March 31, 2019 and June 30, 2018 were $1,519,213 and $975,555, respectively, both of which were below the reimbursement threshold. Accordingly, there were no amounts reimbursable from the Adviser as of March 31, 2019 and June 30, 2018. Of the total offering costs incurred by the Company as of March 31, 2019 and June 30, 2018, MacKenzie had paid $631,942 and $237,149 on behalf of the Company. Of those amounts paid by MacKenzie, $128,141 and $237,149, were payable to MacKenzie as of March 31, 2019, and June 30, 2018. 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 March 31, 2019 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 investor transfer agent services, 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. In addition, effective November 1, 2018, transfer agent services are provided by MacKenzie inhouse and costs associated with the service are also included in the administrative cost reimbursements. No fee (only cost reimbursement) is being paid by the Company to MacKenzie for this service.  The administrative cost reimbursements for the three and nine months ended March 31, 2019, were $156,000 and $468,000, respectively. The administrative cost reimbursements for the three and nine months ended March 31, 2018, were $108,000 and $324,000, respectively.


The table below outlines the related party expenses incurred for the three months ended March 31, 2019, and 2018 and unpaid as of March 31, 2019, and June 30, 2018.
 
   
Nine Months Ended
   
Unpaid as of
 
Types and Recipient
 
March 31, 2019
   
March 31, 2018
   
March 31, 2019
   
June 30, 2018
 
                         
Portfolio Structuring fee- the Adviser
 
$
557,366
   
$
508,867
   
$
-
   
$
-
 
Base Management fees- the Adviser
   
1,621,490
     
1,250,366
     
567,699
     
474,807
 
Subordinated Incentive fee - the Adviser
   
1,291,168
     
-
     
1,291,168
     
1,092,351
 
Administrative Cost Reimbursements- MacKenzie
   
468,000
     
324,000
     
-
     
-
 
Organization & Offering Cost (2) - MacKenzie