UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-Q
(Mark one)
☑	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017
☐	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   ☑     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  ☑                 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  ☑
The number of the shares of issuer's Common Stock outstanding as of February 14, 2018 was 7,776,862.50.

 

 

 

Part I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

MacKenzie Realty Capital, Inc.

Consolidated Statements of Assets and Liabilities

 

		December 31, 2017				June 30, 2017
		(Unaudited)
Assets
Investments, at fair value
Non-controlled/non-affiliated investments (cost of $63,093,484 and $41,144,520, respectively)		$	66,749,143			$	44,594,061
Non-controlled/affiliated investment (cost of $6,287 and $6,287, respectively)			6,613				7,309
Controlled investments (cost of $2,549,901 and $2,612,019, respectively)			3,785,437				3,284,157
Cash and cash equivalents			6,332,517				11,849,712
Accounts receivable			2,540,769				2,240,815
Other assets			443,891				284,991
Deferred offering costs, net			141,583				243,807
Total assets		$	79,999,953			$	62,504,852
Liabilities
Accounts payable and accrued liabilities		$	227,522			$	78,865
Margin loan			6,012,413				-
Income tax payable			26,209				-
Dividend payable			1,796,515				-
Capital pending acceptance			758,200				1,803,090
Due to related entities			422,657				588,009
Deferred tax liability, net			14,262				45,363
Total liabilities			9,257,778				2,515,327
Net assets
Common stock, $0.0001 par value, 80,000,000 shares authorized; 7,381,488.51 and 6,096,772.85 shares issued and outstanding, respectively			738				610
Capital in excess of par value			67,173,413				55,606,134
Accumulated distribution in excess of net investment income			(1,061,737	)			(1,354,197	)
Accumulated distribution in excess of net realized gain			(261,760	)			1,614,277
Accumulated undistributed net unrealized gain			4,891,521				4,122,701
Total net assets			70,742,175				59,989,525
Total liabilities and net assets		$	79,999,953			$	62,504,852
Net asset value per share		$	9.58			$	9.84

 

    

MacKenzie Realty Capital, Inc.

Consolidated Schedule of Investments

December 31, 2017

(Unaudited)

 

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

(2) Investment in affiliated companies. See additional disclosures in note 5.

(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of December 31, 2017, the total percentage of non-qualifying assets is 18.51%, and, as a business development company, non-qualifying assets may not exceed 30% of our total assets.

(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of December 31, 2017, 69.67% of the Company's total assets are in illiquid securities.

(5) Investments in non-income producing securities. As of December 31, 2017, 20.70% of the Company's total assets are in non-income producing securities.   The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

MacKenzie Realty Capital, Inc.

Consolidated Schedule of Investments

June 30, 2017

 

Name		Asset Type	Shares/Units	Cost Basis		Total Fair Value		% of Net Assets
Ambase Corporation	(5)	Publicly Traded Company	201,200.00	$                                    333,468		$                                                195,164		0.31
Apartment Investment and Management Company	(3)	Publicly Traded Company	34,000.00	1,477,221		1,460,980		2.44
Ashford Hospitality Prime, Inc.	(3)	Publicly Traded Company	156,000.00	1,594,743		1,605,240		2.68
Ashford Hospitality Trust, Inc.	(3)	Publicly Traded Company	188,000.00	1,188,646		1,143,040		1.91
Care Capital Properties Inc.	(3)	Publicly Traded Company	65,200.00	1,700,409		1,740,840		2.90
CBL & Associates Properties, Inc.	(3)	Publicly Traded Company	108,000.00	915,434		910,440		1.52
Chatham Lodging Trust	(3)	Publicly Traded Company	33,000.00	666,902		662,970		1.11
Equity Commonwealth	(3)(5)	Publicly Traded Company	12,150.00	311,114		383,940		0.64
Equity Residential	(3)	Publicly Traded Company	15,000.00	995,497		987,450		1.65
Independence Realty Trust, Inc.	(3)	Publicly Traded Company	160,000.00	1,479,050		1,579,200		2.63
New York REIT, Inc.	(3)	Publicly Traded Company	152,000.00	1,308,259		1,313,280		2.19
Omega Healthcare Investors, Inc.	(3)	Publicly Traded Company	52,000.00	1,699,573		1,717,040		2.86
One Liberty Properties, Inc.	(3)	Publicly Traded Company	32,561.00	745,499		762,904		1.27
Store Capital Corp.	(3)	Publicly Traded Company	43,000.00	980,329		965,350		1.61
VEREIT Inc.	(3)	Publicly Traded Company	131,000.00	1,072,538		1,066,340		1.78
Washington Prime Group Inc.	(3)	Publicly Traded Company	44,000.00	370,476		368,280		0.61
Total Publicly Traded Company				16,839,158		16,862,458		28.11
American Finance Trust, Inc.	(4)	Non Traded Company	80,424.07	1,369,194		1,467,735		2.44
American Realty Capital New York City REIT, Inc.	(4)	Non Traded Company	29,037.15	388,505		465,466		0.78
Behringer Harvard Opportunity REIT I, Inc.	(4)(5)	Non Traded Company	764,723.91	843,192		963,552		1.61
Benefit Street Partners Realty Trust, Inc.	(4)	Non Traded Company	12,016.08	162,207		144,794		0.24
Carter Validus Mission Critical REIT	(4)	Non Traded Company	1,750.00	14,886		16,695		0.03
Cole Credit Property Trust IV, Inc.	(4)	Non Traded Company	68,963.94	404,177		578,607		0.96
First Capital Real Estate Trust, Inc.	(4)(5)	Non Traded Company	3,792.51	15,161		15,170		0.03
FSP Energy Tower	(4)(5)	Non Traded Company	7.00	294,350		270,177		0.45
FSP Grand Boulevard	(4)	Non Traded Company	7.00	279,104		228,207		0.38
FSP 1441 Main Street	(4)	Non Traded Company	15.73	8,559		8,555		0.01
FSP Satellite Place	(4)(5)	Non Traded Company	5.00	195,035		193,117		0.32
FSP South 10th Street Corp. Liquidating Trust	(4)(5)	Non Traded Company	0.25	151		1		-
Healthcare Trust, Inc.	(4)	Non Traded Company	61,158.56	669,205		1,072,110		1.79
Highlands REIT Inc.	(4)(5)	Non Traded Company	2,084,327.91	508,857		458,552		0.76
Hospitality Investors Trust, Inc.	(4)	Non Traded Company	114.02	1,137		1,112		-
InvenTrust Properties Corp.	(4)	Non Traded Company	2,031,268.94	4,262,262		4,021,912		6.70
KBS Legacy Partners Apartment REIT, Inc.	(4)	Non Traded Company	20,158.17	122,938		121,151		0.20
KBS Real Estate Investment Trust, Inc.	(4)	Non Traded Company	1,640,455.20	3,132,551		3,231,697		5.39
Phillips Edison Grocery Center REIT I, Inc	(4)	Non Traded Company	1,950.00	17,439		15,912		0.03
Sentio Healthcare Properties, Inc.	(4)	Non Traded Company	71,693.46	530,655		813,004		1.36
Strategic Realty Trust, Inc.	(4)	Non Traded Company	42,288.14	167,662		161,118		0.27
Summit Healthcare REIT, Inc.	(4)(5)	Non Traded Company	587,596.80	734,792		822,636		1.37
Total Non Traded Company (1)				14,122,019		15,071,280		25.12
5210 Fountaingate	(4)(5)	LP Interest	9.89	500,000		511,730		0.84
Addison NC, LLC	(4)(5)	LP Interest	200,000.00	2,000,000		2,400,000		4.00
Arrowpoint Burlington LLC	(4)	LP Interest	7.50	750,000		736,394		1.23
BR Cabrillo LLC	(4)(5)	LP Interest	346,723.32	104,942		86,681		0.14
Britannia Preferred Members, LLC	(4)(5)	LP Interest	150,000.00	1,500,000		2,017,500		3.36
Inland Land Appreciation Fund II, L.P.	(4)(5)	LP Interest	210.97	2,700		21,099		0.04
MC 15 Preferred Equity, LLC	(2)(4)(5)	LP Interest	250,000.00	2,500,000		3,250,000		5.42
MPF Pacific Gateway - Class B	(2)(4)(5)	LP Interest	23.20	6,287		7,309		0.01
Rancon Realty Fund IV Liquidating Trust	(4)(5)	LP Interest	8,408.97	6,307		36,327		0.06
Redwood Mortgage Investors VIII	(4)	LP Interest	53,848.09	29,070		35,540		0.06
Resource Real Estate Investors 6, L.P.	(4)	LP Interest	42,600.00	101,814		101,814		0.17
Satellite Investment Holdings, LLC - Class A	(4)	LP Interest	22.00	2,200,000		2,200,000		3.67
Secured Income, LP	(4)(5)	LP Interest	64,177.00	315,109		235,530		0.39
Strategic Realty Operating Partnership, LP	(4)	LP Interest	20,433.01	78,951		77,850		0.13
The Weatherly, LTD	(4)(5)	LP Interest	60.00	672,000		1,065,862		1.78
The Weatherly Building, LLC	(4)(5)	LP Interest	17.50	392,000		621,753		1.04
Uniprop Manufactured Housing Income Fund II, LP	(4)	LP Interest	133,191.00	705,450		1,174,745		1.96
VWC Savannah, LLC	(4)(5)	LP Interest	8.25	825,000		1,337,498		2.23
Total LP Interest				12,689,630		15,917,632		26.53
Coastal Realty Business Trust, REEP, Inc. - A	(2)(4)(5)	Investment Trust	72,320.00	49,901		30,374		0.05
Coastal Realty Business Trust, Series H2- A	(2)(4)(5)	Investment Trust	47,284.16	62,118		3,783		0.01
Total Investment Trust				112,019		34,157		0.06
Total Investments				$                               43,762,826		$                                           47,885,527		79.82

 

 

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

(2) Investment in affiliated companies. See additional disclosures in note 5.

(3) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2017, the total percentage of non-qualifying assets is 26.67%, and, as a business development company, non-qualifying assets may not exceed 30% of our total assets.

(4) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2017, 49.63% of the Company's total assets are in illiquid securities.

(5) Investments in non-income producing securities. As of June 30, 2017, 23.88% of the Company's total assets are in non-income producing securities.   The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

MacKenzie Realty Capital, Inc.

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended December 31,								Six Months Ended December 31,
		2017				2016				2017				2016
Investment income
Non-controlled/non-affiliated investments:
Dividend and operational/sales distributions		$	1,768,846			$	883,824			$	2,371,865			$	1,671,789
Interest and other income			211,559				1,364				240,412				1,364
Non-controlled/affiliated investments:
Dividend and operational/sales distributions			-				-				789				-
Controlled investments:
Dividend and operational/sales distributions			-				-				-				2,364
Total investment income			1,980,405				885,188				2,613,066				1,675,517
Operating expenses
Base management fee (note 5)			419,074				300,639				807,991				588,055
Portfolio structuring fee (note 5)			171,219				61,714				373,121				258,922
Subordinated incentive fee (note 5)			-				22,565				-				22,565
Administrative cost reimbursements (note 5)			108,000				55,000				216,000				110,000
Amortization of deferred offering costs			141,411				-				264,113				-
Professional fees			25,798				44,806				136,795				161,285
Directors' fees			15,500				14,500				34,000				25,000
Printing and mailing			19,669				12,754				34,386				28,631
Other general and administrative			30,554				29,048				57,616				52,429
Total operating expenses			931,225				541,026				1,924,022				1,246,887
Net investment income (loss) before taxes			1,049,180				344,162				689,044				428,630
Income tax benefit - (note 2)			(17,305	)			-				(4,095	)			-
Net investment income (loss)			1,066,485				344,162				693,139				428,630
Realized and unrealized gain (loss) on investments
Net realized gain (loss)
Non-controlled/non-affiliated investments			904,303				601,001				1,752,886				1,617,847
Controlled investments:			(54,413	)			-				(54,413	)			-
Total net realized gain			849,890				601,001				1,698,473				1,617,847
Net unrealized gain (loss)
Non-controlled/non-affiliated investments			(443,132	)			271,761				206,114				716,901
Non-controlled/affiliated investments			-				-				(696	)			-
Controlled investments			250,175				196,703				563,398				503,700
Total net unrealized gain (loss)			(192,957	)			468,464				768,816				1,220,601
Total net realized and unrealized gain on investments			656,933				1,069,465				2,467,289				2,838,448
Net increase in net assets resulting from operations		$	1,723,418			$	1,413,627			$	3,160,428			$	3,267,078
Net increase in net assets resulting from operations per share		$	0.24			$	0.28			$	0.46			$	0.69
Weighted average common shares outstanding			7,205,816				4,972,455				6,891,512				4,753,213

 

 

MacKenzie Realty Capital, Inc.

Consolidated Statements of Changes in Net Assets

 

		Six Months Ended				Year Ended June 30,
		December 31, 2017				June 30, 2017
		(Unaudited)
Operations
Net investment income		$	693,139			$	1,733,806
Net realized gain			1,698,473				1,596,367
Net unrealized gain			768,816				2,023,069
Net increase in net assets resulting from operations			3,160,428				5,353,242
Dividends
Dividends to stockholders			(3,975,185	)			(4,046,021	)
Capital share transactions
Issuance of common stock			12,437,349				19,296,300
Issuance of common stock through reinvestment of dividends			927,663				1,903,677
Redemption of common stock			(558,837	)			(915,267	)
Selling commissions and fees			(1,238,768	)			(1,934,597	)
Net increase in net assets resulting from capital share transactions			11,567,407				18,350,113
Total increase in net assets			10,752,650				19,657,334
Net assets at beginning of the period			59,989,525				40,332,191
Net assets at end of the period		$	70,742,175			$	59,989,525

 

 

 

 

    

MacKenzie Realty Capital, Inc.

Consolidated Statements of Cash Flows

 (Unaudited)

 

		Six Months Ended December 31,
		2017				2016
Cash flows from operating activities:
Net increase in net assets resulting from operations		$	3,160,428			$	3,267,078
Adjustments to reconcile net increase in net assets resulting from
operations to net cash from operating activities:
Proceeds from sale of investments, net			21,350,928				8,872,365
Return of capital			6,492,837				689,537
Purchase of investments			(48,032,142	)			(13,978,569	)
Net realized gain on investments			(1,698,473	)			(1,617,847	)
Net unrealized gain on investments			(768,816	)			(1,220,601	)
Amortization of deferred offering costs			264,113				-
Changes in assets and liabilities:
Accounts receivable			(299,954	)			(407,955	)
Other assets			(245,980	)			146,322
Payment of deferred offering costs			(161,889	)			(487,615	)
Accounts payable and accrued liabilities			139,837				7,043
Income tax payable			26,209				-
Due to related entities			(165,352	)			98,791
Deferred tax liability			(31,101	)			-
Net cash from operating activities			(19,969,355	)			(4,631,451	)
Cash flows from financing activities:
Net borrowing on margin loan			6,012,413				-
Proceeds from issuance of common stock			12,437,349				8,630,719
Redemption of common stock			(558,837	)			(161,197	)
Dividends to stockholders			(1,251,007	)			(1,081,048	)
Payment of selling commissions and fees			(1,142,868	)			(822,056	)
Change in capital pending acceptance			(1,044,890	)			(1,600,990	)
Net cash from financing activities			14,452,160				4,965,428
Net increase (decrease)  in cash and cash equivalents			(5,517,195	)			333,977
Cash and cash equivalents at beginning of the period			11,849,712				2,350,435
Cash and cash equivalents at end of the period		$	6,332,517			$	2,684,412
Non-cash financing activities:
Issuance of common stock through reinvestment of dividends		$	927,663			$	992,726

  

MacKenzie Realty Capital, Inc.

Notes to Consolidated Financial Statements

December 31, 2017

(Unaudited)

NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION

MacKenzie Realty Capital, Inc. (together with its subsidiaries as discussed below, the "Company") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It is a non-diversified, closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). MacKenzie Realty Capital, Inc. has elected to be treated as a real estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The 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 commenced its operations on February 28, 2013, and its fiscal year-end is June 30.

 

MacKenzie Realty Capital, Inc. filed its initial registration statement in June 2012 with the Securities and Exchange Commission ("SEC") to register the initial public offering ("IPO") of 5,000,000 shares of the its common stock. The IPO commenced in January 2014 and concluded in October 2016. MacKenzie Realty Capital, Inc. filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on December 20, 2016, and the offering commenced shortly thereafter.

MacKenzie Realty Capital, Inc.'s wholly owned subsidiary, MRC TRS, Inc., ("TRS") was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary. TRS started its operation on January 1, 2017, and the financial statements of TRS have been consolidated with MacKenzie Realty Capital, Inc. beginning with the quarter ended March 31, 2017. MRC TRS, Inc. also has a wholly owned subsidiary MacKenzie NY Real Estate 2 Corp. formed on December 20, 2017. As of December 31, 2017, the subsidiary does not have any assets or liabilities.

The Company is externally managed by MacKenzie Capital Management, LP ("MacKenzie") under the administration agreement dated and effective as of February 28, 2013 (the "Administration Agreement"). Pursuant to the Administration Agreement, MacKenzie manages all of the Company's affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the "Adviser") under the advisory agreement dated and effective as of February 28, 2013, and subsequently amended on August 6, 2014, and October 1, 2017 (the "Investment Advisory Agreement"). The Company pursues a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate.  These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, limited liability companies, and tenancies-in-common.

As of December 31, 2017, the Company has raised approximately $69.41 million from the public offerings, including proceeds from the Company's dividend reinvestment plan ("DRIP") of approximately $3.85 million. Of the shares issued by the Company in exchange for the total capital raised as of December 31, 2017, approximately $3.00 million worth of shares have been repurchased under the Company's share repurchase program.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation Policy

The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company's wholly-owned consolidated subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Under the 1940 Act rules, regulations pursuant to Article 6 of Regulation S-X and Topic 946 of the Accounting Standards Codification, as amended (the "ASC"), of the Financial Accounting Standards Board ("FASB"), Financial Services-Investment Companies, the Company is precluded from consolidating portfolio company investments, including those in which the Company has a controlling interest, unless the portfolio company is a wholly-owned investment company or a controlled operating company whose purpose is to provide services to the Company, such as an investment adviser or transfer agent. None of the Company's investments qualifies for these exceptions. Therefore, the Company's portfolio company investments, including those in which the Company has a controlling interest, are carried on the consolidated statements of assets and liabilities at fair value with changes to fair value recognized as "Net Unrealized gain (loss)" on the Consolidated Statements of Operations until the investment is realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company will include required financial information for such subsidiary in the notes or as an attachment to its consolidated financial statements.

The unaudited consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company's results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.

These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2017, included in the Company's annual report on Form 10-K filed with the SEC.

There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2017, other than those expanded upon and described below.

Reclassifications

Certain amounts in the consolidated statements of assets and liabilities related to non-controlled/affiliated and controlled investments have been disaggregated from the non-controlled/non-affiliated investments, as of December 31, 2017. Similarly, investment income, net realized gains (losses) and net unrealized gains (losses) from non-controlled/affiliated and controlled investments have been disaggregated from the corresponding line items from non-controlled/non-affiliated investments in the consolidated statements of operations. In addition, printing and mailing in the consolidated statements of operations have been disaggregated from other general and administrative expenses as of December 31, 2017. The prior periods have been reclassified to conform to this presentation as of December 31, 2017.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of December 31, 2017, and June 30, 2017.

Accounts Receivable

Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. The Company has determined that all account receivable balances outstanding as of December 31, 2017, are collectible and do not require recording any uncollectible allowance.

Capital Pending Acceptance

The Company conducts closings for new purchases of the Company's common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are effective only upon the Company's acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated statements of assets and liabilities. As of December 31, 2017, and June 30, 2017, capital pending acceptance was $758,200 and $1,803,090, respectively.

Organization and Deferred Offering Costs
 

Income Taxes and Deferred Tax Liability

The Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, the Company is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that the Company satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Company is also subject to tax on built-in gains it realizes during the first ten years following REIT election.

The Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2016, and 2015. Therefore, the Company did not incur any tax expense or excise tax during the quarterly periods within those tax years. For the tax year ended December 31, 2017, we believe the Company paid the requisite amount of dividends to stockholders such that the Company will not owe any income taxes on its income for tax year 2017. Therefore, the Company did not record any income tax provisions during the quarterly periods within the tax year ended December 31, 2017.

The income tax benefit of $17,305 and $4,095 reflected in the statements of operations for the three and six months ended December 31, 2017, were the adjustment for the difference between the actual and estimated tax liability on the built-in gains realized during the period of January 1, 2017 through December 31, 2017. Prior to the effective date of its REIT election, the Company had net unrealized built-in gains of $239,595, for which the Company recorded an estimated tax liability of $95,431 as of December 31, 2013. Accordingly, in each subsequent tax year, the Company only records the difference between the actual and estimated tax on the built-in gains it realizes during each tax year as income tax expense or benefit. The remaining net unrealized built-in gains, which are subject to tax, as of December 31, 2017 and June 30, 2017 were $32,532 and $125,345, respectively. The deferred tax liabilities relating to those net unrealized built-in gains as of December 31, 2017 and June 30, 2017, were $14,262 and $45,363, respectively.

The Company's wholly owned subsidiary, MRC TRS, Inc. is subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of December 31, 2017, the subsidiary did not have any taxable income for tax year ended December 31, 2017. Accordingly, no tax provision has been recorded by the Company as of December 31, 2017.

The Company follows ASC 740, Income Taxes, ("ASC 740") to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. As of December 31, 2017, and June 30, 2017, there were no uncertain tax positions. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.

NOTE 3 –INVESTMENTS

The following table summarizes the composition of the Company's investments at cost and fair value as of December 31, 2017, and June 30, 2017:

 

		December 31, 2017								June 30, 2017
Asset Type		Cost				Fair Value				Cost				Fair Value
Publicly Traded Companies		$	15,518,958			$	14,806,061			$	16,839,158			$	16,862,458
Non Traded Companies			21,899,674				23,916,944				14,122,019				15,071,280
LP Interests			27,181,139				30,782,751				12,689,630				15,917,632
Investment Trusts			49,901				35,437				112,019				34,157
Note			1,000,000				1,000,000				-				-
Total		$	65,649,672			$	70,541,193			$	43,762,826			$	47,885,527

The following table presents fair value measurements of the Company's investments as of December 31, 2017, according to the fair value hierarchy that is described in our annual report on Form 10-K:

 

Asset Type		Total				Level I				Level II				Level III
Publicly Traded Companies		$	14,806,061			$	14,806,061			$	-			$	-
Non Traded Companies			23,916,944				-				-				23,916,944
LP Interests			30,782,751				-				-				30,782,751
Investment Trusts			35,437				-				-				35,437
Note			1,000,000				-				-				1,000,000
Total		$	70,541,193			$	14,806,061			$	-			$	55,735,132

 

The following table presents fair value measurements of the Company's investments as of June 30, 2017, according to the fair value hierarchy that is described in our annual report on Form 10-K:

 

Asset Type		Total				Level I				Level II				Level III
Publicly Traded Companies		$	16,862,458			$	16,667,294			$	195,164			$	-
Non Traded Companies			15,071,280				-				-				15,071,280
LP Interests			15,917,632				-				-				15,917,632
Investment Trusts			34,157				-				-				34,157
Total		$	47,885,527			$	16,667,294			$	195,164			$	31,023,069

 

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the six months ended December 31, 2017:

 

Balance at July 1, 2017		$	31,023,069
Purchases of investments			34,687,453
Proceeds from sales, net			(7,619,607	)
Return of capital			(6,035,374	)
Net realized gains			2,174,577
Net unrealized gains			1,505,014
Ending balance at December 31, 2017		$	55,735,132

 

For the six months ended December 31, 2017, changes in unrealized gains included in earnings relating to Level III investments still held at December 31, 2017, was $2,370,541.

The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the six months ended December 31, 2016:

 

Balance at July 1, 2016		$	24,881,461
Purchases of investments			11,605,920
Proceeds from sales, net			(3,803,597	)
Return of capital			(689,537	)
Net realized gains			65,005
Net unrealized gains			1,760,353
Ending balance at December 31, 2016		$	33,819,605

 

For the six months ended December 31, 2016, changes in unrealized gains are included in earnings relating to Level III investments still held at December 31, 2016 was $1,759,215.

The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at December 31, 2017:

 

Asset Type		Fair Value			Primary Valuation Techniques	Unobservable Inputs Used		Range				Wt. Average
Non Traded Companies		$	22,674,549		Market Activity	Acquisition Cost
						Secondary market industry publication
Non Traded Companies			1,242,395		Net Asset Value (1)	Capitalization rate			6.6% - 8.5	%			7.7%
						Liquidity discount			10.0% - 70.0	%			23.4%
						Sponsor provided value
LP Interests			16,236,952		Market Activity	Acquisition Cost
						Secondary market industry publication
LP Interests			14,545,799		Net Asset Value (1)	Capitalization rate			5.5% - 9.4	%			7.1%
						Discount rate			27.0% - 30.0	%			28.7%
						Liquidity discount			10.0% - 50.0	%			21.3%
						Discount term (months)			3.0 - 12.0				11.3
						Sponsor provided value
						Contracted sale price of underlying property
Investment Trust			35,437		Net Asset Value (1)	Capitalization rate			6.00	%
						Liquidity discount			25.0	%
Note			1,000,000		Market Activity	Acquisition Cost
		$	55,735,132

Valuation Technique Terms:

The following table shows quantitative information about significant unobservable inputs related to the Level II and Level III fair value measurements used at June 30, 2017:

 

Asset Type		Fair Value			Primary Valuation Techniques	Unobservable Inputs Used		Range				Wt. Average
Level II
Publicly Traded Company		$	195,164		Market Activity	10 day average trading price
		$	195,164
Level III
Non Traded Company		$	14,355,312		Market Activity	Secondary market industry publication
Non Traded Company			715,968		Net Asset Value (1)	Capitalization rate			6.2% - 8.5	%			7.4%
						Liquidity discount			20.0% - 30.0	%			22.7%
						Sponsor provided value
LP Interest			2,611,192		Market Activity	Contracted sale price of underlying asset
						Liquidity discount			20.0	%
						Secondary market industry publication
LP Interest			13,306,440		Net Asset Value (1)	Capitalization rate			5.4% - 8.8	%			7.1%
						Discount rate			30.0% - 37.0	%			34.0%
						Liquidity discount			10.0% - 50.0	%			20.5%
						Discount term (months)			13.0 - 50.0				13.9
						Sponsor provided value
						Contracted sale price of underlying property
Investment Trust			3,783		Market Activity	Secondary market industry publication
Investment Trust			30,374		Net Asset Value (1)	Capitalization rate			6.0	%
						Liquidity discount			25.0	%
		$	31,023,069

 

Valuation Technique Terms:

(1)	The net asset value of the issuer's shares was calculated by the Company.

NOTE 4—MARGIN LOANS

The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow on certain securities held in the account. Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of December 31, 2017, the Company had $3,693,788 of margin credit available for cash withdrawal or the ability to purchase up to $7,387,576 in additional shares. As of June 30, 2017, the Company had $11,686,296 of margin credit available for cash withdrawal or the ability to purchase up to $23,372,592 in additional shares. As of December 31, 2017, the Company had a margin loan of $6,012,413 outstanding under this short-term credit line. The outstanding loan balance was fully repaid as of January 31, 2018. As of June 30, 2017, 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 identifying, evaluating and structuring the acquisition of assets. The fee equals 3.0% of the gross proceeds from the sale of the Company's shares. These services are performed on an ongoing basis in anticipation of deploying new capital, generally within 15 days of the receipt of capital.  Therefore, this fee is expensed in the period the capital is accepted.

The base management fee is calculated based on the Company's "gross invested capital," which equals the number of shares issued multiplied by 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 two parts—income and capital gains. The incentive fee components (other than during liquidation) are designed so that neither the income incentive fee nor the capital gains incentive fee is payable to the Adviser unless our stockholders have first received dividends at a rate of at least 7.0% per annum for the relevant measurement period (a fiscal quarter, for the income incentive fee; a fiscal year, for the capital gains incentive fee).

 

The income incentive fee is calculated and payable quarterly in arrears as follows: (i) the sum of preliminary net investment income for each fiscal quarter since the effective date of the Amended and Restated Investment Advisory Agreement (October 1, 2017) exceeding  7% of the "contributed capital" on an annualized basis up to 8.75% of contributed capital;  and (ii)  20.0% of our preliminary net investment income for each fiscal quarter after the effective date exceeding  8.75% of contributed capital at an annualized rate; minus (iii) the sum of all previously paid income incentive fees since the effective date, plus (iv) any incremental income incentive fee payable resulting from the reanalysis after calculation of the capital gains incentive fee.

 

The capital gains incentive fee is calculated and payable in arrears as of the end of each fiscal year as follows: (i) the sum of all "capital gains" (calculated as net realized capital gains less unrealized capital depreciation) for each fiscal year after the effective date exceeding 7% of the "contributed capital" on an annualized basis up to 8.75% of contributed capital, which thresholds are reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income);  and (ii)  20.0% of all capital gains for each fiscal quarter after the effective date exceeding  8.75% of contributed capital at an annualized rate, which threshold is reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); minus (iii) the sum of all previously paid income incentive fees since the effective date and prior to the end of such fiscal year; less (iv) the aggregate amount of all capital gains incentive fees paid in prior fiscal years ending after the effective date. To the extent that such calculation would result in a capital gains incentive fee that exceeds 20% of all realized capital gains for the measurement period, the capital gains incentive fee shall be capped so that under no circumstance does it exceed 20% of the realized capital gains for the measurement period.

The portfolio structuring fees for the three and six months ended December 31, 2017, were $171,219 and $373,121, respectively. The portfolio structuring fees for the three and six months ended December 31, 2016, were $61,714 and $258,922, respectively.

As discussed above, the base management fee is calculated on a quarterly basis at the end of each quarter based on the quarter ended managed funds and is payable in arrears. The base management fees for the three and six months ended December 31, 2017, were $419,074 and $807,991, respectively. The base management fees for the three and six months ended December 31, 2016, were $300,639 and $588,055, respectively. These base management fees were based on the following quarter ended managed funds segregated in two columns based on the annual fee rate:

 

Base Management Fee Annual %			3.0%				2.0%			Total Managed Funds
Quarter ended:
September 30, 2017		$	20,000,000			$	47,783,337			$	67,783,337
December 31, 2017			20,000,000				53,814,885				73,814,885
Quarter ended:
September 30, 2016		$	20,000,000			$	27,483,207			$	47,483,207
December 31, 2016			20,000,000				30,127,836				50,127,836

There was no subordinated incentive capital gain or income fee for the three and six months ended December 31, 2017. The subordinated capital gain fee for the three and six months ended December 31, 2016, was $22,565. There was no subordinated income fee for the three and six months ended December 31, 2016.

Organization and Offering Costs Reimbursement:

As provided in the Investment Advisory Agreement, organization and offering costs incurred by the Company on the IPO in excess of $550,000 are reimbursed by the Adviser. As of October 28, 2016 (the termination date of the IPO) the Company had incurred organization and offering costs of $1,066,226, of which $516,226 was reimbursed by the Adviser as of June 30, 2017 in accordance with the Investment Advisory Agreement.

In August 2016, the Company filed a registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of the Company's common stock. As provided in the Investment Advisory Agreement, offering costs incurred and paid by the Company in excess of $1,650,000 on this public offering will be reimbursed by the Adviser. As of December 31, 2017, and June 30, 2017, the offering costs incurred and paid by the Company is below the threshold of $1,650,000. Accordingly, no amount was reimbursable from the Adviser.

Administration Agreement:

Under the Administration Agreement, the Company reimburses MacKenzie for the Company's allocable portion of overhead and other expenses that MacKenzie incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services, performing compliance functions, providing the services of the Chief Financial Officer, Chief Compliance Officer, Director of Financial Reporting, and any administrative support staff, as well as providing the Company with other administrative services, subject to the Independent Directors' approval. The administrative cost reimbursements for the three and six months ended December 31, 2017, were $108,000 and $216,000, respectively. The administrative cost reimbursements for the three and six months ended December 31, 2016, were $55,000 and $110,000, respectively.

The table below outlines the related party expenses incurred for the six months ended December 31, 2017, and 2016 and unpaid as of December 31, 2017, and June 30, 2017.

 

		For The Six Months Ended								Unpaid as of
Types and Recipient		December 31, 2017				December 31, 2016				December 31, 2017				June 30, 2017
Portfolio Structuring fee- the Adviser		$	373,121			$	258,922			$	-			$	-
Base Management fees- the Adviser			807,991				588,055				419,074				354,839
Subordinated Incentive fee - the Adviser (2)			-				22,565				-				232,198
Administrative Cost Reimbursements- MacKenzie			216,000				110,000				-				-
Other expenses (1)- MacKenzie											3,583				972
Due to related entities										$	422,657			$	588,009

  

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

⁽²⁾ Subordinated Incentive fee payable as of June 30, 2017 was the capital gains fee accrued for the year ended June 30, 2017. The fee was paid as of December 31, 2017.

Investments in Affiliated Companies:

 

December 31, 2017
Name of issuer and title of issue		Fair Value at				Gross Reductions (1)				Net Realized Gains (losses)				Net Change in Unrealized Gains/(Losses)				Fair Value at				Interest/Dividend/Other income Six Months Ended
		June 30, 2017																December 31, 2017				December 31, 2017
Non-Controlled/Affiliate Investment:
MPF Pacific Gateway - Class B		$	7,309			$	-			$	-			$	(696	)		$	6,613			$	789
		$	7,309			$	-			$	-			$	(696	)		$	6,613			$	789
Controlled Investments:
Coastal Realty Business Trust, REEP, Inc. - A		$	30,374			$	-			$	-			$	5,063			$	35,437			$	-
Coastal Realty Business Trust, Series H2- A			3,783				(7,705	)			(54,413	)			58,335				-				-
MC 15 Preferred Equity, LLC			3,250,000				-				-				500,000				3,750,000				-
		$	3,284,157			$	(7,705	)		$	(54,413	)		$	563,398			$	3,785,437			$	-