MacKenzie Realty Capital, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - MRC 10Q - EXHIBIT 31.2 - MacKenzie Realty Capital, Inc.	exhibit312.htm
EX-31.1 - MRC 10Q - EXHIBIT 31.1 - MacKenzie Realty Capital, Inc.	exhibit311.htm
EX-32.1 - MRC - 10Q- EXHIBIT 32.1 - MacKenzie Realty Capital, Inc.	exhibit321.htm
EX-32.2 - MRC -10Q - EXHIBIT 32.2 - MacKenzie Realty Capital, Inc.	exhibit322.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Form 10-Q

(Mark one)
X	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

¨¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number 000-55006

MacKenzie Realty Capital, Inc.
(Exact name of registrant as specified in its charter)

Maryland		45-4355424
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1640 School Street, Moraga, California 94556
(Address of principal executive offices)

(925) 631-9100
(Registrant’s telephone number, including area code)

________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 or Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer X Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
The number of the shares of issuer’s Common Stock outstanding as of May 11, 2015 was 1,965,395.17.

SLC-7226539-2

Table of Contents

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Statements of Assets and Liabilities as of March 31, 2015 (Unaudited) and June 30, 2014	1

	Schedule of Investments as of March 31, 2015 (Unaudited)	2

	Schedule of Investments as of June 30, 2014	3

	Statements of Operations for the three months and nine months ended March 31, 2015 and 2014 (Unaudited)	4

	Statements of Changes in Net Assets for the nine months ended March 31, 2015 (Unaudited), and the year ended June 30, 2014	5

	Statements of Cash Flows for the nine months ended March 31, 2015 and 2014 (Unaudited)	6

	Notes to Financial Statements	7-19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

SIGNATURES		30

	Exhibit Index	31

SLC-7226539-2

Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MacKenzie Realty Capital, Inc.

Statements of Assets and Liabilities

March 31, 2015 and June 30, 2014

	March 31, 2015		June 30, 2014
	(Unaudited)
Assets
Investments, at fair value (cost of $14,640,540 and $5,593,407, respectively)	$	16,667,386	$	5,905,995
Cash and cash equivalents		2,123,677		3,522,751
Accounts receivable		69,043		12,869
Other assets		209,947		69,145
Deferred offering costs (net of accumulated amortization of $424,825 and $389,423, respectively)		-		35,402
	$	19,070,053	$	9,546,162

Liabilities
Accounts payable and accrued liabilities	$	40,566	$	58,378
Income tax payable		6,488		160,362
Capital pending acceptance		411,408		380,200
Due to related entities		158,929		57,915
Deferred tax liability		37,943		124,518
Total liabilities		655,334		781,373

Net assets
Common stock, $0.0001 par value, 80,000,000 shares authorized; 1,811,991.17 and 893,807.67 shares issued and outstanding, respectively		181		89
Capital in excess of par value		16,711,802		8,591,878
Retained earnings		1,702,736		172,822
Total net assets	$	18,414,719	$	8,764,789

Net asset value per share of common stock (note 6)	$	10.16	$	9.81

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Schedule of Investments

March 31, 2015

(Unaudited)

Name			Asset Type	Shares/Units		Cost Basis		Total Fair Value		% of Net Assets
American Realty Capital Properties, Inc.			Publicly Traded Company		54,800.00	$	514,633	$	539,780		2.94
Apartment Investment and Management Company			Publicly Traded Company		3,888.00		115,163		153,032		0.83
Ashford Hospitality Prime, Inc.			Publicly Traded Company		12,800.00		224,201		214,656		1.17
Ashford Hospitality Trust, Inc.			Publicly Traded Company		30,000.00		299,917		288,600		1.57
Associated Estates Realty Corporation			Publicly Traded Company		8,900.00		193,494		219,652		1.19
Bluerock Residential Growth REIT, Inc.			Publicly Traded Company		1,429.61		18,641		19,057		0.10
CBL & Associates Properties Inc.			Publicly Traded Company		18,300.00		348,730		362,340		1.97
Equity Commonwealth			Publicly Traded Company		12,150.00		311,113		322,582		1.75
FelCor Lodging Trust Incorporated			Publicly Traded Company		6,300.00		51,604		72,387		0.39
Lexington Realty Trust			Publicly Traded Company		49,300.00		528,497		484,619		2.63
Liberty Property Trust			Publicly Traded Company		5,500.00		195,750		196,350		1.07
One Liberty Properties, Inc.			Publicly Traded Company		9,000.00		206,110		219,780		1.19
Rouse Properties Inc			Publicly Traded Company		20,700.00		377,231		392,472		2.13
Senior Housing Properties Trust			Publicly Traded Company		9,000.00		201,135		199,710		1.08
Winthrop Realty Trust Shares of Beneficial Interest			Publicly Traded Company		38,500.00		597,020		628,320		3.41
Total Public Traded Company							4,183,239		4,313,337		23.42

Apple Hospitality REIT, Inc.			Non Traded Company		180,986.44		1,268,340		1,730,230		9.40
Bluerock Residential Growth REIT, Inc. Class B2			Non Traded Company		1,429.61		17,211		19,057		0.10
Bluerock Residential Growth REIT, Inc. Class B3			Non Traded Company		1,429.61		15,781		19,057		0.10
FSP South 10th Street Corp. Liquidating Trust			Non Traded Company		0.25		225		616		-
Hines Real Estate Investment Trust, Inc.			Non Traded Company		2,692.31		13,569		12,626		0.07
Inland American Real Estate Trust, Inc.			Non Traded Company		304,977.27		902,875		914,932		4.97
Landmark Apartment Trust, Inc.			Non Traded Company		139,704.88		598,087		783,744		4.26
SmartStop Self Storage, Inc.			Non Traded Company		17,242.04		123,750		163,110		0.89
TIER REIT, Inc.			Non Traded Company		1,324,247.32		2,813,101		3,601,953		19.56
Total Non Traded Company		(1)					5,752,939		7,245,325		39.35

Brown Palace Hotel Associates, LP			LP Interest		0.25		1,913		4,510		0.02
Del Taco Income Properties IV			LP Interest		2,296.00		59,696		57,400		0.31
Del Taco Restaurant Properties I			LP Interest		437.00		321,618		371,935		2.02
Del Taco Restaurant Properties II			LP Interest		644.00		123,206		140,070		0.76
DRV Holding Company, LLC			LP Interest		500.00		500,000		547,245		2.97
El Conquistador Limited Partnership			LP Interest		2.00		80,976		60,297		0.33
Hotel Durant, LLC			LP Interest		7.10		577,299		372,285		2.02
Inland Land Appreciation Fund II, L.P.			LP Interest		210.97		8,667		26,797		0.15
MPF Pacific Gateway - Class B	(2	)	LP Interest		23.20		6,287		6,265		0.03
National Property Investors 6			LP Interest		7.00		145		90		0.01
Post Street Renaissance Partners Class A			LP Interest		9.10		16,981		20,336		0.11
Post Street Renaissance Partners Class D			LP Interest		21.60		105,623		130,036		0.71
Rancon Realty Fund IV			LP Interest		1,005.00		181,251		408,030		2.22
Rancon Realty Fund V			LP Interest		1,156.00		213,661		267,892		1.45
Secured Income, LP			LP Interest		64,177.00		560,403		716,215		3.89
Uniprop Manufactured Housing Income Fund II, LP			LP Interest		53,202.00		237,401		221,320		1.20
VWC Savannah, LLC			LP Interest		8.25		825,000		825,000		4.48
Total LP Interest							3,820,127		4,175,723		22.68

Coastal Realty Business Trust, REEP, Inc. - A	(2	)	Investment Trust		72,320.00		73,555		92,570		0.50
Coastal Realty Business Trust, Series H2- A	(2	)	Investment Trust		47,284.16		246,351		190,555		1.03
Total Investment Trust							319,906		283,125		1.53

BR Cabrillo LLC Promissory Note			Note		324,332.58		324,333		424,876		2.31
TTLC Note			Note		250,000.00		239,996		225,000		1.22
Total Note							564,329		649,876		3.53

Total Investments						$	14,640,540	$	16,667,386		90.51

(1) Investments primarily in non traded public REITs or their successors.

(2) Investment in related party

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Schedule of Investments

June 30, 2014

Name			Asset Type	Shares/Units		Cost Basis		Total Fair Value		% of Net Assets
Agree Realty Corporation			Publicly Traded Company		4,200.00	$	117,893	$	126,966		1.45
Apartment Investment and Management Company			Publicly Traded Company		3,888.00		115,163		125,466		1.43
Ashford Hospitality Prime, Inc.			Publicly Traded Company		12,800.00		224,201		219,648		2.51
Associated Estates Realty Corporation			Publicly Traded Company		4,000.00		69,920		72,080		0.82
CBL & Associates Properties Inc.			Publicly Traded Company		5,000.00		95,057		95,000		1.08
CommonWealth REIT			Publicly Traded Company		8,450.00		213,363		222,404		2.54
Empire State Realty OP, L.P.			Publicly Traded Company		19,176.00		255,281		303,940		3.47
Empire State Realty OP, L.P. - Series 250			Publicly Traded Company		1,757.00		24,728		27,426		0.31
Empire State Realty OP, L.P. - Series 60			Publicly Traded Company		4,974.00		64,081		78,191		0.89
Empire State Realty Trust, Inc. Class A			Publicly Traded Company		4,832.00		64,217		79,728		0.91
FelCor Lodging Trust Incorporated			Publicly Traded Company		6,300.00		51,604		66,213		0.76
Lexington Realty Trust			Publicly Traded Company		10,800.00		123,452		118,908		1.36
Rouse Properties Inc			Publicly Traded Company		9,500.00		176,525		162,545		1.85
Total Public Traded Company							1,595,485		1,698,515		19.38

Apple Hospitality REIT, Inc.			Non Traded Company		21,539.39		116,937		194,931		2.22
BellaVista Capital, Inc.			Non Traded Company		123,987.00		49,595		49,595		0.57
Hines Real Estate Investment Trust, Inc.			Non Traded Company		2,692.31		13,569		13,058		0.15
Total Non Traded Company		(1)					180,101		257,584		2.94

Brown Palace Hotel Associates, LP			LP Interest		0.25		1,913		1,932		0.03
Del Taco Income Properties IV			LP Interest		2,296.00		59,696		64,472		0.74
Del Taco Restaurant Properties I			LP Interest		417.00		306,918		330,798		3.77
Del Taco Restaurant Properties II			LP Interest		632.00		120,803		152,129		1.74
DRV Holding Company, LLC			LP Interest		500.00		500,000		500,000		5.70
El Conquistador Limited Partnership			LP Interest		2.00		80,976		94,754		1.08
Hotel Durant, LLC			LP Interest		7.10		577,299		367,461		4.19
Inland Land Appreciation Fund II, L.P.			LP Interest		210.97		8,667		26,234		0.30
Inland Land Appreciation Fund, L.P.			LP Interest		149.37		18,166		19,418		0.22
MPF Pacific Gateway - Class B	(2	)	LP Interest		23.20		6,287		6,264		0.07
National Property Investors 6			LP Interest		7.00		145		95		-
Post Street Renaissance Partners Class A			LP Interest		9.10		16,981		16,981		0.19
Post Street Renaissance Partners Class D			LP Interest		11.60		56,729		58,319		0.67
Rancon Realty Fund IV			LP Interest		997.00		179,266		312,659		3.57
Rancon Realty Fund V			LP Interest		1,150.00		212,541		245,629		2.80
Secured Income, LP			LP Interest		26,600.00		232,732		249,242		2.84
Uniprop Manufactured Housing Income Fund II, LP			LP Interest		47,304.00		207,996		234,155		2.67
Total LP Interest							2,587,115		2,680,542		30.58

Coastal Realty Business Trust, REEP, Inc.	(2	)	Investment Trust		72,320.00		73,555		90,400		1.03
Coastal Realty Business Trust, Secured Income	(2	)	Investment Trust		37,577.00		327,671		352,096		4.02
Coastal Realty Business Trust, Series H2	(2	)	Investment Trust		47,284.16		246,351		254,389		2.90
Coastal Realty Business Trust, Series L2	(2	)	Investment Trust		7,950.00		18,444		17,411		0.20
Coastal Realty Business Trust, Series Q	(2	)	Investment Trust		10.00		48,894		50,264		0.57
Total Investment Trust							714,915		764,560		8.72

BR Cabrillo LLC Promissory Note			Note				275,795		275,794		3.15
TTLC Note			Note				239,996		229,000		2.61
Total Note							515,791		504,794		5.76

Total Investments						$	5,593,407	$	5,905,995		67.38

(1) Investments primarily in non traded public REITs or their successors.

(2) Investment in related party

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Statements of Operations

For The Three and Nine Months Ended March 31, 2015 and 2014

(Unaudited)


	For The Three Months Ended March 31,						For The Nine Months Ended March 31,
	2015			2014			2015			2014
Investment income
Dividend and distribution income	$	152,119		$	99,523		$	312,341		$	235,835
Interest and other income		22,183			6,483			46,937			18,944
Total investment income		174,302			106,006			359,278			254,779

Operating expenses
Investment advisory fees		135,875			57,331			335,575			166,564
Administrative cost reimbursements		30,000			12,000			90,000			48,000
Amortization of deferred offering costs		-			106,206			35,402			283,217
Professional fees		16,349			17,005			129,739			101,258
Other general and administrative		29,242			46,080			93,495			86,110
Total operating expenses		211,466			238,622			684,211			685,149

Net investment loss		(37,164	)		(132,616	)		(324,933	)		(430,370	)

Net realized gain on sale of investments		436,436			142,469			758,190			551,879
Net unrealized gain on investments		929,836			276,752			1,714,257			409,076
Total net realized and unrealized gain on investments		1,366,272			419,221			2,472,447			960,955

Income tax (provision) benefit (note 2)		-			(129,538	)		188,949			(301,922	)

Net increase in net assets resulting from operations	$	1,329,108		$	157,067		$	2,336,463		$	228,663

Net increase in net assets resulting from operations per share	$	0.78		$	0.21		$	1.71		$	0.31

Weighted average common shares outstanding		1,696,306			747,840			1,363,202			734,663

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Statements of Changes in Net Assets

For The Nine Months Ended March 31, 2015 and The Year June 30, 2014

	For The Nine Months Ended			For The Year Ended
	March 31, 2015			June 30, 2014
	(Unaudited)
Operations
Net investment loss	$	(324,933	)	$	(290,587	)
Net realized gain on sale of investments		758,190			632,703
Net unrealized gain on investments		1,714,257			192,524
Income tax (provision) benefit		188,949			(373,580	)
Net increase in net assets resulting from operations		2,336,463			161,060

Capital share transactions
Issuance of common stock		9,178,608			1,655,901
Dividend to Stockholders		(675,699	)		(130,850	)
Selling commissions and fees		(1,189,442	)		(215,254	)
Net increase in net assets resulting from capital share transactions		7,313,467			1,309,797

Total increase in net assets		9,649,930			1,470,857

Net assets at beginning of period		8,764,789			7,293,932

Net assets at end of period	$	18,414,719		$	8,764,789

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Statements of Cash Flows

For The Nine Months Ended March 31, 2015, and 2014

(Unaudited)

	For The Nine Months Ended March 31,
	2015			2014

Cash flows from operating activities:
Net increase in net assets resulting from operations	$	2,336,463		$	228,663
Adjustments to reconcile net increase in net assets resulting from
operations to net cash used in operating activities:
Proceeds from sale of investments, net		4,405,858			1,681,970
Return of capital		85,572			224,570
Purchase of investments		(12,780,374	)		(754,946	)
Net realized gain on sale of investments		(758,190	)		(551,879	)
Net unrealized gain on investments		(1,714,257	)		(409,076	)
Amortization of deferred offering costs		35,402			283,217
Changes in assets and liabilities:
Accounts receivable		(56,174	)		(469,661	)
Other assets		(140,802	)		(6,349	)
Accounts payable and accrued liabilities		(17,812	)		(170,554	)
Income tax payable		(153,874	)		-
Due to related entities		101,014			31,166
Deferred tax liability		(86,575	)		170,426
Net cash from operating activities		(8,743,749	)		257,547

Cash flows from financing activities:
Proceeds from issuance of common stock		9,178,608			362,000
Dividend to Stockholders		(675,699	)		-
Payment of selling commissions and fees		(1,189,442	)		(47,060	)
Change in capital pending acceptance		31,208			-
Net cash from financing activities		7,344,675			314,940

Net increase (decrease) in cash and cash equivalents		(1,399,074	)		572,487

Cash and cash equivalents at beginning of the period		3,522,751			262,806

Cash and cash equivalents at end of the period	$	2,123,677		$	835,293

Supplemental schedule of noncash financing activities:
Taxes paid	$	51,000		$	87,900

The accompanying Notes to Financial Statements are an integral part of these financial statements.

Table of Contents

MacKenzie Realty Capital, Inc.

Notes to Financial Statements

March 31, 2015

(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on January 25, 2012, and has been active in matters relating to its operation as a non-diversified, closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). The Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share.

The Company filed its initial registration statement on June 1, 2012, with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of the Company’s common stock. The initial registration statement was declared effective by the SEC on August 2, 2013, and the offering commenced shortly thereafter. The Company commenced its operations on February 28, 2013 and its fiscal year-end is June 30.

The Company was formed with the intention of qualifying to be taxed as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986 and the Company has been operated in a manner that allows the Company to qualify as a REIT. Therefore, when the Company files its 2014 tax return, the Company will elect to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014.

The Company is 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 dated and effective as of February 28, 2013 (the “Investment Advisory Agreement”). The Investment Advisory Agreement was subsequently amended on August 6, 2014. The Company intends to pursue a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate. These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, limited liability companies, and tenancies-in-common.

On February 28, 2013, the Company acquired, under an exchange agreement (the “Contribution Agreement”), a portfolio of investments and cash (the “Legacy Portfolio”) from eight private funds collectively referred to as the “Legacy Funds,” which are managed by MacKenzie. The assets acquired from the Legacy Funds had a collective fair value of approximately $6.9 million ($6.4 million in investments and $0.5 million in cash) as of February 28, 2013. As consideration for the Company’s acquisition of the Legacy Portfolio, the Company issued 692,217 shares of the Company’s common stock to the Legacy Funds. In addition, in 2012 prior to the acquisition of the Legacy Portfolio, each of the Legacy Funds and MP Value Fund 8, LLC, a private investment fund managed by MacKenzie, purchased 4,000 shares of the Company’s common stock at $10 per share in order to provide the Company with funds to complete this exchange and prepare its initial public offering.

As of March 31, 2015, cumulative contributions of approximately $16.7 million (inclusive of the $6.9 million initial Legacy Funds capital investment), representing 1,811,991.17 shares, have been received.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s assets and liabilities as of March 31, 2015 and the results of its operations for the three and nine months periods ended March 31, 2015 and 2014, which results are not necessarily indicative of results on an annualized basis. The statement of assets and liabilities as of June 30, 2014 has been derived from audited financial statements. The Company follows the GAAP financial reporting standards for investment companies. Accordingly, the Company’s investments are recorded at estimated fair value in the statements of assets and liabilities with changes in unrealized gains (losses) in the fair value of such investments included within the Company’s statement of operations.

These unaudited financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2014 included in the Company’s annual report on Form 10-K filed with the SEC.

Table of Contents

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates.

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.

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 initial registration statement and the initial statement of assets and liabilities. These costs are expensed as incurred. Deferred 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. These offering costs were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC).

As provided in the Investment Advisory Agreement, the organization and offering costs incurred and paid by the Company in excess of $550,000 are reimbursed by the Adviser. Accordingly, the Company incurred and paid the non-reimbursable organization costs of $125,175 and offering costs of $424,825 totaling $550,000 during the period from January 25, 2012 (inception) through June 30, 2013. All organization and offering costs incurred by the Company subsequent to June 30, 2013 were reimbursed by the Adviser as disclosed in Note 5. The non-reimbursable organization costs of $125,175 were expensed as incurred during the period from January 25, 2012 (inception) through June 30, 2013. The non-reimbursable offering costs of $424,825 were deferred and expensed over a twelve month period beginning on August 2, 2013 (the effective date of the Company’s registration statement filed with the SEC). Amortization of the deferred offering cost for the three and nine months ended March 31, 2015 were $0 and $35,402, respectively. Amortization of the deferred offering cost for the three and nine months ended March 31, 2014 were $106,206 and $283,217, respectively. As of March 31, 2015, the deferred offering costs have been fully amortized.

Income Taxes and Deferred Tax Liability

Under ASC 740-10-25, the Company accounts 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.

The Company was formed with the intention of qualifying to be taxed as a REIT and the Company has been operated in a manner that will allow the Company to qualify as a REIT. Therefore, when the Company files its 2014 tax return, the Company will elect to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014. After the Company has qualified as a REIT, it will not be 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 meet certain other conditions. To the extent that the Company satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it will be subject to an excise tax on its undistributed taxable income.

Table of Contents

The Company is electing to be treated as a REIT for income tax purposes beginning with tax year ended December 31, 2014; as such, the Company did not record any tax provision amount for the three months ended March 31, 2015. For the nine months ended March 31, 2015, the Company recorded income tax benefit of $188,949. The following table shows the tax provision (benefit) by quarter:

For the three months ended	Income tax provision (benefit)
September 30, 2014	$	213,152
December 31, 2014		(402,101	)
March 31, 2015		-
Total	$	(188,949	)

Because the Company determined that it will qualify to be treated as a REIT for tax purposes beginning tax year ending December 31, 2014, during the three months ended December 31, 2014, the Company reversed $498,032 of income tax liability it had recorded as of September 30, 2014. The reversal amount was reduced by the income tax liability of $95,931 recorded for the built-in gain the Company had as of December 31, 2013 resulting in $402,101 of income tax benefit for the three months ended December 31, 2014. The reversed income tax liability of $498,032 was the income tax provisions recorded for the period of Jaunary 1, 2014 through September 30, 2014 based on corporate tax rates.

The provision for income taxes included in the financial statements includes both a current portion and a deferred portion. The following table shows the breakdown between the current and deferred income taxes for the periods presented:

	For The Three Months Ended March 31,					For The Nine Months Ended March 31,
	2015		2014			2015			2014

Current tax provision (benefit)
Federal	$	-	$	71,223		$	(63,823	)	$	112,236
State		-		12,222			(19,124	)		19,260
Total Current		-		83,445			(82,947	)		131,496

Deferred tax provision
Federal	$	-		39,342			(90,474	)		145,464
State		-		6,751			(15,528	)		24,962
Total deferred		-		46,093			(106,002	)		170,426

Federal		-		110,565			(154,297	)		257,700
State		-		18,973			(34,652	)		44,222
Total tax provision (benefit)	$	-	$	129,538		$	(188,949	)	$	301,922



The following table shows the tax effect of the cumulative temporary differences as of March 31,
		2015		2014

Unrealized gain on investments, net	$	95,261	$	210,780
Expenses, net of income deferred for tax purposes		-		(40,354	)
	$	95,261	$	170,426

Table of Contents

The effective tax rate as of December 31, 2014 was 39.8%; 34.0% U.S. statutory federal income tax rate and 5.8% California state tax, net of U.S. federal income tax benefit. This effective tax rate was applicable on the 2014 realized and unrealized built-in gain which are not tax exempted for REITs. Offering costs amortizing into the statement of operations are not considered deductible for income tax purposes and result in the effective tax rate on reported financial statement income to be larger than would otherwise be expected.

Per Share Information

Net increase or decrease in net assets resulting from operations per common share is calculated using the weighted average number of common shares outstanding for the periods presented.

Subsequent Events

Subsequent events are events or transactions that occur after the date of the statements of assets and liabilities but before the date the financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the statement of assets and liabilities are considered in the preparation of the financial statements presented herein. Subsequent events that occur after the date of the statement of assets and liabilities that do not provide evidence about the conditions that existed as of the date of the statement of net assets are considered for disclosure based upon their significance in relation to the Company’s financial statements taken as a whole.

Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash, accounts receivable from affiliates, interest payable to affiliates and other accrued expenses and liabilities approximate the fair values of such items.

Revenue Recognition

Realized gains or losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost of the investment. Investments are disposed of on a first-in, first-out basis.

Distributions received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date. Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.

Interest Income

Interest income is derived from the investments in notes and recorded on the accrual basis to the extent amounts are expected to be collected. Accrued interest is evaluated for collectability. When a debt security becomes 90 days or more past due and the Company does not expect the debtor to be able to service all of its debt or other obligations, the debt security will generally be placed on non-accrual status and the Company will cease recognizing interest income on that debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a debt security’s status significantly improves with respect to the debtor’s ability to service the debt or other obligations, or if a debt security is sold or written off, it will be removed from non-accrual status. As of March 31, 2015 and June 30, 2014, the Company did not have any investments that were more than 90 days past due or on non-accrual status. Additionally, the Company is not aware of any material changes to the creditworthiness of the borrowers underlying its debt investments.

Dividends and Distributions

Dividends (and distributions, if any) to common stockholders are recorded on the ex-dividend date. The amount, if any, to be paid as a quarterly dividend (or distribution, if any) is approved quarterly by the Board of Directors and is generally based upon management’s estimate of the Company’s earnings for the quarter.

Table of Contents

Capital Pending Acceptance

The Company generally admits new stockholders monthly and 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 statements of assets and liabilities. As of March 31, 2015 and June 30, 2014, capital pending acceptance were $411,408 and $380,200, respectively.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The adoption of the amended guidance in ASU 2014-09 is not expected to have a significant effect on our financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

Valuation of Investments

The Company’s financial statements include investments that are measured at their estimated fair values in accordance with GAAP. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. The Company develops fair values for investments based on available inputs which could include pricing that is observed in the marketplace.

Examples of market information that the Company attempts to obtain include the following:

•	Recently quoted trading prices for the same or similar securities;

•	Recent purchase prices paid for the same or similar securities;

•	Recent sale prices received for the same or similar securities;

•	Relevant reports issued by industry analysts and publications; and

•	Other relevant observable and unobservable inputs, including liquidity discounts.

After considering all available indications of the appropriate rate of return that market participants would require, the Company considers the reasonableness of the range indicated by the results to determine an estimate that, in its opinion, is most representative of fair value.

The real estate securities in which the Company invests are, due to the absence of an efficient market, generally illiquid. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions. If either the volume and/or level of trading activity for an investment has significantly changed from normal market conditions, or price quotations or observable inputs are not associated with orderly transactions, the market inputs used might not be relevant. For example, recently quoted trading prices might not be relevant if a ready market does not exist for the quantity of investments that the Company may wish to sell.

In circumstances where relevant market inputs cannot be obtained, increased analysis and management judgment are required to estimate fair value. This generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Regardless of the valuation inputs used, the objective of fair value measurement is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price.

The Company is under no compulsion to dispose of its investments, and expects to hold them for a substantial period of time. Therefore, estimated values as determined above may not reflect amounts that could be realized upon actual sale at a future date.

Table of Contents

Fair Value Measurements

GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value. Market price is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observables and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

Level I

Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I are publicly traded equity securities. The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II

Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions.

Level III

Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company’s investments at cost and fair value as of March 31, 2015 and June 30, 2014:

	March 31, 2015				June 30, 2014
Asset Type	Cost		Fair Value		Cost		Fair Value
Publicly Traded Company	$	4,183,239	$	4,313,337	$	1,595,485	$	1,698,515
Non Traded Company		5,752,939		7,245,325		180,101		257,584
LP Interest		3,820,127		4,175,723		2,587,115		2,680,542
Investment Trust		319,906		283,125		714,915		764,560
Note		564,329		649,876		515,791		504,794
Total	$	14,640,540	$	16,667,386	$	5,593,407	$	5,905,995

Table of Contents

The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of March 31, 2015 according to the fair value hierarchy:

Asset Type	Total		Level I		Level II		Level III
Publicly Traded Company	$	4,313,337	$	4,313,337	$	-	$	-
Non Traded Company		7,245,325		-		-		7,245,325
LP Interest		4,175,723		-		-		4,175,723
Investment Trust		283,125		-		-		283,125
Note		649,876		-		-		649,876
Total	$	16,667,386	$	4,313,337	$	-	$	12,354,049

The following table presents fair value measurements of the Company’s investments measured at fair value on a recurring basis as of June 30, 2014 according to the fair value hierarchy:

Asset Type	Total		Level I		Level II		Level III
Publicly Traded Company	$	1,698,515	$	1,288,958	$	409,557	$	-
Non Traded Company		257,584		-		-		257,584
LP Interest		2,680,542		-		-		2,680,542
Investment Trust		764,560		-		-		764,560
Note		504,794		-		-		504,794
Total	$	5,905,995	$	1,288,958	$	409,557	$	4,207,480

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) for the nine month period ended March 31, 2015:

Balance at July 1, 2014	$	4,207,480
Purchases of investments		8,838,414
Transfer to Level I		(595,058	)
Proceeds from sales, net		(2,233,436	)
Return of capital		(20,781	)
Net realized gain on sale of investments		470,240
Net unrealized gain		1,687,190
Ending balance at March 31, 2015	$	12,354,049

For the nine months ended March 31, 2015, changes in unrealized gain included in earnings relating to Level III investments still held at March 31, 2015 was $1,738,088.

The transfer of $595,058 from Level III to Level I during the nine months ended March 31, 2015 relates to changes in tradability of the securities in an active market due to one of the Company’s investments converting from an LP interest to public REIT shares.

Balance at July 1, 2013	$	5,823,451
Purchases of investments		824,900
Transfer to Level I		(55,597	)
Proceeds from sales, net		(1,537,952	)
Return of capital		(1,304,778	)
Net realized gain on sale of investments		398,431
Net unrealized gain		59,025
Ending balance at June 30, 2014	$	4,207,480

Table of Contents

For the fiscal year ended June 30, 2014, changes in unrealized gain included in earnings relating to Level III investments still held at June 30, 2014 was $290,795.

The transfer of $55,597 from Level III to Level I during the year ended June 30, 2014 relates to changes in tradability of the securities in an active market due to one of the Company’s investments converting from an LP interest to public REIT shares.

There were no Level II investments as of March 31, 2015. Level II investments as of June 30, 2014 with total fair value of $409,557 included investments in thinly-traded public REITs which were valued using the ten day average trading prices of their stock.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2015:

Asset Type

Fair Value

Primary Valuation Techniques

Unobservable Inputs Used

Range

Wt. Average

Non Traded Company

7,244,709

Market Activity

Contracted sale of security price

Secondary market industry publication

Convertible stock price

Non Traded Company

616

Net Asset Value (1)

Sponsor provided value

LP Interest

2,050,552

Market Activity

Acquisition Cost

Secondary market industry publication

LP Interest

2,125,171

Net Asset Value (1)

Capitalization rate

6.6% - 7.7

6.9

Comparable sales report

Contracted sale of property

Liquidity discount

10.0% - 40.0

30.6

Sponsor provided value

Investment Trust

190,555

Market Activity

Secondary market industry publication

Investment Trust

92,570

Net Asset Value (1)

Capitalization rate

6.6

Note

225,000

Discounted Cash Flow

Quoted market prices

Discount rate

9.8

Term (in years)

3.3

Note

424,876

Net Asset Value (1)

Liquidity discount

10.0

Sponsor provided value

12,354,049

Valuation Technique Terms:

(1) Internally calculated investee's net asset value, which is the estimated total assets minus the value of all liabilities.

Table of Contents

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2014:

Asset Type	Fair Value		Primary Valuation Techniques	Unobservable Inputs Used	Range			Wt. Average

Non Traded Company	$	257,584	Market Activity	Contracted security purchase price
				Secondary market industry publication

LP Interest		8,196	Discounted Cash Flow	Sponsor provided value
				Liquidity discount		15 % - 31.5	%		28	%
LP Interest		2,134,737	Market Activity	Secondary market industry publication
				Contracted security purchase price
LP Interest		537,609	Net Asset Value (1)	Capitalization rate		6.5% - 9.5	%		7	%
				Liquidity discount		10% - 35	%		29	%

Investment Trust		623,896	Market Activity	Secondary market industry publication
Investment Trust		140,664	Net Asset Value (1)	Capitalization rate		6.3	%
				Liquidity discount		10% - 31.5	%		24	%

Note		504,794	Market Activity	Contracted security purchase price
			Discounted Cash Flow	Term (in years)		4.0
				Quoted market prices
				Discount rate		11.6	%
	$	4,207,480

Valuation Technique Terms:

(1) Internally calculated investee's net asset value, which is the estimated total assets minus the value of all liabilities.

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 between 50% and 70% of the equity of certain securities held in the account. Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of March 31, 2015, the Company had $2,900,061 of margin credit available for cash withdrawal or the ability to purchase up to $5,800,122 in additional shares. As of June 30, 2014, the Company had $1,275,165 of margin credit available for cash withdrawal or the ability to purchase up to $2,550,330 in additional shares. As of March 31, 2015 and June 30, 2014, the Company had not drawn any amount or purchased any shares under this short-term credit line.

NOTE 5 –RELATED PARTY TRANSACTIONS

Investment Advisory Agreement:

Under the Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components — a portfolio structuring fee, a base management fee and a subordinated incentive fee.

The portfolio structuring fee is for the Adviser’s initial work performed in connection with the acquisition of all of the Company’s assets and equals 3.0% of the gross proceeds from the sale of the Company’s shares.

The base management fee is calculated based on the Company’s “managed funds,” which equal the price at which the Company’s shares are issued plus any borrowing for investment purposes. The base management fees range from 1.5% to 3.0%, depending on the level of the “managed funds.”

The subordinated incentive fee has three parts—income, capital gains and liquidation. The income component is (i) 100% of the Company’s preliminary net investment income for any calendar quarter that exceeds 1.75% (7% annualized) but is less than 2.1875% (8.75% annualized) of the Company’s “contributed capital” (defined as the number of shares outstanding, multiplied by the price at which the shares are sold), and (ii) 20% of the Company’s preliminary net investment income for any calendar quarter that exceeds 2.1875% (8.75% annualized) of the Company’s “contributed capital.” The capital gains component is (i) 100% of the Company’s realized capital gains annually generated by its investments above 7% and up to 8.75% of the Company’s “contributed capital,” and (ii) 20% of the Company’s realized capital gains above 8.75% of the Company’s “contributed capital,” all computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The capital gains component may not, in any event, exceed 20% of the Company’s realized capital gains, net of all realized capital losses and unrealized capital depreciation. The liquidation component will be 20% of the amount by which all distributions to stockholders exceed the “contributed capital,” less all previously-paid capital gains fees, provided that the liquidation component may not exceed 20% of all of the Company’s realized capital gains as of the date of liquidation.

The portfolio structuring fees for the three and nine months ended March 31, 2015 were $102,918 and $276,928, respectively. The portfolio structuring fees for the three and nine months ended March 31, 2014 was $12,670.

The base management fees for the three and nine months ended March 31, 2015 were $135,875 and $335,575, respectively. The base management fees for the three and nine months ended March 31, 2014 were $57,331 and $166,564, respectively. The base management fees were recorded as investment advisory fees on the statements of operations and due to related entities in the statements of assets and liabilities.

The Company has not paid any subordinated incentive fees as of March 31, 2015.

Table of Contents

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred and paid by the Company in excess of $550,000 will be reimbursed by the Adviser. As of March 31, 2015 and June 30, 2014, the Company had incurred $955,109 and $806,672 of organization and offering costs, respectively. Thus, according to the agreement, $405,109 and $256,672 of the amount were reimbursable from the Adviser as of March 31, 2015 and June 30, 2014, respectively. As of March 31, 2015, the Adviser has reimbursed the Company in the amount of $394,105 and the remaining reimbursable amount of $11,004 was settled through an offset against the amount payable to the Adviser as of March 31, 2015.

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, Financial Reporting Manager, and any administrative support staff.

The administrative cost reimbursements for the three and nine months ended of March 31, 2015, were $30,000 and $90,000, respectively. The administrative cost reimbursements for the three and nine months ended of March 31, 2014, were $12,000 and $48,000, respectively.

The table below outlines the related party expenses incurred for the nine months ended March 31, 2015 and 2014 and unpaid as of March 31, 2015 and 2014.

	For The Nine Months Ended				Unpaid as of
Types and Recipient	March 31, 2015		March 31, 2014		March 31, 2015			March 31, 2014

Portfolio Structuring fee- the Adviser	$	276,928	$	12,670	$	3,976		$	-
Base Management fees- the Adviser		335,575		166,564		135,875			57,331
Administrative Cost Reimbursements- MacKenzie		90,000		48,000		30,000			12,000
Others expenses (1) -MacKenzie		-				82			2,282
Organization & Offering Cost Reimbursement by the Adviser						(11,004	)		(5,054	)
Due to related entities					$	158,929		$	66,559

(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.

Table of Contents

Investments:

Coastal Realty Business Trust (“CRBT”):

CRBT is a Nevada business trust whose trustee is MacKenzie and whose beneficiaries are the Company and various private funds managed by MacKenzie. Its purpose is to own various investments on behalf of such funds.

Each CRBT Trust Series (“Series”) pools capital from several funds managed by MacKenzie and invests (generally) in shares of private REITs as provided for in the Trust Agreement. Each Series participant is limited by the terms of the agreement and, as such, an interest in a Series has no redemption rights.

During the quarter ended December 31, 2014, all Series in which the Company had ownership interests in either transferred the Series’ underlying investments to the funds that owned the Series and dissolved, or transferred the Company’s share of the underlying investment and formed a new Series where the Company is the 100% owner of the Series.

The Company had investment in the following Series as of March 31, 2015:

●

The Company has a 100% ownership interest in CRBT, REEP, Inc.-A, which has ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland. During the quarter ended December 31, 2014, the Company received the general partner ownership interest, which this Series currently owns, from CRBT, REEP, Inc., as distribution-in-kind proportionate to the Company’s ownership share in Series REEP, Inc. The Company afterwards exchanged the general partner interest for 100% of ownership interest in CRBT, REEP, Inc-A.

●

The Company has 100% ownership interest in CRBT, Series H2-A, which invests in shares of a REIT that owns a real estate portfolio totaling 170 properties located in the United States and Canada. These properties include senior housing, hotels and resorts, golf courses, and marinas, among others. During the quarter ended December 31, 2014, the Company received shares of the underlying REIT, which this Series currently owns, from CRBT, Series H2 as distribution-in-kind proportionate to the Company’s ownership share in Series H2. The Company afterwards exchanged the underlying REIT’s shares for 100% of ownership interest in CRBT Series, H2-A.

●

The Company had an ownership interest in CRBT, Series L2, which invested in shares of a REIT that acquired and managed a diversified real estate portfolio, primarily comprised of retail, office, hotel, multi-family, and industrial properties. During the quarter ended December 31, 2014, this Series transferred all its underlying investments to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.

●

The Company had an ownership interest in CRBT, Secured Income, which invested in units of a limited partnership, which owns one multi-family property located in Frederick, Maryland. During the quarter ended December 31, 2014, this Series transferred its investments in the limited partnership to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.

●

The Company had an ownership interest in CRBT, Series Q, which invested in units of a limited partnership formed for the purpose of acquiring, refurbishing, and operating the Prescott Hotel and Postrio Restaurant located near Union Square in San Francisco, California. During the quarter ended December 31, 2014, this Series transferred all its ownership interests in the limited partnership to the MacKenzie-managed funds which owned this Series (including the Company) proportionate to their ownership interest and dissolved as of December 31, 2014.

As of June 30, 2014, the Company had investments in these Series (each described above): CRBT, REEP, Inc., CRBT, Secured Income, CRBT, Series H2, CRBT, Series L2, and CRBT, Series Q.

MPF Pacific Gateway:

MPF Pacific Gateway, which is managed by MacKenzie, is a holding company that owns an investment in a REIT Liquidating Trust. As of March 31, 2015 and June 30, 2014, the Company had a 15.82% of ownership interest in MPF Pacific Gateway.

Table of Contents

NOTE 6 – FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights of the Company for the nine months ended March 31, 2015 and the year ended June 30, 2014.

	For The Nine months ended			For The Year Ended
	March 31, 2015			June 30, 2014
Per Share Data:

Beginning net asset value	$	9.81		$	10.02

Net investment loss (1)		(0.24	)		(0.38	)
Net realized gain on sale of investments (1)		0.56			0.83
Net unrealized gain on investments (1)		1.25			0.25
Income tax (provision) benefit (1)		0.14			(0.49	)
Net increase (decrease) in net assets resulting from operations		1.71			0.21

Issuance of common stock below net asset value (1) (4)		(0.86	)		(0.24	)
Dividends to stockholders (1)		(0.50	)		(0.18	)
Ending net asset value	$	10.16		$	9.81

Weighted average common shares outstanding		1,363,202			763,813
Shares outstanding at the end of period		1,811,991			893,808
Net assets at the end of period	$	18,414,719		$	8,764,789
Average net assets (2)	$	13,589,754		$	7,791,777

Ratios to average net assets
Total expenses (5)		5.03	%		11.74	%
Net investment loss (5)		(2.39	)%		(3.73	)%
Total rate of return (2) (3)		17.19	%		2.07	%

(1)	Based on weighted average number of shares of common stock outstanding for the period.

(2)	Average net assets were derived from the beginning and ending period-end net assets.

(3)	Total return is calculated based upon the change in value of the net assets. An individual shareholder’s return may vary from this return based on the time of capital transactions.

(4)	Net of sales commissions and dealer manager fees of $1.30 per share.

(5)	Not annualized for the nine months ended March 31, 2015.

Table of Contents

NOTE 7 – SHARE OFFERINGS AND FEES

During the nine months ended March 31, 2015, the Company issued 914,956 shares at $10 per share with gross proceeds of $9,149,560 and issued 3,227.50 shares under the Company’s dividend reinvestment plan (“DRIP”) at $9 per share with gross proceeds of $29,048. For the nine months ended March 31, 2015, the Company paid selling commissions and up front fees of $1,189,442, of which $276,928 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

During the nine months ended March 31, 2014, the Company issued 36,200 shares at $10 per share with gross proceeds of $362,000. For the nine months ended March 31, 2014, the Company paid selling commissions and up-front fees of $47,060, of which $12,670 represents the portfolio structuring fees paid to the Adviser under the Investment Advisory Agreement.

NOTE 8 –STOCKHOLDER DIVIDENDS

The following table reflects the cash dividend per share that the Company paid on its common stock during the nine months ended March 31, 2015:

	Dividends
For the Quarter Ended	Per Share		Amount
Three months ended September 30, 2014	$	0.300	$	255,442
Three months ended December 31, 2014	$	0.175	$	186,812
Three months ended March 31, 2015	$	0.175	$	233,445

The Company’s income from operations, which included realized and unrealized gain from the sale of investments, was greater than the amount of the above dividend. Thus, on a GAAP basis, our income from operations exceeded our dividend. Conversely, on a tax basis, some of the dividend may be considered return of capital and may be paid from funds other than operational cash flow.

The Company did not declare or distribute any dividends during the nine months ended March 31, 2014.

On May 5, 2015, the Company’s Board of Directors approved a quarterly dividend of $0.175 per share to the holders of record on March 31, 2015 with the expected payment date in May 2015. This dividend amount represents an annualized distribution yield of 7.0% based on the Company’s current public offering price of $10.00 per share, if it were maintained for a twelve-month period.

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc. (the “Fund,” ”we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” ”could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” in our Registration Statement filed on Form N-2.

We may experience fluctuations in our operating results due to a number of factors, including the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Overview

We have elected to be regulated as a business development company (“BDC”) and we are classified as a non-diversified closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). We also intended to elect to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”) as soon as we are able to qualify. As of December 31, 2014, we believe we have met the qualifications to be treated as a REIT. Therefore, when we file our 2014 tax return, we will elect to be treated as a REIT beginning with the tax year ended December 31, 2014. As a REIT, we will not be subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income.

We were formed to continue and expand the business of the portfolio of assets we acquired from eight private funds, which we refer to as our “Legacy Funds,” and which are managed by an affiliate of our investment adviser. The portfolio had a fair value, as determined by our Board of Directors, of approximately $6.92 million on February 28, 2013, including approximately $6.45 million of debt and equity investments issued by 47 portfolio companies (the “Legacy Portfolio”). As consideration for our acquisition of that portfolio, 692,217 shares of our common stock (“Shares”) were issued to the Legacy Funds. We intend to invest primarily in debt and equity real estate-related securities with the receipt of proceeds from our ongoing initial public offering (the “IPO”).

Table of Contents

Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of March 31, 2015 and June 30, 2014:

	March 31, 2015				June 30, 2014
Asset Type	Cost		Fair Value		Cost		Fair Value
Publicly Traded Company	$	4,183,239	$	4,313,337	$	1,595,485	$	1,698,515
Non Traded Company		5,752,939		7,245,325		180,101		257,584
LP Interest		3,820,127		4,175,723		2,587,115		2,680,542
Investment Trust		319,906		283,125		714,915		764,560
Note		564,329		649,876		515,791		504,794
Total	$	14,640,540	$	16,667,386	$	5,593,407	$	5,905,995

Net Asset Value

Our net asset value (“NAV”) as of March 31, 2015, was $10.16 per Share, compared to $9.81 per Share at June 30, 2014, a $0.35 per Share increase of approximately 3.60%. The net increase was primarily due to increases resulting from (i) net realized gain on sale of investments of $0.56 per Share (ii) net unrealized gains on investments of $1.25 per Share and (iii) income tax benefit of $0.14 per Share resulting from reversal of prior periods tax provisions in anticipation of our qualification to be taxed as a REIT for our 2014 tax year. The increases were offset by decreases resulting from (i) issuance of Shares (net of selling commissions and dealer manager fees) below NAV per Share resulting in decrease of $0.86 per Share (ii) a dividend to stockholders of $0.50 per Share and (iii) net investment loss of $0.24 per Share (which includes the amortization of deferred offering cost of $0.03 per Share).

Estimated Liquidation Value

Beginning with this quarterly report, we will be providing an Estimated Liquidation Value (“ELV”) of our Shares on a quarterly basis. Our ELV is a non-GAAP measure and is intended to provide to investors our estimate of the liquidation value of our securities portfolio. We believe this measure is useful to investors because many of our portfolio securities are illiquid. As a result, the GAAP exit pricing reflected in our NAV includes a significant illiquidity discount to the published net asset value of those issuers’ securities.

ELV is calculated based on the same methodology as NAV (which is calculated at the end of each fiscal quarter) but incorporates into that value assessment the published net asset value of any of our portfolio securities, as opposed to the “exit pricing” for such securities. We only include the published net asset value of a security if such net asset value is reported by a third party (usually the issuer) within a one-year period of the date of our quarterly or annual report, and there are no significant dispositions or acquisitions of the issuer’s assets, or material changes in its operations, since the date of such valuation. If there is no published net asset value, we will continue to use the GAAP exit pricing in the ELV.

Taking into account the published net asset values of the above issuers, our ELV per Share for the period ending March 30, 2015, is $11.91 per Share, or $1.75 higher than our NAV per Share of $10.16.

The following table includes the portfolio companies whose published net asset values were included in the above methodology, the fair value pricing used in determining our NAV, their published net asset values, and the resulting increase in the Fund’s ELV per Share as compared to our NAV per Share:

Table of Contents

Security	GAAP fair value per unit		Published net asset value per unit		Resulting increase in ELV as compared to NAV per Share		NAV & ELV per Share

NAV per Share							$	10.16

Apple Hospitality REIT, Inc.	$	9.56	$	10.30	$	0.07
Coastal Realty Business Trust, Series H2- A	$	4.03	$	5.20	$	0.03
Inland American Real Estate Trust, Inc.	$	3.00	$	4.00	$	0.17
Landmark Apartment Trust, Inc.	$	5.61	$	8.15	$	0.20
Rancon Realty Fund IV	$	406.00	$	671.97	$	0.15
Rancon Realty Fund V	$	231.74	$	289.68	$	0.04
SmartStop Self Storage, Inc.	$	9.46	$	10.81	$	0.01
TIER REIT, Inc.	$	2.72	$	4.20	$	1.08

Total increase in ELV compared to NAV per Share								1.75

ELV per Share							$	11.91

Limitations of Estimated Liquidation Value Per Share

As with any valuation methodology, the methodology used for our ELV was based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Further, different parties using different assumptions and estimates could derive a different ELV per share, which could be significantly different from our ELV per share. The ELV per share does not represent the amount our shares would trade at on a national securities exchange or the amount a stockholder would obtain if he or she tried to sell his or her shares or if we liquidated our assets. ELV per share does not take into account any incentive advisory fees that might be due to the Adviser, or any other expenses or fees involved in liquidating the portfolio.

Accordingly, with respect to the ELV per Share, we can give no assurance that:


•	a stockholder would be able to resell his or her shares at this estimated value;

•	a stockholder would ultimately realize distributions per share equal to our ELV per share upon liquidation of our assets and settlement of our liabilities or a sale or merger of the Fund;

•	our shares would trade at the ELV per Share on a national securities exchange; or

•	the methodologies used to estimate our ELV per share (1) have been approved by FINRA or (2) satisfy the annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code with respect to employee benefit plans subject to ERISA and other retirement plans or accounts subject to Section 4975 of the Code.

Further, please note that the basis for the difference between our GAAP NAV and ELV is the published per share value of certain portfolio securities, and the issuers of those securities may have an incentive or tendency to make their published value as high as possible to make their performance appear better. Nonetheless, we believe the values published are likely to be realistic estimates of potential liquidation value and that the resulting ELV for the Fund is valuable information for our investors to have.

The ELV of our shares was calculated as of a particular point in time. The ELV of our shares will fluctuate over time in response to, among other things, global economic issues that cause changes in real estate market fundamentals, capital market activities, and specific attributes of the properties and leases in the portfolios of the companies in which we have made investments.

Table of Contents

Investment Plan

We commenced our operations on February 28, 2013 with the acquisition of the Legacy Portfolio. Our investments are generally expected to range in size from $10 thousand to $3 million, similar to the investments in the Legacy Portfolio. However, we may make larger investments from time to time on an opportunistic basis. We intend to focus primarily on real estate-related securities. We will purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately offered securities, directly from issuers. We will invest primarily in debt and equity securities issued by U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

Distributions from Investments

We intend to generate revenues in the form of capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be generated in connection with our investments and recognized as earned.

Revenues

We plan to generate revenue primarily from dividends and/or capital gains from our investments. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees will be generated in connection with our investments and recognized as earned.

Results of Operations

Three Months Ended March 31, 2015 and 2014:

Investment Income: Total investment income for the three months ended March 31, 2015 and 2014 were $174,302 and $106,006, respectively. Investment income was primarily made up of dividend, distribution and interest income. The increase of $68,296, or 64%, was primarily due to increase in investment portfolio size by approximately $8.50 million in cost basis since March 31, 2014. The cost basis of our investment portfolio was $14.64 million as of March 31, 2015 compared to $6.14 million as of March 31, 2014.

Operating Expenses: Total operating expenses for the three months ended March 31, 2015 and 2014 were $211,466 and $238,622, respectively. This net decrease of $27,156, or 11%, was primarily attributed to decreases in amortization of deferred offering cost of $106,206 and other general and administrative expenses of $16,838 offset by increases in investment advisory fees of $78,544 and administrative costs reimbursements of $18,000. The decrease in amortization of deferred offering cost was due to deferred offering cost of $424,825 being fully amortized as of the quarter ended September 30, 2014. The decrease in other general and administrative expenses was primarily due to investment carry cost of $14,900 incurred in the three months ended March 31, 2014. No such costs were incurred in the three months ended March 31, 2015. The increases in investment advisory fees and administrative cost reimbursements were primarily due to the increase in capital contributions and subsequent investment activity since March 31, 2014. As of March 31, 2015, we issued 1,047,574 Shares ($10.47 million in gross capital contribution) since March 30, 2014.

Net realized gain on investments: We had total realized gains on the sale of investments of $436,436 for the three months ended March 31, 2015, as compared to $142,469 for the three months ended March 31, 2014. This increase of $293,967 or 206%, was primarily due to increase in investment sales activities in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Investments with cost basis of $1.87 million was sold in the three months ended March 31, 2015 compared to sales of investments with cost basis of $0.81 million in the three months ended March 31, 2014.

Net unrealized gain on investments: Total unrealized gain on investments for the three months ended March 31, 2015 and 2014 were $929,836 and $276,752, respectively. The increase of $653,084 or 236% in the three months ended March 31, 2015 was primarily due to an increase in our overall investment portfolio by $8.50 million resulting in a higher amount of net unrealized gain. We had an investment portfolio with a cost basis of $6.14 million as of March 31, 2014, which increased to $14.64 million as of March 31, 2015. In particular, there were two investments (Apple Hospitality REIT, Inc. and TIER REIT, Inc.), which resulted in the substantial increase in the three months ended March 31, 2015, as compared to the three months ended March 31, 2014. As of March 31, 2014, the Company did not own any TIER REIT, Inc. shares and owned far fewer shares of Apple Hospitality Inc. Accordingly, the unrealized gain resulting from these investments for the three months ended March 31, 2014, was insignificant and for the three months ended March 31, 2015, these investments accounted for $732,614 of unrealized gain.

Table of Contents

Income tax provision (benefit): For the three months ended March 31, 2015, we did not record any income tax provision as we determined that we will qualify as a REIT beginning the tax year ended December 31, 2014. For the three months ended March 31, 2014, we recorded an income tax provision of $129,538 treating the Company as a corporation for federal and state income tax purposes since we did not reach to our REIT qualification conclusion until the quarter ended December 31, 2014. We had recorded income tax provisions through September 30, 2014 treating the Company as a corporation for federal and state income tax purposes. Therefore, during the three months ended December 31, 2014, we recorded $402,101 of income tax benefit to reverse the income tax provisions recorded for the period of January 1, 2014 through September 30, 2014.

Nine Months Ended March 31, 2015 and 2014:

Investment Income: Total investment income for the nine months ended March 31, 2015 and 2014 were $359,278 and $254,779, respectively. Investment income was primarily made up of dividend, distribution and interest income. The increase of $104,499, or 41%, was primarily due to an increase in our investment portfolio size by approximately $8.50 million in cost basis since March 31, 2014. The cost basis of our investment portfolio was $14.64 million as of March 31, 2015 compared to $6.14 million as of March 31, 2014.

Operating Expenses: Total operating expenses for the nine months ended March 31, 2015 and 2014 were $684,211 and $685,149, respectively. This net decrease of $938, or 0.1%, was due to increases in investment advisory fees of $169,011, administrative costs reimbursements of $42,000, professional fees of $28,481 and other general and administrative expenses of $7,385 offset by decrease in amortization of deferred offering cost of $247,815. The decrease in amortization of deferred offering cost was due to deferred offering cost of $424,825 being fully amortized as of the quarter ended September 30, 2014. The increases in investment advisory fees, administrative cost reimbursements and other general and administrative expenses were primarily due to the increase in capital contributions and subsequent investment activity since March 31, 2014. As of March 31, 2015, we issued 1,047,574 Shares ($10.47 million in gross capital contribution) since March 30, 2014.

Net realized gain on investments: We had total realized gains on the sale of investments of $758,190 for the nine months ended March 31, 2015, as compared to $551,879 for the nine months ended March 31, 2014. This increase of $206,311, or 37%, was primarily due to increase in investment sales activities in the nine months ended March 31, 2015 compared to the nine months ended March 31, 2014. Investments with cost basis of $3.65 million was sold in the nine months ended March 31, 2015 compared to sales of investments with cost basis of $1.93 million in the nine months ended March 31, 2014.

Net unrealized gain on investments: Total unrealized gain on investments for the nine months ended March 31, 2015 and 2014 were $1,714,257 and $409,076, respectively. The increase of approximately $1.31 million, or 319%, in the nine months ended March 31, 2015 was primarily due to increase in investment portfolio of $8.50 million since March 31, 2014. As of March 31, 2015, we had investments with a cost basis of $14.64 million, compared to $6.14 million as of March 31, 2014. In addition, three new investments (Apple Hospitality REIT, Inc., Landmark Apartment Trust, Inc., and TIER REIT, Inc) acquired after March 31, 2014, resulted in higher than normal fair value appreciation during the nine months ended March 31, 2015. These three investments contributed approximately $1.36 million of unrealized gain during the nine months ended March 31, 2015.

Income tax provision (benefit): For the nine months ended March 31, 2015, we recorded an income tax benefit of $188,949 as compared to income tax provision of $301,922 for the nine months ended March 31, 2014. This is a decrease of $490,871 or 163%, which was due to the same reasons as explained above under the three months ended section.

Liquidity and Capital Resources

Capital Resources

We filed a Registration Statement on Form N-2 (“Registration Statement”) with the Securities and Exchange Commission (“SEC”) to register the sale of 5,000,000 Shares, under which we seek to raise up to $50,000,000 in our IPO. The initial sales of our Shares occurred in January 2014 and, as of March 31, 2015, we have sold 1,080,535 Shares at $10 per Share with gross proceeds of $18,805,350, and issued 3,239.17 Shares under our dividend reinvestment plan (“DRIP”) at $9 per Share with gross proceeds of $29,159. We do not have any plans to issue any preferred equity. We plan to fund future investments with the net proceeds raised in the IPO and any future offerings of securities and cash flows from operations, including earnings on investments in the Legacy Portfolio and future investments, as well as interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities; however, we do not have any current plans to borrow money. We are currently selling our Shares on a continuous basis at a price of $10 which may be below NAV per Share from time to time, as approved by our stockholders.

Table of Contents

Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors, at least quarterly. The maximum amount of such borrowing is limited by the 1940 Act.

Our primary uses of funds are investing in portfolio companies, paying cash dividends to holders of our common stock (primarily from investment income and realized capital gains), making payments to any lenders or senior security holders, and the payment of operating expenses. If we sell all of the Shares registered under the Registration Statement in the IPO, we expect to have cash resources of approximately $43.5 million.

Cash Flows:

For the nine months ended March 31, 2015, we experienced a net decrease in cash of $1,399,074. During this period, we generated $7,344,675 of cash from our financing activities and used $8,743,749 of cash in operating activities. Net cash outflow from operating activities was primarily due to purchase of investments of $12,780,374, offset by cash inflow of $4,405,858 and $85,572 from sales of investments and return of capital from our investments, respectively. Cash inflow from financing activities resulted from the sale of 914,956 Shares with gross receipts of $9,149,560 and 3,227.50 of DRIP Shares with gross proceeds of $29,048, offset by the payment of selling commissions and fees of $1,189,442, stockholder dividends of $675,699 and an increase in capital pending acceptance of $31,208.

Contractual Obligations

We have entered into two contracts under which we have material future commitments, the Advisory Agreement, under which the Adviser serves as our investment adviser, and the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Advisory Agreement in future periods (after the up-front payment of the portfolio structuring fee during the IPO) will be (i) a percentage of the value of our Managed Funds; and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation). Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Borrowings

We do not have any current plans to borrow money or issue preferred securities. In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates.

Critical Accounting Policies

The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective judgments.

Table of Contents

Valuation of Portfolio Investments

We determine the NAV of our investment portfolio each quarter (and as of each bi-monthly closing when our IPO continues) by subtracting our total liabilities from the fair value of our gross assets. We conduct the valuation of our assets and determine our NAV consistent with GAAP and the 1940 Act, and report our NAV in our periodic reports filed with the SEC under the Securities Exchange Act of 1934 (“1934 Act”). We report our investments at fair value and in order to determine the fair value of investments, we follow the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements.

Securities for which market quotations are readily available on an exchange are valued at such price as of the closing price on the day closest to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. We may also use published secondary market trading information for securities that do not trade on a national exchange in order to value assets. When doing so, we determine whether the trading price obtained is sufficient according to GAAP to determine the fair value of the security. If determined adequate, we use the trading price obtained.

Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Adviser or our Board of Directors, does not represent fair value, which we expect will represent a substantial majority of the investments in our portfolio, will each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Adviser and, where appropriate and necessary, the respective third-party valuation firms.

The recommendation of fair value is generally based on the following factors, as relevant:

·	the nature and realizable value of any collateral;

·	the portfolio company’s ability to make payments;

·	the portfolio company’s earnings and discounted cash flow;

·	the markets in which the issuer does business; and

·	comparisons to publicly traded securities.

Securities for which market data are not readily available or for which a pricing source is not sufficient may include the following:

·	private placements and restricted securities that do not have an active trading market;

·	securities whose trading has been suspended or for which market quotes are no longer available;

·	debt securities that have recently gone into default and for which there is no current market;

·	securities whose prices are stale;

·	securities affected by significant events; and

·	securities that the Adviser believes were priced incorrectly.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Table of Contents

Distributions to Stockholders

We began paying dividends to our stockholders on May 9, 2014, for the first calendar quarter of 2014, and to the extent that we have income from operations available, we intend to pay quarterly dividends to our stockholders. Our quarterly dividends, if any, will be determined by our Board of Directors after a quarterly review and paid pro-rata to holders of our Shares. Any dividends to our stockholders will be declared out of assets legally available for distribution. In no event are we permitted to borrow money to pay dividends (or make distributions) if the amount of such distribution would exceed our annual accrued and received revenues, less operating costs.

As of December 31, 2014, we believe we have met the qualifications to be treated as a REIT. Therefore, when we file our 2014 tax return, we will elect to be treated as a REIT beginning tax year ended December 31, 2014. As a REIT, we will be required by the Code to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our REIT taxable income. We can offer no assurance that we will achieve results that will permit the payment of cash distributions required by the Code and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

Our current intention is to make any dividends in additional Shares under our DRIP to stockholders who have elected to participate in our DRIP unless participation in the DRIP is restricted by a state securities regulator.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our portfolio, as well as our future investments, will primarily consist of equity and debt securities issued by smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments in these securities are considered speculative in nature. Our investments do and will often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, we are subject to risk of loss which may prevent our stockholders from achieving price appreciation, dividend distributions and a return of their capital.

At March 31, 2015, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented 87% of our total assets as of that date. As discussed in Note 3 to our financials statement (“Investments”), these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment strategy represents a high degree of business and financial risk due to the fact that portfolio company investments are generally illiquid and in small and middle market companies. We may make short-term investments in cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less, pending investments in portfolio companies made according to our principal investment strategy.

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the 1934 Act) during the fiscal quarter ended March 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. RISK FACTORS

There have been no material changes to our risk factors discussed in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended June 30, 2014.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Table of Contents

Item 6. EXHIBITS

Exhibit	Description
31.1	Section 302 Certification of Robert Dixon (President and Chief Executive Officer)

31.2	Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

32.1	Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)

32.2	Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MACKENZIE REALTY CAPITAL, INC.


Date: May 11, 2015		By: /s/ Robert Dixon
		President and Chief Executive Officer

Date: May 11, 2015		By: /s/ Paul Koslosky
		Treasurer and Chief Financial Officer

EXHIBIT INDEX

Exhibit	Description


31.1	Section 302 Certification of Robert Dixon (President and Chief Executive Officer)

31.2	Section 302 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

32.1	Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)

32.2	Section 1350 Certification of Paul Koslosky (Treasurer and Chief Financial Officer)

Attached files

MacKenzie Realty Capital, Inc. Reports

Also read