10-Q 1 mrc10q093019.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, 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 November 12, 2019 was 12,153,851.74.
 



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, 2019
   
June 30, 2019
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $47,776,248 and $46,997,608, respectively)
 
$
49,009,212
   
$
48,839,999
 
Affiliated investments (cost of $6,451,728 and $14,699,474, respectively)
   
7,787,261
     
15,916,187
 
Controlled investments (cost of $40,041,173 and $35,541,173, respectively)
   
44,536,343
     
38,488,962
 
Total investments, at fair value (cost of $94,269,149 and $97,238,255, respectively)
   
101,332,816
     
103,245,148
 
Cash and cash equivalents
   
9,652,348
     
1,278,668
 
Accounts receivable
   
1,537,050
     
3,170,068
 
Other assets
   
415,585
     
219,050
 
Deferred offering costs, net
   
482,840
     
440,320
 
Total assets
 
$
113,420,639
   
$
108,353,254
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
175,654
   
$
226,722
 
Dividend payable
   
1,170,699
     
1,877,101
 
Capital pending acceptance
   
1,546,698
     
668,165
 
Due to related entities
   
787,325
     
2,465,885
 
Total liabilities
   
3,680,376
     
5,237,873
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 11,599,878.95 and 10,926,319.99 shares issued and outstanding, respectively
   
1,160
     
1,093
 
Capital in excess of par value
   
105,140,101
     
99,077,308
 
Total distributable earnings
   
4,599,002
     
4,036,980
 
Total net assets
   
109,740,263
     
103,115,381
 
 
               
Total liabilities and net assets
 
$
113,420,639
   
$
108,353,254
 
 
               
Net asset value per share
 
$
9.46
   
$
9.44
 


The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
Consolidated Schedule of Investments
September 30, 2019
(Unaudited)

Name
 
Asset Type
 Shares/Units
 Cost Basis
 Total
Fair Value
 % of
Net Assets
 
 
 
 
 
 
 
American Finance Trust Inc., Class A
(4)
Publicly Traded Company
        157,340.00
 $        1,721,627
 $             2,196,466
            2.00
Total Publicly Traded Company
 
 
 
           1,721,627
                2,196,466
            2.00
 
 
 
 
 
 
 
Benefit Street Partners Realty Trust, Inc.
(5)
Non Traded Company
        153,902.84
           2,438,587
                2,197,731
            2.02
BRE Select Hotels Corp. - Preferred A
(5)
Non Traded Company
        358,717.00
              594,967
                   670,801
            0.61
Carter Validus Mission Critical REIT
(5)
Non Traded Company
        358,526.52
           1,222,834
                1,498,641
            1.37
CIM Real Estate Finance Trust, Inc.
(5)
Non Traded Company
        413,614.61
           2,461,996
                2,833,260
            2.58
Cole Credit Property Trust V, Inc.
(5)
Non Traded Company
          36,825.76
              473,277
                   536,920
            0.49
Cole Credit Property Trust V, Inc. Class T
(5)
Non Traded Company
               395.88
                  5,492
                       5,772
            0.01
Cole Office & Industrial REIT (CCIT II), Inc.
(5)
Non Traded Company
          11,048.42
                82,395
                     99,436
            0.09
CNL Healthcare Properties, Inc.
(5)(6)
Non Traded Company
        104,158.67
              658,615
                   587,455
            0.54
Hines Global REIT, Inc.
(5)
Non Traded Company
          17,936.21
              120,637
                     90,398
            0.08
Corporate Property Associates 18 Global A Inc.
(5)
Non Traded Company
            4,695.14
                39,627
                     37,139
            0.03
First Capital Real Estate Trust, Inc.
(5)(6)
Non Traded Company
            3,792.51
                15,161
                     15,208
            0.01
FSP 1441 Main Street
(5)(6)
Non Traded Company
                 15.73
                  8,559
                     31,955
            0.03
FSP 303 East Wacker Drive Corp. Liquidating Trust
(5)(6)
Non Traded Company
                   3.00
                       30
                          608
               -
FSP Energy Tower I Corp. Liquidating Trust
(2)(5)(6)
Non Traded Company
                 19.35
                57,566
                     58,244
            0.05
FSP Grand Boulevard Liquidating Trust
(5)(6)
Non Traded Company
                   7.50
                         8
                       2,560
               -
FSP Satellite Place
(2)(5)(6)
Non Traded Company
                 17.60
              546,482
                   650,684
            0.59
Griffin-American Healthcare REIT III, Inc.
(5)
Non Traded Company
               686.48
                  4,494
                       5,066
            0.01
Griffin Capital Essential Asset REIT, Inc.
(5)
Non Traded Company
          21,424.51
              140,543
                   167,754
            0.15
GTJ REIT, Inc.
(5)
Non Traded Company
            1,000.00
                11,620
                     12,050
            0.01
Healthcare Trust, Inc.
(5)
Non Traded Company
        311,691.29
           3,526,969
                3,163,667
            2.88
Highlands REIT Inc.
(5)(6)
Non Traded Company
   21,316,267.67
           3,971,340
                3,623,766
            3.30
Hospitality Investors Trust, Inc.
(5)(6)
Non Traded Company
            7,450.23
                39,077
                     39,710
            0.04
InvenTrust Properties Corp.
(5)
Non Traded Company
          63,017.84
                85,767
                     95,157
            0.09
KBS Real Estate Investment Trust II, Inc.
(5)
Non Traded Company
     1,365,338.21
           4,778,373
                4,041,401
            3.68
KBS Real Estate Investment Trust III, Inc.
(5)
Non Traded Company
          63,016.45
              518,896
                   598,656
            0.55
New York City REIT, Inc.
(5)(6)
Non Traded Company
        231,297.69
           2,902,634
                2,983,740
            2.72
NorthStar Healthcare Income, Inc.
(5)(6)
Non Traded Company
          23,573.29
                87,643
                     62,705
            0.06
Phillips Edison & Company, Inc
(5)
Non Traded Company
        839,522.83
           6,215,365
                6,699,392
            6.10
Steadfast Apartment REIT
(5)
Non Traded Company
            2,083.29
                17,197
                     26,333
            0.02
Steadfast Income REIT
(5)
Non Traded Company
        114,441.94
              768,155
                   762,183
            0.69
Strategic Realty Trust, Inc.
(5)
Non Traded Company
        284,810.74
           1,140,360
                1,227,534
            1.12
Summit Healthcare REIT, Inc.
(2)(5)(6)
Non Traded Company
     1,407,838.92
           1,924,502
                2,576,345
            2.35
The Parking REIT Inc.
(5)(6)
Non Traded Company
          17,989.90
              230,880
                   169,645
            0.15
Total Non Traded Company (1)
 
 
 
         35,090,048
              35,571,916
          32.42
 
 
 
 
 
 
 
3100 Airport Way South LP
(5)
LP Interest
                   1.00
              355,000
                   361,082
            0.35
5210 Fountaingate, LP
(2)(5)
LP Interest
                   9.89
              500,000
                   530,134
            0.48
Addison NC, LLC
(3)(5)(6)
LP Interest
        200,000.00
           2,000,000
                3,750,000
            3.42
Addison Property Member, LLC
(3)(5)
LP Interest
        731,485.60
           7,316,326
                8,434,028
            7.69
Arrowpoint Burlington LLC
(2)(5)
LP Interest
                   7.50
              750,000
                1,333,331
            1.21
Bishop Berkeley, LLC
(3)(5)
LP Interest
            4,050.00
           4,050,000
                4,454,231
            4.06
BP3 Affiliate, LLC
(2)(5)(6)
LP Interest
            1,350.00
           1,350,000
                1,350,000
            1.23
BR Cabrillo LLC
(5)(6)
LP Interest
        346,723.32
              104,942
                   131,755
            0.12
Britannia Preferred Members, LLC -Class 1
(3)(5)(6)
LP Interest
               103.88
           2,597,000
                3,116,400
            2.84
Britannia Preferred Members, LLC -Class 2
(3)(5)(6)
LP Interest
        514,858.30
           6,826,931
                6,955,736
            6.34
Capitol Hill Partners, LLC
(3)(5)(6)
LP Interest
        190,000.00
           1,900,000
                1,848,700
            1.68
CRP I Roll Up, LLC
(5)
LP Interest
     4,500,000.00
           4,500,000
                5,085,000
            4.63
CRP III Roll Up, LLC
(5)
LP Interest
     6,000,000.00
           6,000,000
                6,600,000
            6.01
Dimensions28 LLP
(3)(5)
LP Interest
          10,800.00
         10,801,015
              11,441,088
          10.43
Lakemont Partners, LLC
(2)(5)
LP Interest
            1,000.00
           1,000,000
                1,002,480
            0.91
MPF Pacific Gateway - Class B
(2)(5)(6)
LP Interest
                 23.20
                  6,287
                       7,316
            0.01
Redwood Mortgage Investors VIII
(5)
LP Interest
          56,300.04
                29,700
                     37,158
            0.03
Satellite Investment Holdings, LLC - Class A
(5)
LP Interest
                 22.00
           2,200,000
                2,200,000
            2.00
Secured Income, LP
(2)(5)(6)
LP Interest
          64,670.00
              316,890
                   278,728
            0.25
Sunlit Holdings, LLC
(3)(5)
LP Interest
     5,000,000.00
           4,500,000
                4,500,000
            4.10
The Weatherly Building, LLC
(5)(6)
LP Interest
                 17.50
              118,721
                     47,846
            0.04
The Weatherly, LTD
(5)(6)
LP Interest
                 60.00
              184,761
                     63,261
            0.06
Total LP Interest
 
 
 
         57,407,573
              63,528,274
          57.89
 
 
 
 
 
 
 
Coastal Realty Business Trust, REEP, Inc. - A
(3)(5)(6)
Investment Trust
          72,320.00
                49,901
                     36,160
            0.03
Total Investment Trust
 
 
 
                49,901
                     36,160
            0.03
 
 
 
 
 
 
 
Total Investments
 
 
 
 $      94,269,149
 $         101,332,816
          92.34



(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 between 5% and 25% of the portfolio company’s voting securities. As of September 30, 2019, the Company is deemed to be “affiliated” with 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) Under the 1940 Act, the Company 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 September 30, 2019, the Company is deemed to be 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.
(4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of September 30, 2019, the total percentage of non-qualifying assets is 1.94%, and, as a business development company, non-qualifying assets may not exceed 30% of our total assets.
(5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of September 30, 2019, 87.41% of the Company's total assets are in illiquid securities.
(6) Investments in non-income producing securities. As of September 30, 2019, 25.03% 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, 2019


Name
 
Asset Type
 Shares/Units
 Cost Basis
 Total
Fair Value
 % of
Net Assets
             
American Finance Trust Inc., Class A
(4)
Publicly Traded Company
        197,340.00
 $        2,186,682
 $             2,151,006
            2.09
Total Publicly Traded Company
   
           2,186,682
                2,151,006
            2.09
             
Benefit Street Partners Realty Trust, Inc.
(5)
Non Traded Company
        214,175.77
           3,207,614
                3,075,563
            2.96
BRE Select Hotels Corp. - Preferred A
(5)
Non Traded Company
        358,717.00
              594,992
                   670,801
            0.65
Carter Validus Mission Critical REIT
(5)
Non Traded Company
        315,639.56
           1,087,300
                1,325,686
            1.29
Cole Credit Property Trust IV, Inc.
(5)
Non Traded Company
        314,451.92
           1,879,482
                2,185,441
            2.12
Cole Credit Property Trust V, Inc.
(5)
Non Traded Company
            8,631.50
              116,442
                   112,123
            0.11
Cole Credit Property Trust V, Inc. Class T
(5)
Non Traded Company
               395.88
                  5,492
                       5,143
               -
CNL Healthcare Properties, Inc.
(5)(6)
Non Traded Company
        104,158.67
              658,615
                   625,994
            0.61
Hines Global REIT, Inc.
(5)
Non Traded Company
          17,936.21
              120,637
                     92,013
            0.09
Corporate Property Associates 18 Global A Inc.
(5)
Non Traded Company
            4,695.14
                39,627
                     37,139
            0.04
First Capital Real Estate Trust, Inc.
(5)(6)
Non Traded Company
            3,792.51
                15,161
                     18,242
            0.02
FSP 1441 Main Street
(5)(6)
Non Traded Company
                 15.73
                  8,559
                     31,245
            0.03
FSP 303 East Wacker Drive Corp. Liquidating Trust
(5)(6)
Non Traded Company
                   3.00
                       30
                          600
               -
FSP Energy Tower I Corp. Liquidating Trust
(2)(5)(6)
Non Traded Company
                 19.35
                57,567
                     57,566
            0.06
FSP Grand Boulevard Liquidating Trust
(5)(6)
Non Traded Company
                   7.50
                         8
                              8
               -
FSP Satellite Place
(2)(5)(6)
Non Traded Company
                 17.60
              546,482
                   712,585
            0.69
Griffin-American Healthcare REIT III, Inc.
(5)
Non Traded Company
               686.48
                  4,494
                       5,149
               -
Griffin Capital Essential Asset REIT, Inc.
(5)
Non Traded Company
          21,368.03
              140,003
                   169,021
            0.16
GTJ REIT, Inc.
(5)
Non Traded Company
            1,000.00
                11,620
                     11,980
            0.01
Healthcare Trust, Inc.
(5)
Non Traded Company
        305,526.76
           3,473,952
                3,211,086
            3.11
Highlands REIT Inc.
(5)(6)
Non Traded Company
   21,255,526.80
           3,965,354
                3,825,995
            3.71
Hospitality Investors Trust, Inc.
(5)(6)
Non Traded Company
            1,650.75
                11,802
                       9,327
            0.01
InvenTrust Properties Corp.
(5)
Non Traded Company
          14,799.52
                22,603
                     26,195
            0.03
KBS Real Estate Investment Trust II, Inc.
(5)
Non Traded Company
     1,364,838.21
           4,776,934
                4,831,527
            4.69
KBS Real Estate Investment Trust III, Inc.
(5)
Non Traded Company
          62,516.45
              515,050
                   593,906
            0.58
New York City REIT, Inc.
(5)(6)
Non Traded Company
        241,297.69
           3,032,703
                3,136,870
            3.04
NorthStar Healthcare Income, Inc.
(5)(6)
Non Traded Company
          23,573.29
                87,643
                     66,477
            0.06
Phillips Edison & Company, Inc
(5)
Non Traded Company
        777,332.00
           5,760,907
                6,350,802
            6.16
Steadfast Apartment REIT
(5)
Non Traded Company
            2,083.29
                17,197
                     26,041
            0.03
Steadfast Income REIT
(5)
Non Traded Company
        109,471.94
              740,163
                   743,314
            0.72
Strategic Realty Trust, Inc.
(5)
Non Traded Company
        199,425.07
              792,538
                   853,539
            0.83
Summit Healthcare REIT, Inc.
(2)(5)(6)
Non Traded Company
     1,406,200.22
           1,922,248
                2,587,408
            2.51
The Parking REIT Inc.
(5)(6)
Non Traded Company
          17,989.90
              230,880
                   242,504
            0.24
Total Non Traded Company (1)
   
         33,844,099
              35,641,290
          34.56
             
3100 Airport Way South LP
(5)
LP Interest
                   1.00
              355,000
                   387,990
            0.37
5210 Fountaingate, LP
(2)(5)
LP Interest
                   9.89
              500,000
                   552,693
            0.54
Addison NC, LLC
(3)(5)(6)
LP Interest
        200,000.00
           2,000,000
                3,600,000
            3.49
Addison Property Member, LLC
(3)(5)
LP Interest
        731,485.60
           7,316,326
                7,314,855
            7.08
Arrowpoint Burlington LLC
(2)(5)
LP Interest
                   7.50
              750,000
                1,088,910
            1.06
Bishop Berkeley, LLC
(3)(5)
LP Interest
            4,050.00
           4,050,000
                4,051,013
            3.93
BP3 Affiliate, LLC
(2)(5)(6)
LP Interest
            1,350.00
           1,350,000
                1,350,000
            1.31
BR Cabrillo LLC
(5)(6)
LP Interest
        346,723.32
              104,942
                   131,755
            0.13
BR Desota Investment Co, LLC
(2)(5)
LP Interest
     4,250,000.00
           4,250,000
                4,250,000
            4.12
BR Quinn35 Investment Co, LLC
(2)(5)
LP Interest
     4,000,000.00
           4,000,000
                4,000,000
            3.88
Britannia Preferred Members, LLC -Class 1
(3)(5)(6)
LP Interest
               103.88
           2,597,000
                2,986,550
            2.90
Britannia Preferred Members, LLC -Class 2
(3)(5)(6)
LP Interest
        514,858.30
           6,826,931
                7,758,915
            7.52
Capitol Hill Partners, LLC
(3)(5)(6)
LP Interest
        190,000.00
           1,900,000
                1,852,500
            1.80
CRP I Roll Up, LLC
(5)
LP Interest
     4,500,000.00
           4,500,000
                4,995,000
            4.84
CRP III Roll Up, LLC
(5)
LP Interest
     6,000,000.00
           6,000,000
                6,540,000
            6.34
Dimensions28 LLP
(3)(5)(6)
LP Interest
          10,800.00
         10,801,015
              10,886,076
          10.56
Lakemont Partners, LLC
(2)(5)
LP Interest
            1,000.00
           1,000,000
                1,007,700
            0.98
MPF Pacific Gateway - Class B
(2)(5)(6)
LP Interest
                 23.20
                  6,287
                       7,316
            0.01
Redwood Mortgage Investors VIII
(5)
LP Interest
          56,300.04
                29,700
                     39,410
            0.04
Satellite Investment Holdings, LLC - Class A
(5)
LP Interest
                 22.00
           2,200,000
                2,200,000
            2.13
Secured Income, LP
(2)(5)(6)
LP Interest
          64,670.00
              316,890
                   302,009
            0.29
The Weatherly Building, LLC
(5)(6)
LP Interest
                 17.50
              118,721
                     47,846
            0.05
The Weatherly, LTD
(5)(6)
LP Interest
                 60.00
              184,761
                     63,261
            0.06
Total LP Interest
     
         61,157,573
              65,413,799
          63.43
             
Coastal Realty Business Trust, REEP, Inc. - A
(3)(5)(6)
Investment Trust
          72,320.00
                49,901
                     39,053
            0.04
Total Investment Trust
     
                49,901
                     39,053
            0.04
             
Total Investments
     
 $      97,238,255
 $         103,245,148
        100.12


(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 between 5% and 25% of the portfolio company’s voting securities. As of June 30, 2019, the Company is deemed to be “affiliated” with 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) Under the 1940 Act, the Company 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 September 30, 2019, the Company is deemed to be 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.
(4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2019, the total percentage of non-qualifying assets is 1.99%, and as a business development company non-qualifying assets may not exceed 30% of our total assets.
(5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2019, 93.30% of the Company's total assets are in illiquid securities.
(6) Investments in non-income producing securities. As of June 30, 2019, 37.23% 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
September 30,
 
          
   
2019
   
2018
 
Investment income
           
Non-controlled/non-affiliated investments:
           
Dividend and operational/sales distributions
 
$
961,792
   
$
5,437,141
 
Interest and other income
   
178,385
     
143,878
 
Affiliated investments:
               
Dividend and operational/sales distributions
   
218,771
     
-
 
Controlled investments:
               
Dividend and operational/sales distributions
   
582,947
     
-
 
Total investment income
   
1,941,895
     
5,581,019
 
                 
Operating expenses
               
Base management fee (note 5)
   
609,995
     
512,179
 
Portfolio structuring fee (note 5)
   
195,611
     
211,692
 
Subordinated incentive fee (note 5)
   
-
     
1,565,729
 
Administrative cost reimbursements (note 5)
   
170,000
     
156,000
 
Transfer agent cost reimbursements (note 5)
   
20,000
     
-
 
Amortization of deferred offering costs
   
193,692
     
105,179
 
Professional fees
   
117,602
     
86,075
 
Directors' fees
   
15,500
     
15,500
 
Printing and mailing
   
37,450
     
30,091
 
Other general and administrative
   
15,112
     
26,874
 
Total operating expenses
   
1,374,962
     
2,709,319
 
                 
Net investment income
   
566,933
     
2,871,700
 
                 
Realized and unrealized gain (loss) on investments
               
Net realized gain (loss)
               
Non-controlled/non-affiliated investments
   
109,014
     
3,637,660
 
Total net realized gain
   
109,014
     
3,637,660
 
Net unrealized gain (loss)
               
Non-controlled/non-affiliated investments
   
(609,427
)
   
(4,646,379
)
Affiliated investments
   
118,820
     
-
 
Controlled investments
   
1,547,381
     
723
 
Total net unrealized gain (loss)
   
1,056,774
     
(4,645,656
)
                 
Total net realized and unrealized gain (loss) on investments
   
1,165,788
     
(1,007,996
)
                 
Net increase in net assets resulting from operations
 
$
1,732,721
   
$
1,863,704
 
                 
Net increase in net assets resulting from operations per share
 
$
0.15
   
$
0.21
 
                 
Weighted average common shares outstanding
   
11,391,769
     
9,004,403
 



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
 
   
September 30, 2019
   
September 30, 2018
 
Operations
           
Net investment income
 
$
566,933
   
$
2,871,700
 
Net realized gain
   
109,014
     
3,637,660
 
Net unrealized gain (loss)
   
1,056,774
     
(4,645,656
)
Net increase in net assets resulting from operations
   
1,732,721
     
1,863,704
 
                 
Dividends
               
Dividends to stockholders
   
(1,170,699
)
   
(1,571,551
)
                 
Capital share transactions
               
Issuance of common stock
   
6,465,979
     
7,039,757
 
Issuance of common stock through reinvestment of dividends
   
815,931
     
655,801
 
Redemption of common stock
   
(631,026
)
   
(284,131
)
Selling commissions and fees
   
(588,024
)
   
(683,988
)
Net increase in net assets resulting from capital share transactions
   
6,062,860
     
6,727,439
 
                 
Total increase in net assets
   
6,624,882
     
7,019,592
 
                 
Net assets at beginning of the period
   
103,115,381
     
85,595,319
 
                 
Net assets at end of the period
 
$
109,740,263
   
$
92,614,911
 




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)

   
Three Months Ended
September 30,
 
          
   
2019
   
2018
 
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
1,732,721
   
$
1,863,704
 
Adjustments to reconcile net increase in net assets resulting from
         
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
1,956,636
     
20,026,294
 
Return of capital
   
8,340,149
     
7,220,964
 
Purchase of investments
   
(7,218,665
)
   
(22,657,140
)
Net realized gain on investments
   
(109,014
)
   
(3,637,660
)
Net unrealized (gain) loss on investments
   
(1,056,774
)
   
4,645,656
 
Amortization of deferred offering costs
   
193,692
     
105,179
 
Changes in assets and liabilities:
               
Accounts receivable
   
1,633,018
     
5,220,967
 
Other assets
   
(100,441
)
   
(262,453
)
Payment of deferred offering costs
   
(236,212
)
   
(155,266
)
Accounts payable and accrued liabilities
   
(50,174
)
   
62,581
 
Income tax payable
   
-
     
(26,223
)
Due to related entities
   
(1,678,560
)
   
445,850
 
Net cash from operating activities
   
3,406,376
     
12,852,453
 
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
6,465,979
     
7,039,757
 
Redemption of common stock
   
(631,026
)
   
(284,131
)
Dividends to stockholders
   
(1,061,170
)
   
(783,007
)
Payment of selling commissions and fees
   
(685,012
)
   
(706,588
)
Change in capital pending acceptance
   
878,533
     
188,835
 
       Net cash from financing activities
   
4,967,304
     
5,454,866
 
                 
Net increase in cash and cash equivalents
   
8,373,680
     
18,307,319
 
                 
Cash and cash equivalents at beginning of the period
   
1,278,668
     
8,442,249
 
                 
Cash and cash equivalents at end of the period
 
$
9,652,348
   
$
26,749,568
 
                 
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
815,931
   
$
655,801
 
                 
Supplemental disclosures:
               
Taxes paid
 
$
-
   
$
800
 




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

MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
September 30, 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. The second offering commenced in December 2016 and concluded on October 28, 2019. The Parent Company filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on October 31, 2019 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. MacKenzie NY Real Estate 2 Corp., (“MacKenzie NY 2”), a wholly owned subsidiary of TRS, was formed for the purpose of making certain limited investments in New York companies. The financial statements of TRS and MacKenzie NY 2 have been consolidated with the Parent Company.
The Company is externally managed by MacKenzie Capital Management, LP ("MacKenzie") under the administration agreement dated and effective as of February 28, 2013 (the "Administration Agreement"). MacKenzie manages all of the Company's affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the "Adviser") under the advisory agreement 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, 2019, the Company has raised approximately $114.9 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan ("DRIP") of approximately $9.1 million. Of the shares issued by the Company in exchange for the total capital raised as of September 30, 2019, approximately $6.9 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, 2019, 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, 2019, 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, 2019, and June 30, 2019.
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, 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 September 30, 2019, and June 30, 2019, capital pending acceptance was $1,546,698 and $668,165, 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 by the Company on the second public offering are limited to $1,650,000 plus the savings realized by the Company to the extent that broker fees incurred are less than 10%.  Offering costs incurred in excess of these amounts will be reimbursed by the Adviser as discussed in Note 5.  The offering costs incurred in connection with the second public offering through September 30, 2019 and June 30, 2019 were $1,828,910 and $1,685,426, respectively. These offering costs are deferred and expensed over a twelve-month period beginning from the date the registration was declared effective by the SEC. Amortization of these deferred costs for the three months ended September 30, 2019, and 2018 were $193,692 and $105,179, 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, 2018. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2018. Similarly, for the tax year 2019, the Parent Company plans to pay 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 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 September 30, 2019, and June 30, 2019, 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 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, 2019, and June 30, 2019:
   
September 30, 2019

   
June 30, 2019

 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
1,721,627
   
$
2,196,466
   
$
2,186,682
   
$
2,151,006
 
Non Traded Companies
   
35,090,048
     
35,571,916
     
33,844,099
     
35,641,290
 
LP Interests
   
57,407,573
     
63,528,274
     
61,157,573
     
65,413,799
 
Investment Trust
   
49,901
     
36,160
     
49,901
     
39,053
 
Total
 
$
94,269,149
   
$
101,332,816
   
$
97,238,255
   
$
103,245,148
 

The following table presents fair value measurements of the Company's investments as of September 30, 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
 
$
2,196,466
   
$
2,196,466
   
$
-
   
$
-
 
Non Traded Companies
   
35,571,916
     
-
     
-
     
35,571,916
 
LP Interests
   
63,528,274
     
-
     
-
     
63,528,274
 
Investment Trust
   
36,160
     
-
     
-
     
36,160
 
Total
 
$
101,332,816
   
$
2,196,466
   
$
-
   
$
99,136,350
 


The following table presents fair value measurements of the Company's investments as of June 30, 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 Companies
 
$
2,151,006
   
$
2,151,006
   
$
-
   
$
-
 
Non Traded Companies
   
35,641,290
     
-
     
-
     
35,641,290
 
LP Interests
   
65,413,799
     
-
     
-
     
65,413,799
 
Investment Trust
   
39,053
     
-
     
-
     
39,053
 
Total
 
$
103,245,148
   
$
2,151,006
   
$
-
   
$
101,094,142
 

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, 2019:

Balance at July 1, 2019
 
$
101,094,142
 
Purchases of investments
   
7,218,665
 
Proceeds from sales, net
   
(1,494,978
)
Return of capital
   
(8,340,149
)
Net realized gains
   
112,412
 
Net unrealized losses
   
546,258
 
Ending balance at September 30, 2019
 
$
99,136,350
 

For the three months ended September 30, 2019, changes in unrealized loss included in earnings relating to Level III investments still held at September 30, 2019, were $852,217.
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 table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at September 30, 2019:


Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
                     
Non Traded Companies
 
 $      4,873,780
 
Direct Capitalization Method
 
Capitalization rate
 
4.8% - 7.2%
 
6.1%
           
Liquidity discount
 
19.0% - 50.0%
 
20.7%
Non Traded Companies
 
            670,801
 
Discounted Cash Flow
 
Discount rate
 
27.0%
   
           
Discount term (months)
 
13.0
   
Non Traded Companies
 
            108,574
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Liquidity discount
 
10.0% - 75.0%
 
21.6%
Non Traded Companies
 
       29,918,761
 
Market Activity
 
Secondary market industry publication
       
                     
LP Interests
 
       26,872,178
 
Direct Capitalization Method
 
Capitalization rate
 
3.3% - 7.3%
 
5.1%
           
Liquidity discount
 
19.0% - 29.0%
 
19.6%
LP Interests
 
       29,185,429
 
Discounted Cash Flow
 
Discount rate
 
15.0% - 30.0%
 
17.8%
           
Discount term (months)
 
3.0 - 36.0
 
19.3
LP Interests
 
         1,583,509
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Underlying property sale contract
       
           
Liquidity discount
 
19.0% - 34.0%
 
33.2%
LP Interests
 
         5,887,158
 
Market Activity
 
Acquisition Cost
       
           
Book value of underlying loans
       
           
Capital call provision
       
           
Liquidity discount
 
30.0%
   
                     
Investment Trust
 
              36,160
 
Direct Capitalization Method
 
Capitalization rate
 
6.2%
   
           
Liquidity discount
 
24.0%
   
   
 $    99,136,350
               






The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2019:


Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
                     
Non Traded Companies
 
 $     1,010,852
 
Direct Capitalization Method
 
Capitalization rate
 
6.3% - 6.9%
 
6.9%
           
Liquidity discount
 
19.0% - 34.0%
 
20.7%
Non Traded Companies
 
           670,801
 
Discounted Cash Flow
 
Discount rate
 
24.0%
   
           
Discount term (months)
 
28.0
   
Non Traded Companies
 
           107,660
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Liquidity discount
 
12.0% - 70.0%
 
23.5%
Non Traded Companies
 
      33,851,977
 
Market Activity
 
Secondary market industry publication
       
                     
LP Interests
 
      26,798,895
 
Direct Capitalization Method
 
Capitalization rate
 
4.2% - 7.3%
 
5.3%
           
Liquidity discount
 
19.0% - 25.0%
 
19.4%
LP Interests
 
      27,636,406
 
Discounted Cash Flow
 
Discount rate
 
15.0% - 30.0%
 
17.8%
           
Discount term (months)
 
18.0 - 24.0
 
19.4
LP Interests
 
           250,178
 
Estimated Liquidation Value
 
Sponsor provided value
       
           
Underlying contracted agreement
       
           
Liquidity discount
 
19.0% - 34.0%
 
33.2%
LP Interests
 
      10,728,320
 
Market Activity
 
Acquisition Cost
       
           
Book value of underlying loans
       
           
Liquidity discount
 
19.0% - 30.0%
 
19.4%
                     
Investment Trust
 
             39,053
 
Direct Capitalization Method
 
Capitalization rate
 
6.0%
   
           
Liquidity discount
 
25.0%
   
   
 $ 101,094,142
               
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 and to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of September 30, 2019, the Company had no margin credit available for cash withdrawal; however, had the ability to purchase up to $13,595,228 in additional shares. As of June 30, 2019, the Company had $18,126 of margin credit available for cash withdrawal or the ability to purchase up to $60,419 in additional shares. As of September 30, and June 30, 2019, there was no amount outstanding 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, 2019 and 2018 were $195,611 and $211,692, respectively.

The base management fees for the three months ended September 30, 2019 and 2018, were $609,995 and $512,179, 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
 
                               
September 30, 2019
 
$
20,000,000
   
$
80,000,000
   
$
15,998,789
   
$
115,998,789
 
                                 
September 30, 2018
 
$
20,000,000
   
$
72,435,844
   
$
-
   
$
92,435,844
 

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.
There was no Income Fee or Capital Gains Fee accrual for the three months ended September 30, 2019. Capital Gains fee accrual for the three months ended September 30, 2018 was $1,565,729; however, there was no Income Fee accrual.
Organization and Offering Costs Reimbursement:

As provided in the Amended and Restated Investment Advisory Agreement and the prospectus of the Company, 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 except to the extent the full 10% in broker fees are not incurred (the “broker savings”). In such case, the  broker savings will be available to be paid by the Company for marketing expenses or other non‑cash compensation. As of September 30, 2019, the broker savings was $374,986. Accordingly, offering costs in excess of $2,024,986 will be reimbursed by the Adviser to the Company. The cumulative offering costs incurred in connection with this public offering as of September 30, and June 30, 2019 were $1,828,910 and $1,685,426, respectively, both of which were below the reimbursement threshold of $2,024,986. Therefore, there were no amounts reimbursable from the Adviser as of September 30 and June 30, 2019.


Of the total offering costs incurred by the Company as of September 30, and June 30, 2019, MacKenzie had paid on behalf of the Company in the amounts of $931,288 and $788,057, respectively.  Of the amounts paid by MacKenzie, as of September 30 and June 30, 2019, the Company had not reimbursed MacKenzie in the amounts of $143,230 and $116,115. Therefore, those 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, 2019. During the three months ended September 30, 2019 and 2018, the offering costs paid by MacKenzie on behalf of the company were $143,230 and $126,948.
Administration Agreement:
Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the Independent Directors' approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company's Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff.
Effective November 1, 2018, transfer agent services are also provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost reimbursement) is being paid by the Company to MacKenzie for this service.
The administrative cost reimbursements for the three months ended September 30, 2019 and 2018 were $170,000 and $156,000, respectively. Transfer agent services cost reimbursement for the three months ended September 30, 2019 was $20,000 (which reimbursement did not start until March 14, 2019). There was no transfer agent services cost reimbursement for the three months ended September 30, 2018, because MacKenzie did not begin the service until November 2018.

The table below outlines the related party expenses incurred for the three months ended September 30, 2019, and 2018 and unpaid as of September 30, 2019, and June 30, 2019.
   
Three Months Ended

   
Unpaid as of

 
Types and Recipient
 
September 30, 2019
   
September 30, 2018
   
September 30, 2019
   
June 30, 2019
 
                         
Base Management fees- the Adviser
 
$
609,995
   
$
512,179
   
$
609,995
   
$
584,737
 
Portfolio Structuring fee- the Adviser
   
195,611
     
211,692
     
-
     
-
 
Subordinated Incentive fee - the Adviser
   
-
     
1,565,729
     
-
     
1,789,870
 
Administrative Cost Reimbursements- MacKenzie
   
170,000
     
156,000
     
34,000
     
-
 
Transfer agent cost reimbursements - MacKenzie
   
20,000
     
-
     
-
     
(30,000
)*
Organization & Offering Cost (2) - MacKenzie
   
143,230
     
126,948
     
143,230
     
116,115
 
Other expenses (1)- MacKenzie
                   
100
     
5,163
 
                                 
Due to related entities
                 
$
787,325
   
$
2,465,885
 
*Transfer agent cost reimbursements for the period of November 1, 2018 through March 14, 2019 that MacKenzie refunded in July 2019.
(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.
(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.

Controlled or Affiliated Investments:
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 September 30, 2019, the Company is deemed to be either “affiliated” with, or in “control” of, the below portfolio companies despite the fact that the Company does not have the power to exercise control over the management or policies of these portfolio companies.
September 30, 2019

                                         
Name of issuer and title of issue
 
Fair Value at
June 30, 2019
   
Gross
Additions
   
Gross
Reductions (1)
   
Net Realized
Gains (losses)
   
Net Change in
Unrealized Gains/(Losses)
   
Fair Value at
September 30, 2019
   
Interest/Dividend/Other income
Three Months Ended
September 30, 2019
 
                                           
Affiliated Investments:
                                         
5210 Fountaingate, LP
 
$
552,693
   
$
-
   
$
-
   
$
-
   
$
(22,559
)
 
$
530,134
   
$
-
 
Arrowpoint Burlington LLC
   
1,088,910
     
-
     
-
     
-
     
244,421
     
1,333,331
     
-
 
BP3 Affiliate, LLC
   
1,350,000
     
-
     
-
     
-
     
-
     
1,350,000
     
-
 
BR Desota Investment Co, LLC
   
4,250,000
     
-
     
(4,250,000
)
   
-
     
-
     
-
     
46,623
 
BR Quinn35 Investment Co, LLC
   
4,000,000
     
-
     
(4,000,000
)
   
-
     
-
     
-
     
167,768
 
FSP Energy Tower I Corp. Liquidating Trust
   
57,566
     
-
     
-
     
-
     
677
     
58,243
     
-
 
FSP Satellite Place
   
712,585
     
-
     
-
     
-
     
(61,901
)
   
650,684
     
-
 
Lakemont Partners, LLC
   
1,007,700
     
-
     
-
     
-
     
(5,220
)
   
1,002,480
     
4,380
 
MPF Pacific Gateway - Class B
   
7,316
     
-
     
-
     
-
     
-
     
7,316
     
-
 
Secured Income, LP
   
302,009
     
-
     
-
     
-
     
(23,281
)
   
278,728
     
-
 
Summit Healthcare REIT, Inc.
   
2,587,408
     
2,254
     
-
     
-
     
(13,317
)
   
2,576,345
     
-
 
                                                         
   
$
15,916,187
   
$
2,254
   
$
(8,250,000
)
 
$
-
   
$
118,820
   
$
7,787,261
   
$
218,771
 
Controlled Investments:
                                                       
Addison NC, LLC
   
3,600,000
   
$
-
   
$
-
   
$
-
   
$
150,000
   
$
3,750,000
   
$
-
 
Addison Property Member, LLC
   
7,314,855
     
-
     
-
     
-
     
1,119,173
     
8,434,028
     
311,467
 
Bishop Berkeley, LLC
   
4,051,013
     
-
     
-
     
-
     
403,218
     
4,454,231
     
23,011
 
Britannia Preferred Members, LLC -Class 1
   
2,986,550
     
-
     
-
     
-
     
129,850
     
3,116,400
     
-
 
Britannia Preferred Members, LLC -Class 2
   
7,758,915
     
-
     
-
     
-
     
(803,179
)
   
6,955,736
     
-
 
Capitol Hill Partners, LLC
   
1,852,500
     
-
     
-
     
-
     
(3,800
)
   
1,848,700
     
-
 
Coastal Realty Business Trust, REEP, Inc. - A
   
39,053
     
-
     
-
     
-
     
(2,893
)
   
36,160
     
-
 
Dimensions28 LLP
   
10,886,076
     
-
     
-
     
-
     
555,012
     
11,441,088
     
145,041
 
Sunlit Holdings, LLC
   
-
     
5,000,000
     
(500,000
)
   
-
     
-
     
4,500,000
     
103,428
 
                                                         
   
$
38,488,962
   
$
5,000,000
   
$
(500,000
)
 
$
-
   
$
1,547,381
   
$
44,536,343
   
$
582,947
 
(1)
Gross reductions include decreases in the cost basis of investments resulting from return of capital distributions.



June 30, 2019
                                         
Name of issuer and title of issue
 
Fair Value at
June 30, 2018
   
Gross
Additions
   
Gross
Reductions (1)
   
Net Realized
Gains (losses)
   
Net Change in
Unrealized Gains/(Losses)
   
Fair Value at
June 30, 2019
   
Interest/Dividend/Other income
Year Ended
June 30, 2019
 
                                           
Affiliated Investments:
                                         
5210 Fountaingate, LP
 
$
555,728
   
$
-
   
$
-
   
$
-
   
$
(3,035
)
 
$
552,693
   
$
18,124
 
Arrowpoint Burlington LLC
   
869,072
     
-
     
-
     
-
     
219,838
     
1,088,910
     
83,333
 
BP3 Affliliate, LLC
   
-
     
1,350,000
     
-
     
-
     
-
     
1,350,000
     
-
 
BR Desota Investment Co, LLC
   
-
     
4,250,000
     
-
     
-
     
-
     
4,250,000
     
205,560
 
BR Quinn35 Investment Co, LLC
   
-
     
4,000,000
     
-
     
-
     
-
     
4,000,000
     
69,056
 
FSP Energy Tower I Corp. Liquidating Trust
   
301,373
     
415,374
     
(661,307
)
   
-
     
2,126
     
57,566
     
1,080,192
 
FSP Satellite Place
   
499,140
     
151,169
     
-
     
-
     
62,276
     
712,585
     
-
 
Lakemont Partners, LLC
   
-
     
1,000,000
     
-
     
-
     
7,700
     
1,007,700
     
4,381
 
MPF Pacific Gateway - Class B
   
6,613
     
-
     
-
     
-
     
703
     
7,316
     
-
 
Secured Income, LP
   
320,763
     
-
     
-
     
-
     
(18,754
)
   
302,009
     
-
 
Summit Healthcare REIT, Inc.
   
2,043,379
     
193,066
     
-
     
-
     
350,963
     
2,587,408
     
88,683
 
                                                         
   
$
4,596,068
   
$
11,359,609
   
$
(661,307
)
 
$
-
   
$
621,817
   
$
15,916,187
   
$
1,549,329
 
Controlled Investments:
                                                       
Addison NC, LLC
 
$
3,000,000
   
$
-
   
$
-
   
$
-
   
$
600,000
   
$
3,600,000
   
$
-
 
Addison Property Member, LLC
   
-
     
7,316,326
     
-
     
-
     
(1,471
)
   
7,314,855
     
598,191
 
Bandon PV Holdings, LLC
   
-
     
5,250,000
     
(5,256,262
)
   
6,262
     
-
     
-
     
173,390
 
Bishop Berkeley, LLC
   
-
     
4,050,000
     
-
     
-
     
1,013
     
4,051,013
     
23,011
 
BR Gate Investment Co, LLC
   
-
     
3,475,000
     
(3,475,000
)
   
-
     
-
     
-
     
-
 
Britannia Preferred Members, LLC -Class 1
   
-
     
2,597,000
     
-
     
-
     
389,550
     
2,986,550
     
-
 
Britannia Preferred Members, LLC -Class 2
   
2,547,000
     
5,326,932
     
-
     
-
     
(115,017
)
   
7,758,915
     
-
 
Capitol Hill Partners, LLC
   
1,919,000
     
-
     
-
     
-
     
(66,500
)
   
1,852,500
     
-
 
Coastal Realty Business Trust, REEP, Inc. - A
   
41,222
     
-
     
-
     
-
     
(2,169
)
   
39,053
     
-
 
Dimensions28 LLP
   
-
     
10,801,015
     
-
     
-
     
85,061
     
10,886,076