10-Q 1 mrc10q12312019.htm FORM 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark one)
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended December 31, 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)
 
 
Securities registered pursuant to Section 12(b) of the Act:  None
 
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 February 12, 2020 was 12,510,237.41.
 


TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
 
     
Item 1.
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
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

 
 
December 31, 2019
   
June 30, 2019
 
 
 
(Unaudited)
       
Assets
           
Investments, at fair value
           
Non-controlled/non-affiliated investments (cost of $48,402,397 and $46,997,608, respectively)
 
$
47,812,270
   
$
48,839,999
 
Affiliated investments (cost of $13,759,901 and $14,699,474, respectively)
   
14,482,623
     
15,916,187
 
Controlled investments (cost of $43,341,173 and $35,541,173, respectively)
   
47,977,465
     
38,488,962
 
Total investments, at fair value (cost of $105,503,471 and $97,238,255, respectively)
   
110,272,358
     
103,245,148
 
Cash and cash equivalents
   
3,003,939
     
1,278,668
 
Accounts receivable
   
1,592,721
     
3,170,068
 
Other assets
   
304,793
     
219,050
 
Deferred offering costs, net
   
297,486
     
440,320
 
Total assets
 
$
115,471,297
   
$
108,353,254
 
 
               
 
               
Liabilities
               
Accounts payable and accrued liabilities
 
$
88,576
   
$
226,722
 
Dividend payable
   
2,096,915
     
1,877,101
 
Capital pending acceptance
   
1,023,250
     
668,165
 
Due to related entities
   
696,953
     
2,465,885
 
Total liabilities
   
3,905,694
     
5,237,873
 
 
               
Net assets
               
Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,138,738.21 and 10,926,319.99 shares issued and outstanding, respectively
   
1,214
     
1,093
 
Capital in excess of par value
   
110,009,695
     
99,077,308
 
Total distributable earnings
   
1,554,694
     
4,036,980
 
Total net assets
   
111,565,603
     
103,115,381
 
 
               
Total liabilities and net assets
 
$
115,471,297
   
$
108,353,254
 
 
               
Net asset value per share
 
$
9.19
   
$
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
December 31, 2019
(Unaudited)

Name
 
 
 
Asset Type
 
 Shares/Units
 
 Cost Basis
 
 Total
Fair Value
 
 % of
Net Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
CBL & Associates Properties, Inc. - Preferred D
 
(4)
 
Publicly Traded Company
 
        188,000.00
 
 $        1,707,042
 
 $                930,600
 
            0.83
Total Publicly Traded Company
 
 
 
 
 
 
 
           1,707,042
 
                   930,600
 
            0.83
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit Street Partners Realty Trust, Inc.
 
(5)
 
Non Traded Company
 
        183,169.61
 
           2,823,957
 
                2,485,612
 
            2.23
Carter Validus Mission Critical REIT II, Inc. Class A
 
(5)
 
Non Traded Company
 
        167,826.26
 
           1,147,285
 
                1,201,636
 
            1.08
CIM Real Estate Finance Trust, Inc.
 
(5)
 
Non Traded Company
 
        413,614.61
 
           2,461,996
 
                2,692,631
 
            2.41
CNL Healthcare Properties, Inc.
 
(5)
 
Non Traded Company
 
        266,900.14
 
           1,554,356
 
                1,467,951
 
            1.32
Cole Credit Property Trust V, Inc.
 
(5)
 
Non Traded Company
 
          36,825.76
 
              473,277
 
                   536,920
 
            0.48
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
 
                     89,603
 
            0.08
Corporate Property Associates 18 Global A Inc.
 
(5)
 
Non Traded Company
 
            4,695.14
 
                39,627
 
                     38,031
 
            0.03
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
 
                     32,665
 
            0.03
FSP 303 East Wacker Drive Corp. Liquidating Trust
 
(5)(6)
 
Non Traded Company
 
                   3.00
 
                       30
 
                          631
 
               -
FSP Energy Tower I Corp. Liquidating Trust
 
(2)(5)(6)
 
Non Traded Company
 
                 19.35
 
                57,566
 
                     58,921
 
            0.05
FSP Grand Boulevard Liquidating Trust
 
(5)(6)
 
Non Traded Company
 
                   7.50
 
                         8
 
                       2,657
 
            0.01
FSP Satellite Place
 
(2)(5)(6)
 
Non Traded Company
 
                 17.60
 
              545,988
 
                   628,557
 
            0.56
Griffin Capital Essential Asset REIT, Inc.
 
(5)
 
Non Traded Company
 
          22,982.73
 
              151,227
 
                   170,762
 
            0.15
Griffin-American Healthcare REIT III, Inc.
 
(5)
 
Non Traded Company
 
            4,496.87
 
                28,053
 
                     32,108
 
            0.03
GTJ REIT, Inc.
 
(5)
 
Non Traded Company
 
            1,000.00
 
                11,620
 
                     11,460
 
            0.01
Healthcare Trust, Inc.
 
(5)
 
Non Traded Company
 
        314,487.89
 
           3,549,807
 
                3,122,865
 
            2.80
Highlands REIT Inc.
 
(5)(6)
 
Non Traded Company
 
   21,576,587.33
 
           3,993,678
 
                3,452,254
 
            3.09
Hines Global REIT, Inc.
 
(5)(6)
 
Non Traded Company
 
          17,936.21
 
              120,637
 
                     88,246
 
            0.08
Hospitality Investors Trust, Inc.
 
(5)(6)
 
Non Traded Company
 
          18,766.77
 
                85,421
 
                     74,879
 
            0.07
InvenTrust Properties Corp.
 
(5)
 
Non Traded Company
 
     1,601,310.97
 
           2,006,003
 
                2,177,783
 
            1.95
KBS Real Estate Investment Trust II, Inc.
 
(5)(6)
 
Non Traded Company
 
     1,365,338.21
 
           4,778,373
 
                3,959,481
 
            3.55
KBS Real Estate Investment Trust III, Inc.
 
(5)
 
Non Traded Company
 
          65,717.13
 
              550,359
 
                   565,167
 
            0.51
New York City REIT, Inc.
 
(5)(6)
 
Non Traded Company
 
        233,047.69
 
           2,922,429
 
                2,996,993
 
            2.69
NorthStar Healthcare Income, Inc.
 
(5)(6)
 
Non Traded Company
 
          23,573.29
 
                87,643
 
                     61,291
 
            0.05
Phillips Edison & Company, Inc
 
(5)
 
Non Traded Company
 
        843,528.95
 
           6,242,849
 
                6,891,631
 
            6.18
SmartStop Self Storage REIT, Inc.
 
(5)
 
Non Traded Company
 
            2,330.00
 
                16,472
 
                     21,180
 
            0.02
Steadfast Apartment REIT
 
(5)
 
Non Traded Company
 
            2,083.29
 
                17,197
 
                     26,479
 
            0.02
Steadfast Income REIT
 
(5)
 
Non Traded Company
 
        116,961.62
 
              782,246
 
                   802,357
 
            0.72
Strategic Realty Trust, Inc.
 
(5)
 
Non Traded Company
 
        303,626.06
 
           1,215,173
 
                1,253,976
 
            1.12
Summit Healthcare REIT, Inc.
 
(2)(5)(6)
 
Non Traded Company
 
     1,407,838.92
 
           1,924,502
 
                2,548,188
 
            2.28
The Parking REIT Inc.
 
(5)(6)
 
Non Traded Company
 
          17,989.90
 
              230,880
 
                   173,962
 
            0.16
Total Non Traded Company (1)
 
 
 
 
 
 
 
         37,930,266
 
              37,690,891
 
          33.79
 
 
 
 
 
 
 
 
 
 
 
 
 
3100 Airport Way South LP
 
(5)
 
LP Interest
 
                   1.00
 
              355,000
 
                   356,584
 
            0.32
5210 Fountaingate, LP
 
(2)(5)(6)
 
LP Interest
 
                   9.89
 
              500,000
 
                   526,835
 
            0.47
Addison NC, LLC
 
(3)(5)(6)
 
LP Interest
 
        200,000.00
 
           2,000,000
 
                3,750,000
 
            3.36
Addison Property Member, LLC
 
(3)(5)
 
LP Interest
 
        731,485.60
 
           7,316,326
 
                8,404,769
 
            7.53
Bishop Berkeley, LLC
 
(3)(5)
 
LP Interest
 
            4,050.00
 
           4,050,000
 
                4,479,139
 
            4.01
BP3 Affiliate, LLC
 
(2)(5)(6)
 
LP Interest
 
            1,538.00
 
           1,538,000
 
                1,538,000
 
            1.38
BR Cabrillo LLC
 
(5)(6)
 
LP Interest
 
        346,723.32
 
              104,942
 
                   131,755
 
            0.12
BR Everwood Investment Co, LLC
 
(2)(5)
 
LP Interest
 
     3,750,000.00
 
           3,750,000
 
                3,750,000
 
            3.36
BR Westerly Investment Co, LLC
 
(2)(5)
 
LP Interest
 
     4,120,667.41
 
           4,120,667
 
                4,120,667
 
            3.69
Britannia Preferred Members, LLC -Class 1
 
(3)(5)(6)
 
LP Interest
 
               103.88
 
           2,597,000
 
                3,246,250
 
            2.91
Britannia Preferred Members, LLC -Class 2
 
(3)(5)(6)
 
LP Interest
 
        514,858.30
 
           6,826,931
 
                7,002,073
 
            6.28
Capitol Hill Partners, LLC
 
(3)(5)(6)
 
LP Interest
 
        190,000.00
 
           1,900,000
 
                1,894,300
 
            1.70
Citrus Park Hotel Holdings, LLC
 
(3)(5)
 
LP Interest
 
     5,000,000.00
 
           5,000,000
 
                5,000,000
 
            4.48
CRP I Roll Up, LLC
 
(5)
 
LP Interest
 
     4,500,000.00
 
           4,500,000
 
                5,175,000
 
            4.64
CRP III Roll Up, LLC
 
(5)
 
LP Interest
 
     6,000,000.00
 
           6,000,000
 
                6,600,000
 
            5.92
Dimensions28 LLP
 
(3)(5)
 
LP Interest
 
          10,800.00
 
         10,801,015
 
              11,363,328
 
          10.19
Lakemont Partners, LLC
 
(2)(5)
 
LP Interest
 
            1,000.00
 
           1,000,000
 
                1,013,771
 
            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
 
                     36,594
 
            0.03
Satellite Investment Holdings, LLC - Class B
 
(5)(6)
 
LP Interest
 
                   0.31
 
                       22
 
                     15,405
 
            0.01
Secured Income, LP
 
(2)(5)(6)
 
LP Interest
 
          64,670.00
 
              316,890
 
                   290,368
 
            0.26
Sunlit Holdings, LLC
 
(3)(5)
 
LP Interest
 
     5,000,000.00
 
           2,800,000
 
                2,800,000
 
            2.51
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
 
 
 
 
 
 
 
         65,816,262
 
              71,613,261
 
          64.19
 
 
 
 
 
 
 
 
 
 
 
 
 
Coastal Realty Business Trust, REEP, Inc. - A
 
(3)(5)(6)
 
Investment Trust
 
          72,320.00
 
                49,901
 
                     37,606
 
            0.03
Total Investment Trust
 
 
 
 
 
 
 
                49,901
 
                     37,606
 
            0.03
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investments
 
 
 
 
 
 
 
 $    105,503,471
 
 $         110,272,358
 
          98.84



(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 December 31, 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 December 31, 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 December 31, 2019, the total percentage of non-qualifying assets is 0.81 %, 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 December 31, 2019, 94.69% of the Company's total assets are in illiquid securities.
(6) Investments in non-income producing securities. As of December 31, 2019, 28.27% 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 June 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
December 31,
 
Six Months Ended
December 31,
 
 
 
2019
   
2018
 
2019
   
2018
 
Investment income
                     
Non-controlled/non-affiliated investments:
                     
Dividend and operational/sales distributions
 
$
1,351,904
   
$
1,102,669
 
$
2,313,696
   
$
6,502,498
 
Interest and other income
   
149,594
     
68,310
   
327,979
     
212,188
 
Affiliated investments:
                             
Dividend and operational/sales distributions
   
228,840
     
20,000
   
447,611
     
57,312
 
Controlled investments:
                             
Dividend and operational/sales distributions
   
654,986
     
-
   
1,237,933
     
-
 
Total investment income
   
2,385,324
     
1,190,979
   
4,327,219
     
6,771,998
 
 
                             
Operating expenses
                             
Base management fee (note 5)
   
630,285
     
541,612
   
1,240,280
     
1,053,791
 
Portfolio structuring fee (note 5)
   
165,981
     
159,331
   
361,592
     
371,023
 
Subordinated incentive fee (reversal) (note 5)
   
-
     
(356,181
)
 
-
     
1,209,548
 
Administrative cost reimbursements (note 5)
   
170,000
     
156,000
   
340,000
     
312,000
 
Transfer agent cost reimbursements (note 5)
   
20,000
     
-
   
40,000
     
-
 
Amortization of deferred offering costs
   
446,516
     
129,623
   
640,208
     
234,802
 
Professional fees
   
30,919
     
25,953
   
148,521
     
112,028
 
Directors' fees
   
18,500
     
15,500
   
34,000
     
31,000
 
Printing and mailing
   
24,590
     
11,407
   
62,040
     
41,498
 
Other general and administrative
   
19,051
     
32,449
   
34,163
     
59,323
 
Total operating expenses
   
1,525,842
     
715,694
   
2,900,804
     
3,425,013
 
 
                             
Net investment income before taxes
   
859,482
     
475,285
   
1,426,415
     
3,346,985
 
Income tax benefit - (note 2)
   
-
     
(12,968
)
 
-
     
(12,968
)
Net investment income
   
859,482
     
488,253
   
1,426,415
     
3,359,953
 
 
                             
Realized and unrealized gain (loss) on investments
                             
Net realized gain (loss)
                             
Non-controlled/non-affiliated investments
   
717,674
     
(1,604,128
)
 
826,688
     
2,033,532
 
Affiliated investments:
   
583,331
     
-
   
583,331
     
-
 
Total net realized gain (loss)
   
1,301,005
     
(1,604,128
)
 
1,410,019
     
2,033,532
 
Net unrealized gain (loss)
                             
Non-controlled/non-affiliated investments
   
(1,823,089
)
   
784,042
   
(2,432,516
)
   
(4,141,984
)
Affiliated investments
   
(612,811
)
   
88,015
   
(493,991
)
   
240,162
 
Controlled investments
   
141,122
     
566,859
   
1,688,503
     
695,082
 
Total net unrealized gain (loss)
   
(2,294,778
)
   
1,438,916
   
(1,238,004
)
   
(3,206,740
)
 
                             
Total net realized and unrealized gain (loss) on investments
   
(993,773
)
   
(165,212
)
 
172,015
     
(1,173,208
)
 
                             
Net increase (decrease) in net assets resulting from operations
 
$
(134,291
)
 
$
323,041
 
$
1,598,430
   
$
2,186,745
 
 
                             
Net increase (decrease) in net assets resulting from operations per share
 
$
(0.01
)
 
$
0.03
 
$
0.14
   
$
0.23
 
 
                             
Weighted average common shares outstanding
   
12,070,832
     
9,660,553
   
11,731,300
     
9,332,478
 


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
   
Six Months Ended
 
  
 
December 31, 2019
   
December 31, 2018
   
December 31, 2019
   
December 31, 2018
 
Operations
                       
Net investment income
 
$
859,482
   
$
488,253
   
$
1,426,415
   
$
3,359,953
 
Net realized gain (loss)
   
1,301,005
     
(1,604,128
)
   
1,410,019
     
2,033,532
 
Net unrealized gain (loss)
   
(2,294,778
)
   
1,438,916
     
(1,238,004
)
   
(3,206,740
)
Net increase (decrease) in net assets resulting from operations
   
(134,291
)
   
323,041
     
1,598,430
     
2,186,745
 
 
                               
Dividends
                               
Dividends to stockholders
   
(2,910,017
)
   
(1,994,972
)
   
(4,080,716
)
   
(3,566,523
)
 
                               
Capital share transactions
                               
Issuance of common stock
   
5,500,305
     
5,218,691
     
11,966,284
     
12,258,448
 
Issuance of common stock through reinvestment of dividends
   
813,102
     
697,390
     
1,629,033
     
1,353,191
 
Redemption of common stock
   
(924,659
)
   
(179,504
)
   
(1,555,685
)
   
(463,635
)
Selling commissions and fees
   
(519,100
)
   
(438,764
)
   
(1,107,124
)
   
(1,122,752
)
Net increase in net assets resulting from capital share transactions
   
4,869,648
     
5,297,813
     
10,932,508
     
12,025,252
 
 
                               
Total increase in net assets
   
1,825,340
     
3,625,882
     
8,450,222
     
10,645,474
 
 
                               
Net assets at beginning of the period
   
109,740,263
     
92,614,911
     
103,115,381
     
85,595,319
 
 
                               
Net assets at end of the period
 
$
111,565,603
   
$
96,240,793
   
$
111,565,603
   
$
96,240,793
 


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

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

 
     
 
 
Six Months Ended
December 31,
 
 
 
2019
   
2018
 
Cash flows from operating activities:
           
Net increase in net assets resulting from operations
 
$
1,598,430
   
$
2,186,745
 
Adjustments to reconcile net increase in net assets resulting from
               
operations to net cash from operating activities:
               
Proceeds from sale of investments, net
   
6,324,865
     
37,407,048
 
Return of capital
   
12,814,896
     
9,805,754
 
Purchase of investments
   
(25,994,956
)
   
(69,525,249
)
Net realized gain on investments
   
(1,410,019
)
   
(2,033,532
)
Net unrealized loss on investments
   
1,238,004
     
3,206,740
 
Amortization of deferred offering costs
   
640,208
     
234,802
 
Changes in assets and liabilities:
               
Accounts receivable
   
1,577,347
     
5,441,108
 
Other assets
   
(76,965
)
   
(6,211
)
Payment of deferred offering costs
   
(497,374
)
   
(400,816
)
Accounts payable and accrued liabilities
   
(139,296
)
   
232,872
 
Income tax payable
   
-
     
(35,873
)
Due to related entities
   
(1,768,932
)
   
28,977
 
Deferred tax liability
   
-
     
(3,518
)
Net cash from operating activities
   
(5,693,792
)
   
(13,461,153
)
 
               
Cash flows from financing activities:
               
Proceeds from issuance of common stock
   
11,966,284
     
12,258,448
 
Redemption of common stock
   
(1,555,685
)
   
(463,635
)
Dividends to stockholders
   
(2,231,869
)
   
(1,657,167
)
Payment of selling commissions and fees
   
(1,114,752
)
   
(1,135,336
)
Change in capital pending acceptance
   
355,085
     
460,887
 
       Net cash from financing activities
   
7,419,063
     
9,463,197
 
 
               
Net increase (decrease) in cash and cash equivalents
   
1,725,271
     
(3,997,956
)
 
               
Cash and cash equivalents at beginning of the period
   
1,278,668
     
8,442,249
 
 
               
Cash and cash equivalents at end of the period
 
$
3,003,939
   
$
4,444,293
 
 
               
Non-cash financing activities:
               
Issuance of common stock through reinvestment of dividends
 
$
1,629,033
   
$
1,353,191
 


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


MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
December 31, 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 December 31, 2019, the Company has raised approximately $121.2 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan ("DRIP") of approximately $9.9 million. Of the shares issued by the Company in exchange for the total capital raised as of December 31, 2019, approximately $7.8 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 December 31, 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 December 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 December 31, 2019, and June 30, 2019, capital pending acceptance was $1,023,250 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 and third public offering are each 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 December 31, 2019 and June 30, 2019 were $1,843,071 and $1,685,426, respectively. The offering costs incurred in connection with the third public offering through December 31, 2019 were $339,729. There were no offering costs incurred in connection with the third public offering as of June 30, 2019. These offering costs are deferred and expensed over a twelve-month period beginning from the date the registration was declared effective by the SEC. Since the second public offering concluded in October 2019, $404,273 of the deferred offering costs that had not been amortized as of the conclusion date were fully expensed as of December 31, 2019. Total amortization of these deferred costs for the six months ended December 31, 2019, and 2018 were $640,208 and $234,802, 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 year 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, 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 any fiscal period within the tax year 2019.
The Parent Company was subject to tax on built-in gains it realized during the first five years following REIT election date of January 1, 2014. The income tax benefit of $12,968 recorded for the three and six months ended December 30, 2018 in the consolidated statements of operations, was the reversal of the remaining deferred tax liabilities on the built-in gains that were not taxable after December 31, 2018.
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 December 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 any fiscal period within the tax year 2018 and 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 December 31, 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 December 31, 2019, and June 30, 2019:

 
 
December 31, 2019
   
June 30, 2019
 
Asset Type
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Publicly Traded Companies
 
$
1,707,042
   
$
930,600
   
$
2,186,682
   
$
2,151,006
 
Non Traded Companies
   
37,930,266
     
37,690,891
     
33,844,099
     
35,641,290
 
LP Interests
   
65,816,262
     
71,613,261
     
61,157,573
     
65,413,799
 
Investment Trust
   
49,901
     
37,606
     
49,901
     
39,053
 
Total
 
$
105,503,471
   
$
110,272,358
   
$
97,238,255
   
$
103,245,148
 
 
                               
The following table presents fair value measurements of the Company's investments as of December 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
 
$
930,600
   
$
930,600
   
$
-
   
$
-
 
Non Traded Companies
   
37,690,891
     
-
     
-
     
37,690,891
 
LP Interests
   
71,613,261
     
-
     
-
     
71,613,261
 
Investment Trust
   
37,606
     
-
     
-
     
37,606
 
Total
 
$
110,272,358
   
$
930,600
   
$
-
   
$
109,341,758
 

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 six months ended December 31, 2019:
Balance at July 1, 2019
 
$
101,094,142
 
Purchases of investments
   
24,287,915
 
Proceeds from sales, net
   
(3,510,705
)
Return of capital
   
(12,814,896
)
Net realized gains
   
782,541
 
Net unrealized losses
   
(497,239
)
Ending balance at December 31, 2019
 
$
109,341,758
 
 
       

For the six months ended December 31, 2019, changes in unrealized gain included in earnings relating to Level III investments still held at December 31, 2019, were $461,824.

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the six months ended December 31, 2018:
Balance at July 1, 2018
 
$
67,923,423
 
Purchases of investments
   
40,621,647
 
Transfers to Level I and II
   
(1,991,230
)
Proceeds from sales, net
   
(15,386,999
)
Return of capital
   
(9,805,754
)
Net realized gains
   
2,938,497
 
Net unrealized losses
   
(2,516,685
)
Ending balance at December 31, 2018
 
$
81,782,899
 

The transfers of $1,991,230 from Level III to Level I and II categories during the six months ended December 31, 2018 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 six months ended December 31, 2018, changes in unrealized loss included in earnings relating to Level III investments still held at December 31, 2018 were $1,402,685.

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


Asset Type
 
 Fair Value
 
Primary Valuation Techniques
 
Unobservable Inputs Used
 
Range
 
Wt. Average
 
 
 
 
 
 
 
 
 
 
 
Non Traded Companies
 
 $                     813,982
 
Direct Capitalization Method
 
Capitalization rate
 
5.0% - 7.2%
 
6.7%
 
 
 
 
 
 
Liquidity discount
 
23.0% - 50.0%
 
32.6%
Non Traded Companies
 
            113,116
 
Estimated Liquidation Value
 
Sponsor provided value
 
 
 
 
 
 
 
 
 
 
Liquidity discount
 
8.0% - 70.0%
 
20.9%
Non Traded Companies
 
       36,763,793
 
Market Activity
 
Secondary market industry publication
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LP Interests
 
       26,941,801
 
Direct Capitalization Method
 
Capitalization rate
 
3.3% - 7.3%
 
5.0%
 
 
 
 
 
 
Liquidity discount
 
19.0% - 29.0%
 
19.7%
LP Interests
 
       29,976,020
 
Discounted Cash Flow
 
Discount rate
 
9.0% - 30.0%
 
17.1%
 
 
 
 
 
 
Discount term (months)
 
3.0 - 36.0
 
16.1
LP Interests
 
            250,178
 
Estimated Liquidation Value
 
Sponsor provided value
 
 
 
 
 
 
 
 
 
 
Underlying property sale contract
 
 
 
 
 
 
 
 
 
 
Liquidity discount
 
19.0% - 34.0%
 
33.2%
LP Interests
 
       14,445,262
 
Market Activity
 
Acquisition Cost
 
 
 
 
 
 
 
 
 
 
Book value of underlying loans
 
 
 
 
 
 
 
 
 
 
Capital call provision
 
 
 
 
 
 
 
 
 
 
Liquidity discount
 
30.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment Trust
 
              37,606
 
Direct Capitalization Method
 
Capitalization rate
 
6.6%
 
 
 
 
 
 
 
 
Liquidity discount
 
24.0%
 
 
 
 
 $                109,341,758
 
 
 
 
 
 
 
 




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 December 31, 2019, the Company had $5,912 of margin credit available for cash withdrawal or the ability to purchase up to $19,078 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 December 31, 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 ( 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 six months ended December 31, 2019 were $165,981 and $361,592, respectively. The portfolio structuring fees for the three and six months ended December 31, 2018, were $159,331 and $371,023, respectively.


The base management fees for the three and six months ended December 31, 2019, were $630,285 and $1,240,280, respectively. The base management fees for the three and six months ended December 31, 2018, were $541,612 and $1,053,791, 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
 
 
                             
For the Year Ended June 30, 2020
                             
Quarter ended:
                             
September 30, 2019
 
$
20,000,000
   
$
80,000,000
   
$
15,998,789
   
$
115,998,789
 
December 31, 2019
   
20,000,000
     
80,000,000
     
21,409,289
     
121,409,289
 
 
                               
For the Year Ended June 30, 2019
                               
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
 
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. Accordingly, the Company accrues the capital gains fees in the quarter it exceeds the threshold and increases or decreases the accrual in subsequent quarters if the fiscal year-to-date fee changes.
There was no Income Fee or Capital Gains Fee accrual for the three and six months ended December 31, 2019. There was no Income Fee for the three or six months ended December 31, 2018. Capital Gains fee accrual for the three months ended December 31, 2018 was a reduction of $356,181 on the prior quarter accrual of $1,565,729. Accordingly, Capital Gains fee accrual for the six months ended December 31, 2018 was $1,209,548.
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 each on the second and third 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 the offering conclusion date, the broker savings was $399,793 on the second public offering. Accordingly, offering costs in excess of $2,049,793 was reimbursable by the Adviser to the Company. The cumulative offering costs incurred in connection with the second public offering as of December 31, and June 30, 2019 were $1,843,071 and $1,685,426, respectively, both of which were below the reimbursement threshold of $2,049,793. Total offering costs incurred on the third public offering as of December 31, 2019, was $339,729, which was also below the reimbursement threshold. Therefore, there were no amounts reimbursable from the Adviser as of December 31 and June 30, 2019 under both public offerings.
Of the cumulative offering costs incurred on the second public offering by the Company as of December 31, 2019, MacKenzie had paid on behalf of the Company a total of $932,780, all of which was fully reimbursed to MacKenzie as of December 31, 2019. As of June 30, 2019, MacKenzie had paid on behalf of the Company a total of $788,057, of which $116,115 was payable to MacKenzie.as of June 30, 2019 and was included as a part of due to related entities in the consolidated statements of assets and liabilities as of June 30, 2019.
Of the cumulative offering costs incurred on the third public offering by the Company as of December 31, 2019, MacKenzie had paid on behalf of the Company a total of $124,384, of which $63,085 was payable to MacKenzie as of December 31, 2019 and was included as a part of due to related entities in the consolidated statements of assets and liabilities as of December 31, 2019.
During the six months ended December 31, 2019 and 2018, total offering costs paid by MacKenzie on behalf of the Company were $269,107 and $271,187.


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 and six months ended December 31, 2019 were $170,000 and $340,000, respectively. The administrative cost reimbursements for the three and six months ended December 31, 2018, were $156,000 and $312,000, respectively. Transfer agent services cost reimbursement for the three and six months ended December 31, 2019 was $20,000 and $40,000. There was no transfer agent services cost reimbursement for the three or six months ended December 31, 2018, because MacKenzie did not begin the service until November 2018 and the reimbursement did not start until March 14, 2019.

The table below outlines the related party expenses incurred for the six months ended December 31, 2019, and 2018 and unpaid as of December 31, 2019, and June 30, 2019.

 

 

Six Months Ended

   

Unpaid as of

 

Types and Recipient

 

December 31, 2019

   

December 31, 2018

   

December 31, 2019

   

June 30, 2019

 

 

                       

Base Management fees- the Adviser

 

$

1,240,280

   

$

1,053,791

   

$

630,285

   

$

584,737

 

Portfolio Structuring fee- the Adviser

   

361,592

     

371,023

     

-

     

-

 

Subordinated Incentive fee - the Adviser

   

-

     

1,209,548

     

-

     

1,789,870

 

Administrative Cost Reimbursements- MacKenzie

   

340,000

     

312,000

     

-

     

-

 

Transfer agent cost reimbursements - MacKenzie

   

40,000

     

-

     

-

     

(30,000

)*

Organization & Offering Cost (2) - MacKenzie

   

269,107

     

271,187

     

63,085

     

116,115

 

Other expenses (1)- MacKenzie

                   

3,583

     

5,163

 

 

                               

Due to related entities

                 

$

696,953

   

$

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 December 31, 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.

December 31, 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
December 31, 2019
   
Interest/Dividend/Other income
Six Months Ended
December 31, 2019
 
 
                                         
Affiliated Investments:
                                         
5210 Fountaingate, LP
 
$
552,693
   
$
-
   
$
-
   
$
-
   
$
(25,858
)
 
$
526,835
   
$
-
 
Arrowpoint Burlington LLC
   
1,088,910
     
-
     
(1,333,331
)
   
583,331
     
(338,910
)
   
-
     
-
 
BP3 Affiliate, LLC
   
1,350,000
     
188,000
     
-
     
-
     
-
     
1,538,000
     
-
 
BR Desota Investment Co, LLC
   
4,250,000
     
-
     
(4,250,000
)
   
-
     
-
     
-
     
46,623
 
BR Everwood Investment Co, LLC
   
-
     
3,750,000
     
-
     
-
     
-
     
3,750,000
     
46,257
 
BR Quinn35 Investment Co, LLC
   
4,000,000
     
-
     
(4,000,000
)
   
-
     
-
     
-
     
167,768
 
BR Westerly Investment Co, LLC
   
-
     
4,120,667
     
-
     
-
     
-
     
4,120,667
     
178,423
 
FSP Energy Tower I Corp. Liquidating Trust
   
57,566
     
-
     
-
     
-
     
1,355
     
58,921
     
-
 
FSP Satellite Place
   
712,585
     
(494
)
   
-
     
-
     
(83,534
)
   
628,557
     
-
 
Lakemont Partners, LLC
   
1,007,700
     
-
     
-
     
-
     
6,071
     
1,013,771
     
8,540
 
MPF Pacific Gateway - Class B
   
7,316
     
-
     
-
     
-
     
-
     
7,316
     
-
 
Secured Income, LP
   
302,009
     
-
     
-
     
-
     
(11,641
)
   
290,368
     
-
 
Summit Healthcare REIT, Inc.
   
2,587,408
     
2,254
     
-
     
-
     
(41,474
)
   
2,548,188
     
-
 
 
                                                       
 
 
$
15,916,187
   
$
8,060,427
   
$
(9,583,331
)
 
$
583,331
   
$
(493,991
)
 
$
14,482,623
   
$
447,611
 
Controlled Investments:
                                                       
Addison NC, LLC
   
3,600,000
   
$
-
   
$
-
   
$
-
   
$
150,000
   
$
3,750,000
   
$
-
 
Addison Property Member, LLC
   
7,314,855
     
-
     
-
     
-
     
1,089,914
     
8,404,769
     
627,201
 
Bishop Berkeley, LLC
   
4,051,013
     
-
     
-
     
-
     
428,126
     
4,479,139
     
46,023
 
Britannia Preferred Members, LLC -Class 1
   
2,986,550
     
-
     
-
     
-
     
259,700
     
3,246,250
     
-
 
Britannia Preferred Members, LLC -Class 2
   
7,758,915
     
-
     
-
     
-
     
(756,842
)
   
7,002,073
     
-
 
Capitol Hill Partners, LLC
   
1,852,500
     
-
     
-
     
-
     
41,800
     
1,894,300
     
-
 
Citrus Park Hotel Holdings, LLC
   
-
     
5,000,000
     
-
     
-
     
-