Attached files
file | filename |
---|---|
EX-32.2 - CFO EXHIBIT 32.2 - MacKenzie Realty Capital, Inc. | exhibit32cfo.htm |
EX-32.1 - CEO EXHIBIT 32.1 - MacKenzie Realty Capital, Inc. | exhibit32ceo.htm |
EX-31.2 - CFO EXHIBIT 31.2 - MacKenzie Realty Capital, Inc. | exhibit31cfo.htm |
EX-31.1 - CEO EXHIBIT 31.1 - MacKenzie Realty Capital, Inc. | exhibit31ceo.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|
||
|
||
Form 10-Q
|
||
|
||
(Mark one)
|
|
|
☑
|
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
For the quarterly period ended March 31, 2020
|
||
|
|
|
☐
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
|
For the transition period from _________ to __________
|
||
|
|
|
Commission file number 000-55006
|
||
|
|
|
MacKenzie Realty Capital, Inc.
|
||
(Exact name of registrant as specified in its charter)
|
||
|
|
|
Maryland
|
45-4355424
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
|
|
89 Davis Road, Suite 100, Orinda, CA 94563
|
||
(Address of principal executive offices)
|
||
|
|
|
(925) 631-9100
|
||
(Registrant's telephone number, including area code)
|
||
|
|
|
________________________________________________________________
|
||
(Former name, former address and former fiscal year, if changed since last report)
|
||
|
|
|
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
|
||
|
||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 or Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files.) Yes ☐ No ☐
|
||
|
||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
||
|
||
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☐
Emerging growth company ☐
|
||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act ☐
|
||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
|
||
The number of the shares of issuer's Common Stock outstanding as of May 14, 2020 was 12,827,914.07.
|
||
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
MacKenzie Realty Capital, Inc.
Consolidated Statements of Assets and Liabilities
|
March 31, 2020
|
June 30, 2019
|
||||||
|
(Unaudited)
|
|||||||
Assets
|
||||||||
Investments, at fair value
|
||||||||
Non-controlled/non-affiliated investments (cost of $46,502,712 and $46,997,608, respectively)
|
$
|
39,386,688
|
$
|
48,839,999
|
||||
Affiliated investments (cost of $12,383,922 and $14,699,474, respectively)
|
12,423,553
|
15,916,187
|
||||||
Controlled investments (cost of $40,541,173 and $35,541,173, respectively)
|
42,531,324
|
38,488,962
|
||||||
Total investments, at fair value (cost of $99,427,807 and $97,238,255, respectively)
|
94,341,565
|
103,245,148
|
||||||
Cash and cash equivalents
|
13,067,346
|
1,278,668
|
||||||
Accounts receivable
|
1,894,604
|
3,170,068
|
||||||
Other assets
|
339,573
|
219,050
|
||||||
Deferred offering costs, net
|
366,431
|
440,320
|
||||||
Total assets
|
$
|
110,009,519
|
$
|
108,353,254
|
||||
|
||||||||
|
||||||||
Liabilities
|
||||||||
Accounts payable and accrued liabilities
|
$
|
53,055
|
$
|
226,722
|
||||
Dividend payable
|
1,461,875
|
1,877,101
|
||||||
Capital pending acceptance
|
675,150
|
668,165
|
||||||
Due to related entities
|
810,543
|
2,465,885
|
||||||
Total liabilities
|
3,000,623
|
5,237,873
|
||||||
|
||||||||
Net assets
|
||||||||
Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,686,671.30 and 10,926,319.99 shares issued and outstanding, respectively
|
1,269
|
1,093
|
||||||
Capital in excess of par value
|
115,072,482
|
99,077,308
|
||||||
Total distributable earnings (distributions in excess of earnings)
|
(8,064,855
|
)
|
4,036,980
|
|||||
Total net assets
|
107,008,896
|
103,115,381
|
||||||
|
||||||||
Total liabilities and net assets
|
$
|
110,009,519
|
$
|
108,353,254
|
||||
|
||||||||
Net asset value per share
|
$
|
8.43
|
$
|
9.44
|
|
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
March 31, 2020
(Unaudited)
Name
|
|
Asset Type
|
Shares/Units
|
Cost Basis
|
Total
Fair Value |
% of
Net Assets
|
|||||
|
|
|
|
|
|
|
|||||
American Finance Trust 7.5% PFD
|
(4)
|
Publicly Traded Company
|
34,000.00
|
$ 610,231
|
$ 607,580
|
0.55
|
|||||
American Finance Trust Inc., Class A
|
(4)
|
Publicly Traded Company
|
86,500.00
|
500,618
|
540,625
|
0.51
|
|||||
Apartment Investment & Management Company- Class A
|
(4)
|
Publicly Traded Company
|
14,200.00
|
508,184
|
499,130
|
0.47
|
|||||
Ashford Hospitality Trust, Inc.
|
(4)
|
Publicly Traded Company
|
360,000.00
|
244,092
|
266,112
|
0.25
|
|||||
Bluerock Residential 8.25% PFD
|
(4)
|
Publicly Traded Company
|
17,467.00
|
327,736
|
336,240
|
0.31
|
|||||
Bluerock Residential Growth REIT - 7.125% PFD D
|
(4)
|
Publicly Traded Company
|
31,900.00
|
397,022
|
549,229
|
0.51
|
|||||
Bluerock Residential Growth REIT - 7.625% PFD C
|
(4)
|
Publicly Traded Company
|
18,918.00
|
314,019
|
348,269
|
0.33
|
|||||
Bluerock Residential Growth REIT, Inc.
|
(4)
|
Publicly Traded Company
|
70,000.00
|
513,940
|
389,900
|
0.36
|
|||||
CBL & Associates Properties, Inc. - Preferred D
|
(4)
|
Publicly Traded Company
|
188,000.00
|
1,707,042
|
124,080
|
0.12
|
|||||
City Office REIT, Inc. - Preferred A
|
(4)
|
Publicly Traded Company
|
12,196.00
|
201,436
|
210,259
|
0.20
|
|||||
CorEnergy Infrastructure 7.375% PFD A
|
(4)
|
Publicly Traded Company
|
36,031.00
|
621,401
|
543,347
|
0.51
|
|||||
Host Hotels & Resorts Inc
|
(4)
|
Publicly Traded Company
|
24,500.00
|
237,354
|
270,480
|
0.25
|
|||||
Independence Realty Trust, Inc.
|
(4)
|
Publicly Traded Company
|
33,000.00
|
295,551
|
295,020
|
0.28
|
|||||
One Liberty Properties, Inc.
|
(4)
|
Publicly Traded Company
|
24,500.00
|
370,318
|
341,285
|
0.32
|
|||||
RLJ Lodging Trust
|
(4)
|
Publicly Traded Company
|
42,000.00
|
243,541
|
324,240
|
0.30
|
|||||
The Macerich Company
|
(4)
|
Publicly Traded Company
|
57,000.00
|
997,107
|
320,910
|
0.30
|
|||||
VEREIT, Inc
|
(4)
|
Publicly Traded Company
|
58,000.00
|
294,437
|
283,620
|
0.27
|
|||||
WP Carey, Inc.
|
(4)
|
Publicly Traded Company
|
5,000.00
|
301,375
|
290,400
|
0.27
|
|||||
Total Publicly Traded Companies
|
|
|
|
8,685,404
|
6,540,726
|
6.11
|
|||||
|
|
|
|
|
|
|
|||||
Benefit Street Partners Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
235,273.38
|
3,450,070
|
2,938,564
|
2.74
|
|||||
Carter Validus Mission Critical REIT II, Inc. Class A
|
(5)
|
Non Traded Company
|
167,826.26
|
1,147,285
|
1,149,610
|
1.07
|
|||||
CIM Real Estate Finance Trust, Inc.
|
(5)
|
Non Traded Company
|
518,277.98
|
3,025,846
|
2,684,680
|
2.51
|
|||||
CNL Healthcare Properties, Inc.
|
(5)
|
Non Traded Company
|
268,532.71
|
1,562,429
|
1,369,517
|
1.28
|
|||||
Cole Credit Property Trust V, Inc.
|
(5)
|
Non Traded Company
|
55,455.36
|
693,789
|
648,828
|
0.61
|
|||||
Cole Credit Property Trust V, Inc. Class T
|
(5)
|
Non Traded Company
|
1,466.55
|
18,438
|
17,159
|
0.02
|
|||||
Cole Office & Industrial REIT (CCIT II), Inc.
|
(5)
|
Non Traded Company
|
11,048.42
|
82,395
|
78,002
|
0.07
|
|||||
Corporate Property Associates 18 Global A Inc.
|
(5)
|
Non Traded Company
|
4,695.14
|
39,627
|
31,551
|
0.03
|
|||||
First Capital Real Estate Trust, Inc.
|
(5)(6)
|
Non Traded Company
|
3,792.51
|
15,161
|
13,388
|
0.01
|
|||||
FSP 1441 Main Street
|
(5)(6)
|
Non Traded Company
|
15.73
|
8,559
|
33,375
|
0.03
|
|||||
FSP 303 East Wacker Drive Corp. Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
3.00
|
30
|
655
|
-
|
|||||
FSP Energy Tower I Corp. Liquidating Trust
|
(2)(5)(6)
|
Non Traded Company
|
19.35
|
7,929
|
7,929
|
0.01
|
|||||
FSP Grand Boulevard Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
7.50
|
8
|
2,754
|
-
|
|||||
FSP Satellite Place
|
(2)(5)(6)
|
Non Traded Company
|
17.60
|
545,988
|
548,791
|
0.51
|
|||||
Griffin Capital Essential Asset REIT, Inc.
|
(5)
|
Non Traded Company
|
23,044.28
|
151,802
|
156,932
|
0.15
|
|||||
Griffin-American Healthcare REIT III, Inc.
|
(5)
|
Non Traded Company
|
58,042.12
|
316,152
|
365,085
|
0.34
|
|||||
GTJ REIT, Inc.
|
(5)
|
Non Traded Company
|
1,000.00
|
11,620
|
9,460
|
0.01
|
|||||
Healthcare Trust, Inc.
|
(5)
|
Non Traded Company
|
316,538.24
|
3,565,549
|
2,643,094
|
2.47
|
|||||
Highlands REIT Inc.
|
(5)(6)
|
Non Traded Company
|
21,606,069.06
|
3,995,905
|
2,808,789
|
2.62
|
|||||
Hines Global REIT, Inc.
|
(5)(6)
|
Non Traded Company
|
17,936.21
|
120,637
|
65,467
|
0.06
|
|||||
Hospitality Investors Trust, Inc.
|
(5)(6)
|
Non Traded Company
|
20,493.11
|
90,607
|
48,979
|
0.05
|
|||||
InvenTrust Properties Corp.
|
(5)
|
Non Traded Company
|
1,824,347.46
|
2,297,086
|
2,353,408
|
2.20
|
|||||
KBS Real Estate Investment Trust II, Inc.
|
(5)(6)
|
Non Traded Company
|
1,365,338.22
|
3,754,369
|
2,594,143
|
2.42
|
|||||
KBS Real Estate Investment Trust III, Inc.
|
(5)
|
Non Traded Company
|
65,717.13
|
550,359
|
476,449
|
0.45
|
|||||
New York City REIT, Inc.
|
(5)(6)
|
Non Traded Company
|
314,951.46
|
3,762,694
|
3,684,932
|
3.44
|
|||||
NorthStar Healthcare Income, Inc.
|
(5)(6)
|
Non Traded Company
|
23,573.29
|
87,643
|
58,933
|
0.06
|
|||||
Phillips Edison & Company, Inc
|
(5)
|
Non Traded Company
|
844,256.95
|
6,247,844
|
6,112,420
|
5.71
|
|||||
SmartStop Self Storage REIT, Inc.
|
(5)
|
Non Traded Company
|
6,665.00
|
50,893
|
60,252
|
0.06
|
|||||
Steadfast Apartment REIT
|
(5)
|
Non Traded Company
|
73,226.79
|
815,995
|
834,053
|
0.78
|
|||||
Strategic Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
308,427.01
|
1,233,971
|
949,955
|
0.89
|
|||||
Summit Healthcare REIT, Inc.
|
(2)(5)(6)
|
Non Traded Company
|
1,409,436.22
|
1,926,736
|
2,170,531
|
2.03
|
|||||
The Parking REIT Inc.
|
(5)(6)
|
Non Traded Company
|
17,989.90
|
230,880
|
145,358
|
0.14
|
|||||
Total Non Traded Companies (1)
|
|
|
|
39,808,296
|
35,063,043
|
32.77
|
|||||
|
|
|
|
|
|
|
|||||
3100 Airport Way South LP
|
(5)
|
LP Interest
|
1.00
|
355,000
|
360,188
|
0.35
|
|||||
5210 Fountaingate, LP
|
(2)(5)(6)
|
LP Interest
|
9.89
|
500,000
|
427,792
|
0.40
|
|||||
Addison NC, LLC
|
(3)(5)(6)
|
LP Interest
|
200,000.00
|
2,000,000
|
2,918,000
|
2.73
|
|||||
Addison Property Member, LLC
|
(3)(5)
|
LP Interest
|
731,485.60
|
7,316,326
|
8,434,029
|
7.88
|
|||||
Bishop Berkeley, LLC
|
(3)(5)
|
LP Interest
|
4,050.00
|
4,050,000
|
3,919,185
|
3.66
|
|||||
BP3 Affiliate, LLC
|
(2)(5)(6)
|
LP Interest
|
1,668.00
|
1,668,000
|
1,668,000
|
1.56
|
|||||
BR Cabrillo LLC
|
(5)(6)
|
LP Interest
|
346,723.32
|
104,944
|
104,017
|
0.10
|
|||||
BR Everwood Investment Co, LLC
|
(2)(5)
|
LP Interest
|
3,750,000.00
|
3,750,000
|
3,750,000
|
3.50
|
|||||
BR Sunrise Parc Investment Co, LLC
|
(2)(5)
|
LP Interest
|
2,720,911.00
|
2,720,911
|
2,720,911
|
2.54
|
|||||
Britannia Preferred Members, LLC -Class 1
|
(3)(5)(6)
|
LP Interest
|
103.88
|
2,597,000
|
3,376,100
|
3.15
|
|||||
Britannia Preferred Members, LLC -Class 2
|
(3)(5)(6)
|
LP Interest
|
514,858.30
|
6,826,931
|
6,718,901
|
6.28
|
|||||
Capitol Hill Partners, LLC
|
(3)(5)(6)
|
LP Interest
|
190,000.00
|
1,900,000
|
1,780,300
|
1.66
|
|||||
Citrus Park Hotel Holdings, LLC
|
(3)(5)
|
LP Interest
|
5,000,000.00
|
5,000,000
|
5,000,000
|
4.67
|
|||||
Dimensions28 LLP
|
(3)(5)
|
LP Interest
|
10,800.00
|
10,801,015
|
10,352,988
|
9.67
|
|||||
Lakemont Partners, LLC
|
(2)(5)
|
LP Interest
|
1,000.00
|
941,180
|
875,890
|
0.82
|
|||||
MPF Pacific Gateway - Class B
|
(2)(5)(6)
|
LP Interest
|
23.20
|
6,287
|
7,316
|
0.01
|
|||||
Redwood Mortgage Investors VIII
|
(5)
|
LP Interest
|
56,300.04
|
29,700
|
31,528
|
0.03
|
|||||
Satellite Investment Holdings, LLC - Class B
|
(5)(6)
|
LP Interest
|
0.31
|
22
|
14,437
|
0.01
|
|||||
Secured Income, LP
|
(2)(5)(6)
|
LP Interest
|
64,670.00
|
316,890
|
246,393
|
0.23
|
|||||
Total LP Interest
|
|
|
|
50,884,206
|
52,705,975
|
49.25
|
|||||
|
|
|
|
|
|
|
|||||
Coastal Realty Business Trust, REEP, Inc. - A
|
(3)(5)(6)
|
Investment Trust
|
72,320.00
|
49,901
|
31,821
|
0.03
|
|||||
Total Investment Trust
|
|
|
|
49,901
|
31,821
|
0.03
|
|||||
|
|
|
|
|
|
|
|||||
Total Investments
|
|
|
|
$ 99,427,807
|
$ 94,341,565
|
88.16
|
(1) Investments primarily in non-traded public REITs or their successors.
|
(2) Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns between 5% and 25% of the portfolio company’s voting securities. As of
March 31, 2020, the Company is deemed to be “affiliated” with these portfolio companies despite that fact that the Company does not have the power to exercise control over the management or policies of such portfolio companies. See additional
disclosures in Note 5.
|
(3) Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise
control over the management or policies of such portfolio company. As of March 31, 2020, the Company is deemed to be in “control” of these portfolio companies despite that fact that the Company does not have the power to exercise control over
the management or policies of such portfolio companies. See additional disclosures in Note 5.
|
(4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of March 31, 2020, the total percentage of non-qualifying assets is 5.95%, and, as a business development company,
non-qualifying assets may not exceed 30% of our total assets.
|
(5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of March 31, 2020, 79.81% of the Company's total assets are in illiquid securities.
|
(6) Investments in non-income producing securities. As of March 31, 2020, 26.80% 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.
June 30, 2019
|
|
|
|
|
|
|
|||||
Name
|
|
Asset Type
|
Shares/Units
|
Cost Basis
|
Total
Fair Value |
% of
Net Assets |
|||||
|
|
|
|
|
|
|
|||||
American Finance Trust Inc., Class A
|
(4)
|
Publicly Traded Company
|
197,340.00
|
$ 2,186,682
|
$ 2,151,006
|
2.09
|
|||||
Total Publicly Traded Company
|
|
|
|
2,186,682
|
2,151,006
|
2.09
|
|||||
|
|
|
|
|
|
|
|||||
Benefit Street Partners Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
214,175.77
|
3,207,614
|
3,075,563
|
2.96
|
|||||
BRE Select Hotels Corp. - Preferred A
|
(5)
|
Non Traded Company
|
358,717.00
|
594,992
|
670,801
|
0.65
|
|||||
Carter Validus Mission Critical REIT
|
(5)
|
Non Traded Company
|
315,639.56
|
1,087,300
|
1,325,686
|
1.29
|
|||||
Cole Credit Property Trust IV, Inc.
|
(5)
|
Non Traded Company
|
314,451.92
|
1,879,482
|
2,185,441
|
2.12
|
|||||
Cole Credit Property Trust V, Inc.
|
(5)
|
Non Traded Company
|
8,631.50
|
116,442
|
112,123
|
0.11
|
|||||
Cole Credit Property Trust V, Inc. Class T
|
(5)
|
Non Traded Company
|
395.88
|
5,492
|
5,143
|
-
|
|||||
CNL Healthcare Properties, Inc.
|
(5)(6)
|
Non Traded Company
|
104,158.67
|
658,615
|
625,994
|
0.61
|
|||||
Hines Global REIT, Inc.
|
(5)
|
Non Traded Company
|
17,936.21
|
120,637
|
92,013
|
0.09
|
|||||
Corporate Property Associates 18 Global A Inc.
|
(5)
|
Non Traded Company
|
4,695.14
|
39,627
|
37,139
|
0.04
|
|||||
First Capital Real Estate Trust, Inc.
|
(5)(6)
|
Non Traded Company
|
3,792.51
|
15,161
|
18,242
|
0.02
|
|||||
FSP 1441 Main Street
|
(5)(6)
|
Non Traded Company
|
15.73
|
8,559
|
31,245
|
0.03
|
|||||
FSP 303 East Wacker Drive Corp. Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
3.00
|
30
|
600
|
-
|
|||||
FSP Energy Tower I Corp. Liquidating Trust
|
(2)(5)(6)
|
Non Traded Company
|
19.35
|
57,567
|
57,566
|
0.06
|
|||||
FSP Grand Boulevard Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
7.50
|
8
|
8
|
-
|
|||||
FSP Satellite Place
|
(2)(5)(6)
|
Non Traded Company
|
17.60
|
546,482
|
712,585
|
0.69
|
|||||
Griffin-American Healthcare REIT III, Inc.
|
(5)
|
Non Traded Company
|
686.48
|
4,494
|
5,149
|
-
|
|||||
Griffin Capital Essential Asset REIT, Inc.
|
(5)
|
Non Traded Company
|
21,368.03
|
140,003
|
169,021
|
0.16
|
|||||
GTJ REIT, Inc.
|
(5)
|
Non Traded Company
|
1,000.00
|
11,620
|
11,980
|
0.01
|
|||||
Healthcare Trust, Inc.
|
(5)
|
Non Traded Company
|
305,526.76
|
3,473,952
|
3,211,086
|
3.11
|
|||||
Highlands REIT Inc.
|
(5)(6)
|
Non Traded Company
|
21,255,526.80
|
3,965,354
|
3,825,995
|
3.71
|
|||||
Hospitality Investors Trust, Inc.
|
(5)(6)
|
Non Traded Company
|
1,650.75
|
11,802
|
9,327
|
0.01
|
|||||
InvenTrust Properties Corp.
|
(5)
|
Non Traded Company
|
14,799.52
|
22,603
|
26,195
|
0.03
|
|||||
KBS Real Estate Investment Trust II, Inc.
|
(5)
|
Non Traded Company
|
1,364,838.21
|
4,776,934
|
4,831,527
|
4.69
|
|||||
KBS Real Estate Investment Trust III, Inc.
|
(5)
|
Non Traded Company
|
62,516.45
|
515,050
|
593,906
|
0.58
|
|||||
New York City REIT, Inc.
|
(5)(6)
|
Non Traded Company
|
241,297.69
|
3,032,703
|
3,136,870
|
3.04
|
|||||
NorthStar Healthcare Income, Inc.
|
(5)(6)
|
Non Traded Company
|
23,573.29
|
87,643
|
66,477
|
0.06
|
|||||
Phillips Edison & Company, Inc
|
(5)
|
Non Traded Company
|
777,332.00
|
5,760,907
|
6,350,802
|
6.16
|
|||||
Steadfast Apartment REIT
|
(5)
|
Non Traded Company
|
2,083.29
|
17,197
|
26,041
|
0.03
|
|||||
Steadfast Income REIT
|
(5)
|
Non Traded Company
|
109,471.94
|
740,163
|
743,314
|
0.72
|
|||||
Strategic Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
199,425.07
|
792,538
|
853,539
|
0.83
|
|||||
Summit Healthcare REIT, Inc.
|
(2)(5)(6)
|
Non Traded Company
|
1,406,200.22
|
1,922,248
|
2,587,408
|
2.51
|
|||||
The Parking REIT Inc.
|
(5)(6)
|
Non Traded Company
|
17,989.90
|
230,880
|
242,504
|
0.24
|
|||||
Total Non Traded Company (1)
|
|
|
|
33,844,099
|
35,641,290
|
34.56
|
|||||
|
|
|
|
|
|
|
|||||
3100 Airport Way South LP
|
(5)
|
LP Interest
|
1.00
|
355,000
|
387,990
|
0.37
|
|||||
5210 Fountaingate, LP
|
(2)(5)
|
LP Interest
|
9.89
|
500,000
|
552,693
|
0.54
|
|||||
Addison NC, LLC
|
(3)(5)(6)
|
LP Interest
|
200,000.00
|
2,000,000
|
3,600,000
|
3.49
|
|||||
Addison Property Member, LLC
|
(3)(5)
|
LP Interest
|
731,485.60
|
7,316,326
|
7,314,855
|
7.08
|
|||||
Arrowpoint Burlington LLC
|
(2)(5)
|
LP Interest
|
7.50
|
750,000
|
1,088,910
|
1.06
|
|||||
Bishop Berkeley, LLC
|
(3)(5)
|
LP Interest
|
4,050.00
|
4,050,000
|
4,051,013
|
3.93
|
|||||
BP3 Affiliate, LLC
|
(2)(5)(6)
|
LP Interest
|
1,350.00
|
1,350,000
|
1,350,000
|
1.31
|
|||||
BR Cabrillo LLC
|
(5)(6)
|
LP Interest
|
346,723.32
|
104,942
|
131,755
|
0.13
|
|||||
BR Desota Investment Co, LLC
|
(2)(5)
|
LP Interest
|
4,250,000.00
|
4,250,000
|
4,250,000
|
4.12
|
|||||
BR Quinn35 Investment Co, LLC
|
(2)(5)
|
LP Interest
|
4,000,000.00
|
4,000,000
|
4,000,000
|
3.88
|
|||||
Britannia Preferred Members, LLC -Class 1
|
(3)(5)(6)
|
LP Interest
|
103.88
|
2,597,000
|
2,986,550
|
2.90
|
|||||
Britannia Preferred Members, LLC -Class 2
|
(3)(5)(6)
|
LP Interest
|
514,858.30
|
6,826,931
|
7,758,915
|
7.52
|
|||||
Capitol Hill Partners, LLC
|
(3)(5)(6)
|
LP Interest
|
190,000.00
|
1,900,000
|
1,852,500
|
1.80
|
|||||
CRP I Roll Up, LLC
|
(5)
|
LP Interest
|
4,500,000.00
|
4,500,000
|
4,995,000
|
4.84
|
|||||
CRP III Roll Up, LLC
|
(5)
|
LP Interest
|
6,000,000.00
|
6,000,000
|
6,540,000
|
6.34
|
|||||
Dimensions28 LLP
|
(3)(5)(6)
|
LP Interest
|
10,800.00
|
10,801,015
|
10,886,076
|
10.56
|
|||||
Lakemont Partners, LLC
|
(2)(5)
|
LP Interest
|
1,000.00
|
1,000,000
|
1,007,700
|
0.98
|
|||||
MPF Pacific Gateway - Class B
|
(2)(5)(6)
|
LP Interest
|
23.20
|
6,287
|
7,316
|
0.01
|
|||||
Redwood Mortgage Investors VIII
|
(5)
|
LP Interest
|
56,300.04
|
29,700
|
39,410
|
0.04
|
|||||
Satellite Investment Holdings, LLC - Class A
|
(5)
|
LP Interest
|
22.00
|
2,200,000
|
2,200,000
|
2.13
|
|||||
Secured Income, LP
|
(2)(5)(6)
|
LP Interest
|
64,670.00
|
316,890
|
302,009
|
0.29
|
|||||
The Weatherly Building, LLC
|
(5)(6)
|
LP Interest
|
17.50
|
118,721
|
47,846
|
0.05
|
|||||
The Weatherly, LTD
|
(5)(6)
|
LP Interest
|
60.00
|
184,761
|
63,261
|
0.06
|
|||||
Total LP Interest
|
|
|
|
61,157,573
|
65,413,799
|
63.43
|
|||||
|
|
|
|
|
|
|
|||||
Coastal Realty Business Trust, REEP, Inc. - A
|
(3)(5)(6)
|
Investment Trust
|
72,320.00
|
49,901
|
39,053
|
0.04
|
|||||
Total Investment Trust
|
|
|
|
49,901
|
39,053
|
0.04
|
|||||
|
|
|
|
|
|
|
|||||
Total Investments
|
|
|
|
$ 97,238,255
|
$ 103,245,148
|
100.12
|
(1) Investments primarily in non-traded public REITs or their successors.
|
(2) Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns between 5% and 25% of the portfolio company’s voting securities. As of June
30, 2019, the Company is deemed to be “affiliated” with these portfolio companies despite that fact that the Company does not have the power to exercise control over the management or policies of such portfolio companies. See additional
disclosures in Note 5.
|
(3) Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise
control over the management or policies of such portfolio company. As of June 30, 2019, the Company is deemed to be in “control” of these portfolio companies despite that fact that the Company does not have the power to exercise control over
the management or policies of such portfolio companies. See additional disclosures in Note 5.
|
(4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2019, the total percentage of non-qualifying assets is 1.99%, and as a business development company non-qualifying
assets may not exceed 30% of our total assets.
|
(5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2019, 93.30% of the Company's total assets are in illiquid securities.
|
(6) Investments in non-income producing securities. As of June 30, 2019, 37.23% of the Company's total assets are in non-income producing securities.
|
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
(Unaudited)
|
||||||||||||||||
|
Three Months Ended
March 31, |
Nine Months Ended
March 31, |
||||||||||||||
|
2020
|
2019
|
2020
|
2019
|
||||||||||||
Investment income
|
||||||||||||||||
Non-controlled/non-affiliated investments:
|
||||||||||||||||
Dividend and operational/sales distributions
|
$
|
2,011,421
|
$
|
879,815
|
$
|
4,325,117
|
$
|
7,382,313
|
||||||||
Interest and other income
|
788
|
139,490
|
328,767
|
351,678
|
||||||||||||
Affiliated investments:
|
||||||||||||||||
Dividend and operational/sales distributions
|
466,534
|
111,162
|
914,145
|
168,474
|
||||||||||||
Controlled investments:
|
||||||||||||||||
Dividend and operational/sales distributions
|
614,031
|
610,679
|
1,851,964
|
610,679
|
||||||||||||
Total investment income
|
3,092,774
|
1,741,146
|
7,419,993
|
8,513,144
|
||||||||||||
|
||||||||||||||||
Operating expenses
|
||||||||||||||||
Base management fee (note 5)
|
651,516
|
567,699
|
1,891,796
|
1,621,490
|
||||||||||||
Portfolio structuring fee (note 5)
|
197,114
|
186,343
|
558,706
|
557,366
|
||||||||||||
Subordinated incentive fee (reversal) (note 5)
|
-
|
81,620
|
-
|
1,291,168
|
||||||||||||
Administrative cost reimbursements (note 5)
|
170,000
|
156,000
|
510,000
|
468,000
|
||||||||||||
Transfer agent cost reimbursements (note 5)
|
20,000
|
-
|
60,000
|
-
|
||||||||||||
Amortization of deferred offering costs
|
107,159
|
149,545
|
747,367
|
384,347
|
||||||||||||
Professional fees
|
29,725
|
17,767
|
178,246
|
129,795
|
||||||||||||
Directors' fees
|
16,500
|
15,500
|
50,500
|
46,500
|
||||||||||||
Printing and mailing
|
12,340
|
7,995
|
74,380
|
49,493
|
||||||||||||
Other general and administrative
|
16,474
|
49,766
|
50,637
|
109,089
|
||||||||||||
Total operating expenses
|
1,220,828
|
1,232,235
|
4,121,632
|
4,657,248
|
||||||||||||
|
||||||||||||||||
Net investment income before taxes
|
1,871,946
|
508,911
|
3,298,361
|
3,855,896
|
||||||||||||
Income tax benefit - (note 2)
|
-
|
-
|
-
|
(12,968
|
)
|
|||||||||||
Net investment income
|
1,871,946
|
508,911
|
3,298,361
|
3,868,864
|
||||||||||||
|
||||||||||||||||
Realized and unrealized gain (loss) on investments
|
||||||||||||||||
Net realized gain (loss)
|
||||||||||||||||
Non-controlled/non-affiliated investments
|
(174,489
|
)
|
(812,058
|
)
|
652,199
|
1,221,474
|
||||||||||
Affiliated investments:
|
-
|
-
|
583,331
|
-
|
||||||||||||
Total net realized gain (loss)
|
(174,489
|
)
|
(812,058
|
)
|
1,235,530
|
1,221,474
|
||||||||||
Net unrealized gain (loss)
|
||||||||||||||||
Non-controlled/non-affiliated investments
|
(6,525,899
|
)
|
(119,004
|
)
|
(8,958,415
|
)
|
(4,313,240
|
)
|
||||||||
Affiliated investments
|
(683,091
|
)
|
346,276
|
(1,177,082
|
)
|
617,790
|
||||||||||
Controlled investments
|
(2,646,141
|
)
|
(75,091
|
)
|
(957,638
|
)
|
640,891
|
|||||||||
Total net unrealized gain (loss)
|
(9,855,131
|
)
|
152,181
|
(11,093,135
|
)
|
(3,054,559
|
)
|
|||||||||
|
||||||||||||||||
Total net realized and unrealized loss on investments
|
(10,029,620
|
)
|
(659,877
|
)
|
(9,857,605
|
)
|
(1,833,085
|
)
|
||||||||
|
||||||||||||||||
Net increase (decrease) in net assets resulting from operations
|
$
|
(8,157,674
|
)
|
$
|
(150,966
|
)
|
$
|
(6,559,244
|
)
|
$
|
2,035,779
|
|||||
|
||||||||||||||||
Net increase (decrease) in net assets resulting from operations per share
|
$
|
(0.65
|
)
|
$
|
(0.01
|
)
|
$
|
(0.55
|
)
|
$
|
0.21
|
|||||
|
||||||||||||||||
Weighted average common shares outstanding
|
12,533,824
|
10,314,925
|
11,996,863
|
9,655,180
|
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
(Unaudited)
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
March 31, 2020
|
March 31, 2019
|
March 31, 2020
|
March 31, 2019
|
||||||||||||
Operations
|
||||||||||||||||
Net investment income
|
$
|
1,871,946
|
$
|
508,911
|
$
|
3,298,361
|
$
|
3,868,864
|
||||||||
Net realized gain (loss)
|
(174,489
|
)
|
(812,058
|
)
|
1,235,530
|
1,221,474
|
||||||||||
Net unrealized gain (loss)
|
(9,855,131
|
)
|
152,181
|
(11,093,135
|
)
|
(3,054,559
|
)
|
|||||||||
Net increase (decrease) in net assets resulting from operations
|
(8,157,674
|
)
|
(150,966
|
)
|
(6,559,244
|
)
|
2,035,779
|
|||||||||
|
||||||||||||||||
Dividends
|
||||||||||||||||
Dividends to stockholders
|
(1,461,875
|
)
|
(1,794,012
|
)
|
(5,542,591
|
)
|
(5,360,535
|
)
|
||||||||
|
||||||||||||||||
Capital share transactions
|
||||||||||||||||
Issuance of common stock
|
6,559,020
|
6,075,689
|
18,525,304
|
18,334,137
|
||||||||||||
Issuance of common stock through reinvestment of dividends
|
764,061
|
870,438
|
2,393,094
|
2,223,629
|
||||||||||||
Redemption of common stock
|
(1,638,985
|
)
|
(704,268
|
)
|
(3,194,670
|
)
|
(1,167,903
|
)
|
||||||||
Selling commissions and fees
|
(621,254
|
)
|
(483,917
|
)
|
(1,728,378
|
)
|
(1,606,669
|
)
|
||||||||
Net increase in net assets resulting from capital share transactions
|
5,062,842
|
5,757,942
|
15,995,350
|
17,783,194
|
||||||||||||
|
||||||||||||||||
Total increase (decrease) in net assets
|
(4,556,707
|
)
|
3,812,964
|
3,893,515
|
14,458,438
|
|||||||||||
|
||||||||||||||||
Net assets at beginning of the period
|
111,565,603
|
96,240,793
|
103,115,381
|
85,595,319
|
||||||||||||
|
||||||||||||||||
Net assets at end of the period
|
$
|
107,008,896
|
$
|
100,053,757
|
$
|
107,008,896
|
$
|
100,053,757
|
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
(Unaudited)
|
||||||||
|
Nine Months Ended
March 31, |
|||||||
|
2020
|
2019
|
||||||
Cash flows from operating activities:
|
||||||||
Net increase (decrease) in net assets resulting from operations
|
$
|
(6,559,244
|
)
|
$
|
2,035,779
|
|||
Adjustments to reconcile net increase (decrease) in net assets resulting from
|
||||||||
operations to net cash from operating activities:
|
||||||||
Proceeds from sale of investments, net
|
6,453,859
|
51,649,110
|
||||||
Return of capital
|
31,368,023
|
15,442,937
|
||||||
Purchase of investments
|
(38,775,904
|
)
|
(94,713,860
|
)
|
||||
Net realized gain on investments
|
(1,235,530
|
)
|
(1,221,474
|
)
|
||||
Net unrealized loss on investments
|
11,093,135
|
3,054,559
|
||||||
Amortization of deferred offering costs
|
747,367
|
384,347
|
||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
1,275,464
|
3,845,874
|
||||||
Other assets
|
(140,622
|
)
|
173,901
|
|||||
Payment of deferred offering costs
|
(673,478
|
)
|
(543,658
|
)
|
||||
Accounts payable and accrued liabilities
|
(183,615
|
)
|
7,601
|
|||||
Income tax payable
|
-
|
(35,873
|
)
|
|||||
Due to related entities
|
(1,655,342
|
)
|
197,520
|
|||||
Deferred tax liability
|
-
|
(3,518
|
)
|
|||||
Net cash from operating activities
|
1,714,113
|
(19,726,755
|
)
|
|||||
|
||||||||
Cash flows from financing activities:
|
||||||||
Proceeds from issuance of common stock
|
18,525,304
|
18,334,137
|
||||||
Redemption of common stock
|
(3,194,670
|
)
|
(1,167,903
|
)
|
||||
Dividends to stockholders
|
(3,564,723
|
)
|
(2,781,702
|
)
|
||||
Payment of selling commissions and fees
|
(1,698,331
|
)
|
(1,665,536
|
)
|
||||
Change in capital pending acceptance
|
6,985
|
353,808
|
||||||
Net cash from financing activities
|
10,074,565
|
13,072,804
|
||||||
|
||||||||
Net increase (decrease) in cash and cash equivalents
|
11,788,678
|
(6,653,951
|
)
|
|||||
|
||||||||
Cash and cash equivalents at beginning of the period
|
1,278,668
|
8,442,249
|
||||||
|
||||||||
Cash and cash equivalents at end of the period
|
$
|
13,067,346
|
$
|
1,788,298
|
||||
|
||||||||
Non-cash financing activities:
|
||||||||
Issuance of common stock through reinvestment of dividends
|
$
|
2,393,094
|
$
|
2,223,629
|
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
March 31, 2020
(Unaudited)
MacKenzie Realty Capital, Inc. (the "Parent Company" together with its subsidiary as discussed below, the "Company") was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. It
is a non-diversified, closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended ("1940 Act"). The Parent Company has elected to be treated as a real
estate investment trust ("REIT") as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). The Parent Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as Common Stock, with a
$0.0001 par value per share; and (ii) 20,000,000 are designated as Preferred Stock, with a $0.0001 par value per share. The Parent Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30.
The Parent Company filed its initial registration statement in June 2012 with the Securities and Exchange Commission ("SEC") to register the initial public offering (“IPO”) of 5,000,000 shares of its common stock. The
IPO commenced in January 2014 and concluded in October 2016. The Parent Company filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of its common stock. The second offering commenced in
December 2016 and concluded on October 28, 2019. The Parent Company filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on October 31, 2019.
The third offering commenced shortly thereafter and is continuing.
The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary.
MacKenzie NY Real Estate 2 Corp., (“MacKenzie NY 2”), a wholly owned subsidiary of TRS, was formed for the purpose of making certain limited investments in New York companies. The financial statements of TRS and MacKenzie NY 2 have been consolidated
with the Parent Company.
The Company is externally managed by MacKenzie Capital Management, LP ("MacKenzie") under the administration agreement dated and effective as of February 28, 2013 (the
"Administration Agreement"). MacKenzie manages all Company affairs except for providing investment advice. The Company is advised by MCM Advisers, LP (the "Adviser") under the advisory agreement amended and restated effective October 1, 2017, and
subsequently amended October 23, 2018 (the "Amended and Restated Investment Advisory Agreement"). The Company pursues a strategy focused on investing primarily in illiquid or non-traded debt and equity securities issued by U.S. companies generally
owning commercial real estate. These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships and limited liability companies.
As of March 31, 2020, the Company has raised approximately $128.6 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan ("DRIP") of
approximately $10.7 million. Of the shares issued by the Company in exchange for the total capital raised as of March 31, 2020, approximately $9.5 million worth of shares have been repurchased under the Company’s share repurchase program.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation Policy
The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in
the United States of America (“GAAP”) and include the accounts of the Company’s wholly owned consolidated subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Under the 1940 Act rules, regulations pursuant to
Article 6 of Regulation S-X and Topic 946 of the Accounting Standards Codification, as amended (the "ASC"), of the Financial Accounting Standards Board ("FASB"), Financial Services-Investment Companies, the Company is precluded from consolidating
portfolio company investments, including those in which the Company has a controlling interest, unless the portfolio company is an investment company or a controlled operating company which provides substantially all of its services to benefit the
Company, such as an investment adviser or transfer agent. None of the Company’s investments qualifies for these exceptions. Therefore, the Company’s portfolio company investments, including those in which the Company has a controlling interest, are
carried on the consolidated statements of assets and liabilities at fair value with changes to fair value recognized as net unrealized gain (loss) on the consolidated statements of operations until the investment is realized, usually upon exit,
resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company will include
required financial information for such subsidiary in the notes or as an attachment to its consolidated financial statements.
The unaudited consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the
Company’s results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.
These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended
June 30, 2019, included in the Company's annual report on Form 10-K filed with the SEC.
There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2019, other than those
expanded upon and described below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no
cash equivalents held as of March 31, 2020, and June 30, 2019.
Accounts Receivable
Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the
financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable
collection efforts are exhausted. The Company has determined that all account receivable balances outstanding as of March 31, 2020, are collectible and do not require recording any uncollectible allowance.
Capital Pending Acceptance
The Company conducts closings for new purchases of the Company’s common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions
are effective only upon the Company's acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated statements of assets and liabilities. As of
March 31, 2020, and June 30, 2019, capital pending acceptance was $675,150 and $668,165, respectively.
Organization and Deferred Offering Costs
Organization costs include, among other things, the cost of legal services pertaining to the organization and incorporation of the business, incorporation fees and audit fees
relating to the IPO and the initial statement of assets and liabilities. These costs are expensed as incurred. Offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and
pre- and post-effective amendments. Offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period. Any deferred offering costs that have not been amortized upon
the expiration or earlier termination of an offering will be accelerated and expensed upon such expiration or termination.
The offering costs incurred by the Company on the second and third public offering are each limited to $1,650,000 plus the savings realized by the Company to the extent that
broker fees incurred are less than 10%. Offering costs incurred in excess of these amounts will be reimbursed by the Adviser as discussed in Note 5. The offering costs incurred in connection with the second public offering through December 31, 2019
and June 30, 2019 were $1,843,071 and $1,685,426, respectively. There were no additional offering costs incurred on the second offering after December 31, 2019 since the offering terminated in October 2019. There were no offering costs incurred in
connection with the third public offering as of June 30, 2019. The offering costs incurred in connection with the third public offering through March 31, 2020 were $515,833. These offering costs are deferred and expensed over a twelve-month period
beginning from the date the registration was declared effective by the SEC. Since the second public offering concluded in October 2019, $404,273 of the deferred offering costs that had not been amortized as of the conclusion date were fully expensed
as of December 31, 2019. Total amortization of these deferred costs for the nine months ended March 31, 2020, and 2019 were $747,367 and $384,347, respectively.
Income Taxes and Deferred Tax Liability
The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on amounts that it distributes to the
stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less
than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.
The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2018. Therefore, it did not incur any tax expense or
excise tax on its income from operations during the quarterly periods within the tax year 2018. Similarly, for the tax year 2019, we believe the Parent Company paid the requisite amounts of dividends during the year such that it will not owe any
income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal period within the tax year 2019.
The Parent Company was subject to tax on built-in gains it realized during the first five years following REIT election date of January 1, 2014. The income tax benefit of $12,968
recorded for the nine months ended March 31, 2019 in the consolidated statements of operations, was the reversal of the remaining deferred tax liabilities on the built-in gains that were not taxable after December 31, 2018.
TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of March 31, 2020, they did not have any
taxable income for tax year 2019 or 2020. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2019 and 2020.
The Company and its subsidiaries follow ASC 740, Income Taxes, (“ASC 740”) to account for income taxes using the asset and liability method, under which deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of
changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for recognizing, measuring,
presenting, and disclosing uncertain tax positions in the financial statements. As of March 31, 2020, and June 30, 2019, there were no uncertain tax positions. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a
later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
Recent Accounting Pronouncements
In August 2018, the FASB issued guidance which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among
other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way they are calculated. The guidance also eliminated the following disclosures:
(1) amount and reason for transfers between Level I and Level II, (2) policy for timing of transfers between levels of the fair value hierarchy and (3) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities
for fiscal years commencing after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted upon issuance of the guidance. The adoption of this guidance is not expected to have a material effect on the Company’s
consolidated financial statements.
NOTE 3 –INVESTMENTS
The following table summarizes the composition of the Company's investments at cost and fair value as of March 31, 2020, and June 30, 2019:
|
March 31, 2020
|
June 30, 2019
|
||||||||||||||
Asset Type
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
||||||||||||
Publicly Traded Companies
|
$
|
8,685,404
|
$
|
6,540,726
|
$
|
2,186,682
|
$
|
2,151,006
|
||||||||
Non Traded Companies
|
39,808,296
|
35,063,043
|
33,844,099
|
35,641,290
|
||||||||||||
LP Interests
|
50,884,206
|
52,705,975
|
61,157,573
|
65,413,799
|
||||||||||||
Investment Trust
|
49,901
|
31,821
|
49,901
|
39,053
|
||||||||||||
Total
|
$
|
99,427,807
|
$
|
94,341,565
|
$
|
97,238,255
|
$
|
103,245,148
|
The following table presents fair value measurements of the Company's investments as of March 31, 2020, according to the fair value hierarchy that is described in our annual report on Form 10-K:
Asset Type
|
Total
|
Level I
|
Level II
|
Level III
|
||||||||||||
Publicly Traded Companies
|
$
|
6,540,726
|
$
|
6,540,726
|
$
|
-
|
$
|
-
|
||||||||
Non Traded Companies
|
35,063,043
|
-
|
-
|
35,063,043
|
||||||||||||
LP Interests
|
52,705,975
|
-
|
-
|
52,705,975
|
||||||||||||
Investment Trust
|
31,821
|
-
|
-
|
31,821
|
||||||||||||
Total
|
$
|
94,341,565
|
$
|
6,540,726
|
$
|
-
|
$
|
87,800,839
|
||||||||
|
The following table presents fair value measurements of the Company's investments as of June 30, 2019, according to the fair value hierarchy that is described in our annual report on Form 10-K:
Asset Type
|
Total
|
Level I
|
Level II
|
Level III
|
||||||||||||
Publicly Traded Companies
|
$
|
2,151,006
|
$
|
2,151,006
|
$
|
-
|
$
|
-
|
||||||||
Non Traded Companies
|
35,641,290
|
-
|
-
|
35,641,290
|
||||||||||||
LP Interests
|
65,413,799
|
-
|
-
|
65,413,799
|
||||||||||||
Investment Trust
|
39,053
|
-
|
-
|
39,053
|
||||||||||||
Total
|
$
|
103,245,148
|
$
|
2,151,006
|
$
|
-
|
$
|
101,094,142
|
The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value
hierarchy) for the nine months ended March 31, 2020:
Balance at July 1, 2019
|
$
|
101,094,142
|
||
Purchases of investments
|
30,090,499
|
|||
Proceeds from sales, net
|
(3,639,699
|
)
|
||
Return of capital
|
(31,368,024
|
)
|
||
Net realized gains
|
608,053
|
|||
Net unrealized losses
|
(8,984,132
|
)
|
||
Ending balance at March 31, 2020
|
$
|
87,800,839
|
For the nine months ended March 31, 2020, changes in unrealized losses included in earnings relating to Level III investments still held at March 31, 2020, were $7,179,293.
The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value
hierarchy) for the nine months ended March 31, 2019:
Balance at July 1, 2018
|
$
|
67,923,423
|
||
Purchases of investments
|
62,969,383
|
|||
Transfers to Level I
|
(1,991,230
|
)
|
||
Proceeds from sales, net
|
(16,072,651
|
)
|
||
Return of capital
|
(15,442,938
|
)
|
||
Net realized gains
|
2,914,784
|
|||
Net unrealized losses
|
(2,723,543
|
)
|
||
Ending balance at March 31, 2019
|
$
|
97,577,228
|
The transfers of $1,991,230 from Level III to Level I and II categories during the nine months ended March 31, 2019 resulted from two of the Company's investments converting from a private REIT to publicly traded REIT.
Transfers are assumed to have occurred at the beginning of the year.
For the nine months ended March 31, 2019, changes in unrealized losses included in earnings relating to Level III investments still held at March 31, 2019 were $811,045.
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2020:
|
Asset Type
|
|
Fair Value
|
|
Primary Valuation Techniques
|
|
Unobservable Inputs Used
|
|
Range
|
|
Wt. Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Traded Companies
|
|
$ 703,609
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
5.1% - 7.8%
|
|
7.2%
|
|
|
|
|
|
|
|
Liquidity discount
|
|
30.0% - 56.0%
|
|
36.9%
|
|
Non Traded Companies
|
|
58,101
|
|
Estimated Liquidation Value
|
|
Sponsor provided value
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
6.0% - 78.0%
|
|
24.0%
|
|
Non Traded Companies
|
|
34,301,333
|
|
Market Activity
|
|
Secondary market industry publication
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
*
|
6.4% - 37.0%
|
|
11.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LP Interests
|
|
27,614,074
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
3.4% - 8.0%
|
|
5.5%
|
|
|
|
|
|
|
|
Liquidity discount
|
|
7.0% - 40.0%
|
|
18.0%
|
|
LP Interests
|
|
20,560,129
|
|
Discounted Cash Flow
|
|
Discount rate
|
|
9.0% - 20.0%
|
|
13.7%
|
|
|
|
|
|
|
|
Discount term (months)
|
|
12.0 - 30.0
|
|
24.9
|
|
LP Interests
|
|
111,333
|
|
Estimated Liquidation Value
|
|
Sponsor provided value
|
|
|
|
|
|
|
|
|
|
|
|
Underlying property sale contract
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
19.0% - 43.0%
|
|
41.4%
|
|
LP Interests
|
|
4,420,439
|
|
Market Activity
|
|
Acquisition Cost
|
|
|
|
|
|
|
|
|
|
|
|
Book value of underlying loans
|
|
|
|
|
|
|
|
|
|
|
|
Capital call provision
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
40.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Trust
|
|
31,821
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
24.0%
|
|
|
|
|
|
$ 87,800,839
|
|
|
|
|
|
|
|
|
* In the past quarters the Company valued Level III investments primarily by reference to secondary market activities. However, due to the COVID-19 pandemic, secondary market activities significantly declined during the quarter. Therefore, to
determine the fair values of these non-traded securities as of March 31, 2020, we reviewed secondary market trade publications issued prior to April 2020, compared them to the limited secondary market transactions after February 2020, assessed
changes in dividend policy to published discount rates in Direct Investment Spectrum, and compared the average decline of the publicly traded market of similar property types and fundamentals. Management assessed these factors as part of
management’s Level III valuation process and applied significant subjective judgment about the effects of overall market declines during times of economic turmoil to arrive at these valuations.
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2019:
|
Asset Type
|
|
Fair Value
|
|
Primary Valuation Techniques
|
|
Unobservable Inputs Used
|
|
Range
|
|
Wt. Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Traded Companies
|
|
$ 1,010,852
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
6.3% - 6.9%
|
|
6.9%
|
|
|
|
|
|
|
|
Liquidity discount
|
|
19.0% - 34.0%
|
|
20.7%
|
|
Non Traded Companies
|
|
670,801
|
|
Discounted Cash Flow
|
|
Discount rate
|
|
24.0%
|
|
|
|
|
|
|
|
|
|
Discount term (months)
|
|
28.0
|
|
|
|
Non Traded Companies
|
|
107,660
|
|
Estimated Liquidation Value
|
|
Sponsor provided value
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
12.0% - 70.0%
|
|
23.5%
|
|
Non Traded Companies
|
|
33,851,977
|
|
Market Activity
|
|
Secondary market industry publication
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LP Interests
|
|
26,798,895
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
4.2% - 7.3%
|
|
5.3%
|
|
|
|
|
|
|
|
Liquidity discount
|
|
19.0% - 25.0%
|
|
19.4%
|
|
LP Interests
|
|
27,636,406
|
|
Discounted Cash Flow
|
|
Discount rate
|
|
15.0% - 30.0%
|
|
17.8%
|
|
|
|
|
|
|
|
Discount term (months)
|
|
18.0 - 24.0
|
|
19.4
|
|
LP Interests
|
|
250,178
|
|
Estimated Liquidation Value
|
|
Sponsor provided value
|
|
|
|
|
|
|
|
|
|
|
|
Underlying contracted agreement
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
19.0% - 34.0%
|
|
33.2%
|
|
LP Interests
|
|
10,728,320
|
|
Market Activity
|
|
Acquisition Cost
|
|
|
|
|
|
|
|
|
|
|
|
Book value of underlying loans
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
19.0% - 30.0%
|
|
19.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Trust
|
|
39,053
|
|
Direct Capitalization Method
|
|
Capitalization rate
|
|
6.0%
|
|
|
|
|
|
|
|
|
|
Liquidity discount
|
|
25.0%
|
|
|
|
|
|
$ 101,094,142
|
|
|
|
|
|
|
|
|
NOTE 4—MARGIN LOANS
The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow on certain securities held in the account and to purchase
additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot
be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of March 31, 2020, the Company had $1,127,395 of margin credit available for cash withdrawal or the ability to purchase up to $5,438,185
in additional shares. As of June 30, 2019, the Company had $18,126 of margin credit available for cash withdrawal or the ability to purchase up to $60,419 in additional shares. As of March 31, 2020 and June 30, 2019, there was no amount outstanding
under this short-term credit line.
NOTE 5 –RELATED PARTY TRANSACTIONS
Amended and Restated Investment Advisory Agreement:
Under the Amended and Restated Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components — a portfolio structuring fee, a
base management fee, and a subordinated incentive fee.
The portfolio structuring fee is for the Adviser's initial work performed in identifying, evaluating and structuring the acquisition of assets. The fee equals 3.0% of the gross
invested capital (“Gross Invested Capital”), which equals the number of shares issued, multiplied by the offering price of the shares sold (regardless of whether or not shares were issued with volume or commission discounts), plus any borrowed funds.
These services are performed on an ongoing basis in anticipation of deploying new capital, generally within 15 days of the receipt of capital. Therefore, this fee is expensed in the period the capital is accepted.
The base management fee is calculated based on the Company's Gross Invested Capital plus any borrowing for investment purposes. The base management fees range from 1.5% to 3.0%,
depending on the level of Gross Invested Capital.
The subordinated incentive fee has two parts—income and capital gains. The incentive fee components (other than during liquidation) are designed so that neither the income incentive fee nor the capital gains incentive
fee is payable to the Adviser unless our stockholders have first received dividends at a rate of at least 7.0% per annum for the relevant measurement period (a fiscal quarter, for the income incentive fee; a fiscal year, for the capital gains
incentive fee).
The income incentive fee (“Income Fee”) is calculated and payable quarterly in arrears as follows: (i) the sum of preliminary net investment income for each fiscal quarter since the effective date of the Amended and
Restated Investment Advisory Agreement (October 1, 2017) exceeding 7% of the “Contributed Capital” (which equals the number of shares issued multiplied by the maximum public offering price at the time such shares were sold, regardless of whether or
not shares were issued with volume or commission discounts or through the DRIP, as such amount is computed from time to time) on an annualized basis up to 8.75% of Contributed Capital; and (ii) 20.0% of our preliminary net investment income for each
fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate; minus (iii) the sum of all previously paid income incentive fees since the effective date, plus (iv) any incremental income incentive fee payable
resulting from the reanalysis after calculation of the capital gains incentive fee.
The capital gains incentive fee (“Capital Gains Fee”) is calculated and payable in arrears as of the end of each fiscal year as follows: (i) the sum of all "capital gains"
(calculated as net realized capital gains less unrealized capital depreciation) for each fiscal year after the effective date exceeding 7% of Contributed Capital on an annualized basis up to 8.75% of Contributed Capital, which thresholds are reduced
by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); and (ii) 20.0% of all capital gains for
each fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate, which threshold is reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective
date (or, increased, in the case of negative cumulative preliminary net investment income); minus (iii) the sum of all previously paid income incentive fees since the effective date and prior to the end of such fiscal year; less (iv) the aggregate
amount of all capital gains incentive fees paid in prior fiscal years ending after the effective date. To the extent that such calculation would result in a capital gains incentive fee that exceeds 20% of all realized capital gains for the
measurement period, the capital gains incentive fee shall be capped so that under no circumstance does it exceed 20% of the realized capital gains for the measurement period.
The portfolio structuring fees for the three and nine months ended March 31, 2020 were $197,114 and $558,706, respectively. The portfolio structuring fees for the three and nine
months ended March 31, 2019, were $186,343 and $557,366, respectively.
The base management fees for the three and nine months ended March 31, 2020, were $651,516 and $1,891,796, respectively. The base management fees for the three and nine months ended
March 31, 2019, were $567,699 and $1,621,490, respectively. These base management fees were based on the following quarter ended Gross Invested Capital segregated in two columns based on the annual fee rate:
Base Management Fee Annual %
|
3.0%
|
2.0%
|
1.5%
|
Total Gross Invested Capital
|
|
|
|
|
|
For the Year Ended June 30, 2020
|
|
|
|
|
Quarter ended:
|
|
|
|
|
September 30, 2019
|
$ 20,000,000
|
$ 80,000,000
|
$ 15,998,789
|
$ 115,998,789
|
December 31, 2019
|
20,000,000
|
80,000,000
|
21,409,289
|
121,409,289
|
March 30, 2020
|
20,000,000
|
80,000,000
|
27,070,974
|
127,070,974
|
|
|
|
|
|
For the Year Ended June 30, 2019
|
|
|
|
|
Quarter ended:
|
|
|
|
|
September 30, 2018
|
$ 20,000,000
|
$ 72,435,844
|
$ -
|
$ 92,435,844
|
December 31, 2018
|
20,000,000
|
78,322,307
|
-
|
98,322,307
|
March 31, 2019
|
20,000,000
|
80,000,000
|
4,719,872
|
104,719,872
|
The Company records the Capital Gains Fee accrual on the consolidated statements of operations and statements of assets and liabilities when net realized capital gains less
unrealized capital depreciation on its investments exceed the incentive fee threshold of 7% of Contributed Capital. However, the actual incentive fee payable to the Adviser related to capital gains will be determined and payable in arrears at the end
of each fiscal year. Accordingly, the Company accrues the capital gains fees in the quarter it exceeds the threshold and increases or decreases the accrual in subsequent quarters if the fiscal year-to-date fee changes.
There was no Income Fee or Capital Gains Fee accrual for the three and nine months ended March 31, 2020. There was no Income Fee for the three or nine months ended March 31, 2019.
Capital Gains fee accrual for the three and nine months ended March 31, 2019 was $81,620 and $1,291,168, respectively.
Organization and Offering Costs Reimbursement:
As provided in the Amended and Restated Investment Advisory Agreement and the prospectus of the Company, offering costs incurred and paid by the Company in excess of $1,650,000
each on the second and third public offering will be reimbursed by the Adviser except to the extent that 10% in broker fees are not incurred (the “broker savings”). In such case, the broker savings will be available to be paid by the Company for
marketing expenses or other non‑cash compensation. As of the offering conclusion date, the broker savings was $399,793 on the second public offering. Accordingly, second offering costs in excess of $2,049,793 were reimbursable by the Adviser to the
Company. The cumulative offering costs incurred in connection with the second public offering as of December 31, and June 30, 2019 were $1,843,071 and $1,685,426, respectively, both of which were below the reimbursement threshold of $2,049,793.
There were no additional offering costs incurred on the second offering after December 31, 2019. Total offering costs incurred on the third public offering as of March 31, 2020, were $515,833, which was also below the reimbursement threshold.
Therefore, there were no amounts reimbursable from the Adviser as of March 31, 2020 and June 30, 2019 on account of either public offering.
Of the cumulative offering costs incurred on the second public offering by the Company as of December 31, 2019, MacKenzie had paid on behalf of the Company a total of $932,780, all of which was
fully reimbursed to MacKenzie as of December 31, 2019. As of June 30, 2019, MacKenzie had paid on behalf of the Company a total of $788,057, of which $116,115 was payable to MacKenzie.as of June 30, 2019 and was included as a part of due to related
entities in the consolidated statements of assets and liabilities as of June 30, 2019.
Of the cumulative offering costs incurred on the third public offering by the Company as of March 31, 2020, MacKenzie had paid on behalf of the Company a total of $273,401, of which $145,682 was
payable to MacKenzie as of March 31, 2020 and was included as a part of due to related entities in the consolidated statements of assets and liabilities as of March 31, 2020.
During the nine months ended March 31, 2020 and 2019, total offering costs paid by MacKenzie on behalf of the Company were $418,123 and $394,793, respectively.
Administration Agreement:
Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration
Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the Independent
Directors' approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company's Chief Financial Officer, Chief Compliance
Officer, Director of Accounting and Financial Reporting, and any administrative support staff.
Effective November 1, 2018, transfer agent services are also provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost
reimbursement) is being paid by the Company to MacKenzie for this service.
The administrative cost reimbursements for the three and nine months ended March 31, 2020 were $170,000 and $510,000, respectively. The administrative cost reimbursements for the three and nine months
ended March 31, 2019, were $156,000 and $468,000, respectively. Transfer agent services cost reimbursement for the three and nine months ended March 31, 2020 was $20,000 and $60,000. There was no transfer agent services cost reimbursement for the
three or nine months ended March 31, 2019, because MacKenzie did not begin the service until November 2018 and the reimbursement did not start until March 14, 2019.
The table below outlines the related party expenses incurred for the nine months ended March 31, 2020, and 2019 and unpaid as of March 31, 2020, and June 30, 2019.
|
Nine Months Ended
|
Unpaid as of
|
||||||||||||||
Types and Recipient
|
March 31, 2020
|
March 31, 2019
|
March 31, 2020
|
June 30, 2019
|
||||||||||||
|
||||||||||||||||
Base Management fees- the Adviser
|
$
|
1,891,796
|
1,621,490
|
$
|
651,516
|
$
|
584,737
|
|||||||||
Portfolio Structuring fee- the Adviser
|
558,706
|
557,366
|
-
|
-
|
||||||||||||
Subordinated Incentive fee - the Adviser
|
-
|
1,291,168
|
-
|
1,789,870
|
||||||||||||
Administrative Cost Reimbursements- MacKenzie
|
510,000
|
468,000
|
-
|
-
|
||||||||||||
Transfer agent cost reimbursements - MacKenzie
|
60,000
|
-
|
-
|
(30,000
|
)
|
|||||||||||
Organization & Offering Cost (2) - MacKenzie
|
418,123
|
394,794
|
145,682
|
116,115
|
||||||||||||
Other expenses (1)- MacKenzie
|
13,345
|
5,163
|
||||||||||||||
|
||||||||||||||||
Due to related entities
|
$
|
810,543
|
$
|
2,465,885
|
*Transfer agent cost reimbursements for the period of November 1, 2018 through March 14, 2019 that MacKenzie refunded in July 2019.
(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.
(2) Offering costs paid by MacKenzie- discussed in Note 5 under organization and offering costs reimbursements. These are amortized over twelve-month period as discussed in Note 2.
Controlled or Affiliated Investments:
Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and
generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of March 31, 2020, the
Company is deemed to be either “affiliated” with, or in “control” of, the below portfolio companies despite the fact that the Company does not have the power to exercise control over the management or policies of these portfolio companies.
March 31, 2020
|
||||||||||||||||||||||||||||
Name of issuer and title of issue
|
Fair Value at
June 30, 2019 |
Gross Additions
|
Gross Reductions (1)
|
Net Realized Gains (losses)
|
Net Change in Unrealized Gains/(Losses)
|
Fair Value at
March 31, 2020 |
Interest/Dividend/Other income
Nine Months Ended March 31, 2020 |
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Affiliated Investments:
|
||||||||||||||||||||||||||||
5210 Fountaingate, LP
|
$
|
552,693
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(124,901)
|
|
$
|
427,792
|
$
|
-
|
|||||||||||||
Arrowpoint Burlington LLC
|
1,088,910
|
-
|
(1,333,331)
|
|
583,331
|
(338,910)
|
|
-
|
-
|
|||||||||||||||||||
BP3 Affiliate, LLC
|
1,350,000
|
318,000
|
-
|
-
|
-
|
1,668,000
|
-
|
|||||||||||||||||||||
BR Desota Investment Co, LLC
|
4,250,000
|
-
|
(4,250,000)
|
|
-
|
-
|
-
|
46,623
|
||||||||||||||||||||
BR Everwood Investment Co, LLC
|
-
|
3,750,000
|
-
|
-
|
-
|
3,750,000
|
318,861
|
|||||||||||||||||||||
BR Quinn35 Investment Co, LLC
|
4,000,000
|
-
|
(4,000,000)
|
|
-
|
-
|
-
|
167,768
|
||||||||||||||||||||
BR Sunrise Parc Investment Co, LLC
|
-
|
2,720,911
|
-
|
-
|
-
|
2,720,911
|
72,281
|
|||||||||||||||||||||
BR Westerly Investment Co, LLC
|
-
|
4,120,667
|
(4,120,667)
|
|
-
|
-
|
-
|
251,354
|
||||||||||||||||||||
FSP Energy Tower I Corp. Liquidating Trust
|
57,566
|
-
|
(49,637)
|
|
-
|
-
|
7,929
|
37,438
|
||||||||||||||||||||
FSP Satellite Place
|
712,585
|
(494)
|
|
-
|
-
|
(163,300)
|
|
548,791
|
-
|
|||||||||||||||||||
Lakemont Partners, LLC
|
1,007,700
|
-
|
(58,820)
|
|
-
|
(72,990)
|
875,890
|
19,820
|
||||||||||||||||||||
MPF Pacific Gateway - Class B
|
7,316
|
-
|
-
|
-
|
-
|
7,316
|
-
|
|||||||||||||||||||||
Secured Income, LP
|
302,009
|
-
|
-
|
-
|
(55,616)
|
|
246,393
|
-
|
||||||||||||||||||||
Summit Healthcare REIT, Inc.
|
2,587,408
|
4,488
|
-
|
-
|
(421,365)
|
|
2,170,531
|
-
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
$
|
15,916,187
|
$
|
10,913,572
|
$
|
(13,812,455)
|
|
$
|
583,331
|
$
|
(1,177,082)
|
|
$
|
12,423,553
|
$
|
914,145
|
||||||||||||
Controlled Investments:
|
||||||||||||||||||||||||||||
Addison NC, LLC
|
3,600,000
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(682,000)
|
|
$
|
2,918,000
|
$
|
-
|
||||||||||||||
Addison Property Member, LLC
|
7,314,855
|
-
|
-
|
-
|
1,119,174
|
8,434,029
|
956,759
|
|||||||||||||||||||||
Bishop Berkeley, LLC
|
4,051,013
|
-
|
-
|
-
|
(131,828)
|
|
3,919,185
|
46,023
|
||||||||||||||||||||
Britannia Preferred Members, LLC -Class 1
|
2,986,550
|
-
|
-
|
-
|
389,550
|
3,376,100
|
-
|
|||||||||||||||||||||
Britannia Preferred Members, LLC -Class 2
|
7,758,915
|
-
|
-
|
-
|
(1,040,014)
|
|
6,718,901
|
-
|
||||||||||||||||||||
Capitol Hill Partners, LLC
|
1,852,500
|
-
|
-
|
-
|
(72,200)
|
|
1,780,300
|
-
|
||||||||||||||||||||
Citrus Park Hotel Holdings, LLC
|
-
|
5,000,000
|
-
|
-
|
-
|
5,000,000
|
173,750
|
|||||||||||||||||||||
Coastal Realty Business Trust, REEP, Inc. - A
|
39,053
|
-
|
-
|
-
|
(7,232)
|
|
31,821
|
-
|
||||||||||||||||||||
Dimensions28 LLP
|
10,886,076
|
-
|
-
|
-
|
(533,088)
|
|
10,352,988
|
341,321
|
||||||||||||||||||||
Sunlit Holdings, LLC
|
-
|
5,000,000
|
(5,000,000)
|
|
-
|
-
|
-
|
334,111
|
||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
$
|
38,488,962
|
$
|
10,000,000
|
$
|
(5,000,000)
|
|
$
|
-
|
$
|
(957,638)
|
|
$
|
42,531,324
|
$
|
1,851,964
|
|
June 30, 2019
|
||||||||||||||||||||||||||||
Name of issuer and title of issue
|
Fair Value at
June 30, 2018 |
Gross Additions
|
Gross Reductions (1)
|
Net Realized Gains (losses)
|
Net Change in Unrealized Gains/(Losses)
|
Fair Value at
June 30, 2019 |
Interest/Dividend/Other income
Year Ended June 30, 2019 |
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Affiliated Investments:
|
||||||||||||||||||||||||||||
5210 Fountaingate, LP
|
$
|
555,728
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(3,035)
|
|
$
|
552,693
|
$
|
18,124
|
|||||||||||||
Arrowpoint Burlington LLC
|
869,072
|
-
|
-
|
-
|
219,838
|
1,088,910
|
83,333
|
|||||||||||||||||||||
BP3 Affliliate, LLC
|
-
|
1,350,000
|
-
|
-
|
-
|
1,350,000
|
-
|
|||||||||||||||||||||
BR Desota Investment Co, LLC
|
-
|
4,250,000
|
-
|
-
|
-
|
4,250,000
|
205,560
|
|||||||||||||||||||||
BR Quinn35 Investment Co, LLC
|
-
|
4,000,000
|
-
|
-
|
-
|
4,000,000
|
69,056
|
|||||||||||||||||||||
FSP Energy Tower I Corp. Liquidating Trust
|
301,373
|
415,374
|
(661,307)
|
|
-
|
2,126
|
57,566
|
1,080,192
|
||||||||||||||||||||
FSP Satellite Place
|
499,140
|
151,169
|
-
|
-
|
62,276
|
712,585
|
-
|
|||||||||||||||||||||
Lakemont Partners, LLC
|
-
|
1,000,000
|
-
|
-
|
7,700
|
1,007,700
|
4,381
|
|||||||||||||||||||||
MPF Pacific Gateway - Class B
|
6,613
|
-
|
-
|
-
|
703
|
7,316
|
-
|
|||||||||||||||||||||
Secured Income, LP
|
320,763
|
-
|
-
|
-
|
(18,754)
|
|
302,009
|
-
|
||||||||||||||||||||
Summit Healthcare REIT, Inc.
|
2,043,379
|
193,066
|
-
|
-
|
350,963
|
2,587,408
|
88,683
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
$
|
4,596,068
|
$
|
11,359,609
|
$
|
(661,307)
|
|
$
|
-
|
$
|
621,817
|
$
|
15,916,187
|
$
|
1,549,329
|
|||||||||||||
Controlled Investments:
|
||||||||||||||||||||||||||||
Addison NC, LLC
|
$
|
3,000,000
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
600,000
|
$
|
3,600,000
|
$
|
-
|
||||||||||||||
Addison Property Member, LLC
|
-
|
7,316,326
|
-
|
-
|
(1,471)
|
|
7,314,855
|
598,191
|
||||||||||||||||||||
Bandon PV Holdings, LLC
|
-
|
5,250,000
|
(5,256,262)
|
|
6,262
|
-
|
-
|
173,390
|
||||||||||||||||||||
Bishop Berkeley, LLC
|
-
|
4,050,000
|
-
|
-
|
1,013
|
4,051,013
|
23,011
|
|||||||||||||||||||||
BR Gate Investment Co, LLC
|
-
|
3,475,000
|
(3,475,000)
|
|
-
|
-
|
-
|
-
|
||||||||||||||||||||
Britannia Preferred Members, LLC -Class 1
|
-
|
2,597,000
|
-
|
-
|
389,550
|
2,986,550
|
-
|
|||||||||||||||||||||
Britannia Preferred Members, LLC -Class 2
|
2,547,000
|
5,326,932
|
-
|
-
|
(115,017)
|
|
7,758,915
|
-
|
||||||||||||||||||||
Capitol Hill Partners, LLC
|
1,919,000
|
-
|
-
|
-
|
(66,500)
|
|
1,852,500
|
-
|
||||||||||||||||||||
Coastal Realty Business Trust, REEP, Inc. - A
|
41,222
|
-
|
-
|
-
|
(2,169)
|
|
39,053
|
-
|
||||||||||||||||||||
Dimensions28 LLP
|
-
|
10,801,015
|
-
|
-
|
85,061
|
10,886,076
|
165,600
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
|
$
|
7,507,222
|
$
|
38,816,273
|
$
|
(8,731,262)
|
|
$
|
6,262
|
$
|
890,467
|
$
|
38,488,962
|
$
|
960,192
|
(1)
|
Gross reductions include decreases in the cost basis of investments resulting from return of capital distributions.
|
Of the investments listed above, the Company (or its affiliates) has the power to exercise control over the management or policies of the portfolio companies listed below:
Coastal Realty Business Trust ("CRBT"):
CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Company owns two series of CRBT and is the only
beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants. The Company and TRS are the sole beneficiaries of the following series as of March 31, 2020, and June 30, 2019:
· |
CRBT, REEP, Inc.-A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland.
|
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, 2020, and June 30, 2019, the Company had a 15.82% of ownership interest in MPF Pacific Gateway.
NOTE 6 – FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights of the Company for the nine months ended March 31, 2020, and the year ended June 30, 2019.
|
For The
Nine Months Ended
|
For The
Year Ended
|
||||||
|
March 31, 2020
|
June 30, 2019
|
||||||
Per Share Data:
|
(Unaudited)
|
|||||||
|
||||||||
Beginning net asset value ("NAV")
|
$
|
9.44
|
$
|
10.07
|
||||
|
||||||||
Net investment income (1)
|
0.27
|
0.57
|
||||||
Net realized gain (1)
|
0.10
|
0.12
|
||||||
Net unrealized loss (1)
|
(0.92
|
)
|
(0.40
|
)
|
||||
Net increase in net assets resulting from operations
|
(0.55
|
)
|
0.29
|
|||||
|
||||||||
Issuance of common stock above (below) NAV (1) (4)
|
(0.01
|
)
|
(0.21
|
)
|
||||
Redemption of common stock below NAV (1) (6)
|
0.01
|
0.02
|
||||||
Dividends to stockholders (1) (5)
|
(0.46
|
)
|
(0.73
|
)
|
||||
Ending NAV
|
$
|
8.43
|
$
|
9.44
|
||||
|
||||||||
Weighted average common Shares outstanding
|
11,996,863
|
9,951,816
|
||||||
Shares outstanding at the end of period
|
12,686,671
|
10,926,320
|
||||||
Net assets at the end of period
|
$
|
107,008,896
|
$
|
103,115,381
|
||||
Average net assets (2)
|
$
|
105,062,139
|
$
|
94,355,350
|
||||
|
||||||||
Ratios to average net assets
|
||||||||
Total expenses (7)
|
3.92
|
%
|
6.62
|
%
|
||||
Net investment income (7)
|
3.14
|
%
|
5.98
|
%
|
||||
Total rate of return (2) (3) (7)
|
(6.24
|
)%
|
3.06
|
%
|
(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 rate of return is based on net increases (decreases) in net assets resulting from operations. An individual stockholder’s return may vary from this return based on the time of capital transactions.
|
|||||
(4) Net of sales commissions and dealer manager fees of $1.00 per share as of October 30, 2019 and $1.03 per share thereafter.
|
|
|
|
|
|
(5) Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP.
|
|||||
(6) Amounts based on differences between the actual redemption price and the NAVs preceding the redemptions.
|
|||||
(7) Not annualized for interim reporting periods.
|
|
|
|
|
NOTE 7 – SHARE OFFERINGS AND FEES
During the nine months ended March 31, 2020, the Company issued 1,847,721 shares with gross proceeds of $18,525,304 and 263,829 shares pursuant to the DRIP with gross proceeds of
$2,393,094. For the nine months ended March 31, 2020, the Company incurred selling commissions and fees of $1,728,378.
During the nine months ended March 31, 2019, the Company issued 1,858,542 shares with gross proceeds of $18,334,137 and 247,070 shares
pursuant to the DRIP with gross proceeds of $2,223,629. For the nine months ended March 31, 2019, the Company incurred selling commissions and fees of $1,606,669.
NOTE 8 – SHARE REPURCHASE PLAN
Pursuant to the Company's share repurchase program, during the nine months ended March 31, 2020, the Company made tender offers to purchase its own shares as noted in the below
table:
Period
|
Total Number
of shares Repurchased
|
Repurchase Price
Per Share
|
Total Repurchase Consideration
|
|||||||||
During the year ended June 30, 2020:
|
||||||||||||
August 13, 2019 through September 16, 2019
|
70,114.03
|
$
|
9.00
|
$
|
631,026
|
|||||||
November 18, 2019 through December 19, 2019
|
102,739.90
|
$
|
9.00
|
$
|
924,659
|
|||||||
February 14, 2020 through March 18, 2020
|
178,344.44
|
$
|
9.19
|
$
|
1,638,985
|
|||||||
351,198.37
|
$
|
3,194,670
|
During the nine months ended March 31, 2019, the Company made tender offers to purchase its own shares as noted in the below table:
Period
|
Total Number
of shares Repurchased
|
Repurchase Price
Per Share
|
Total Repurchase Consideration
|
|||||||||
During the year ended June 30, 2019:
|
||||||||||||
August 17, 2018 through September 17, 2018
|
31,570.04
|
$
|
9.00
|
$
|
284,130
|
|||||||
November 14, 2018 through December 18, 2018
|
19,944.93
|
$
|
9.00
|
179,505
|
||||||||
February 14, 2019 through March 18, 2019
|
78,252.02
|
$
|
9.00
|
704,268
|
||||||||
129,766.99
|
$
|
1,167,903
|
NOTE 9 –STOCKHOLDER DIVIDENDS AND INCOME TAXES
The following table reflects the dividends the Company declared on its common stock during the nine months ended March 31, 2020:
|
Dividends
|
|||||||
During the Quarter Ended
|
Per Share
|
Amount
|
||||||
September 30, 2019
|
$
|
0.175
|
$
|
1,983,801
|
||||
December 31, 2019
|
0.175
|
2,096,915
|
||||||
March 30, 2020
|
0.120
|
1,461,875
|
||||||
|
$
|
0.470
|
$
|
5,542,591
|
For the three months ended March 31, 2020, the Company initially declared a quarterly dividend of $0.17938 per share, which equals a monthly dividend of $0.05979 per share for
January, February, and March 2020. However, on March 31, 2020, after assessing the impacts of the Covid-19 pandemic, the board of directors revoked the dividend declared for the month of March 2020. In addition, the Company’s board of directors
unanimously approved the suspension of regular quarterly dividends to the Company’s stockholders, effective immediately. The dividends declared for January and February 2020 were paid on April 29, 2020. During the nine months ended March 31, 2020,
the Company paid dividends of $5,957,817, of which $2,393,094 were reinvested in the DRIP. Total cash dividends paid during the nine months ended March 31, 2020 were $3,564,723.
The following table reflects the dividends the Company declared on its common stock during the nine months ended March 31, 2019:
|
Dividends
|
|||||||
During the Quarter Ended
|
Per Share
|
Amount
|
||||||
September 30, 2018
|
$
|
0.175
|
$
|
1,571,551
|
||||
December 31, 2018
|
0.206
|
1,994,972
|
||||||
March 31, 2019
|
0.175
|
1,794,012
|
||||||
|
$
|
0.556
|
$
|
5,360,535
|
During the nine months ended March 31, 2019, the Company paid dividends of $5,005,331, of which $2,223,629 were reinvested in the DRIP. Total cash dividends paid
during the nine months ended March 31, 2019 were $2,781,702.
Income Taxes
While our fiscal year end for financial reporting purposes is June 30, of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year
end for each period presented, unless otherwise specified.
For income tax purposes, dividends paid to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of
dividends paid to stockholders for the tax years ended December 31, 2018, (the most recent tax year end completed and filed) were as follows:
December 31, 2018
|
||||
Capital gain
|
$
|
6,236,421
|
||
Total dividends
|
$
|
6,236,421
|
Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends paid during the tax year 2019 will not be made until we
file our tax return for the tax year ended December 31, 2019.
The components of undistributed earnings on a tax basis as of December 31, 2018 (the most recent tax year end completed and filed) were as follows:
December 31, 2018
|
||||
Undistributed long term capital gain
|
$
|
129,808
|
||
Unrealized fair value appreciation
|
6,802,996
|
|||
$
|
6,932,804
|
The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of:
|
March 31, 2020
|
June 30, 2019
|
||||||
Aggregate gross unrealized appreciation
|
$
|
4,252,822
|
$
|
9,058,278
|
||||
Aggregate gross unrealized depreciation
|
(8,153,688
|
)
|
(827,940
|
)
|
||||
Net unrealized appreciation (depreciation)
|
$
|
(3,900,866
|
)
|
$
|
8,230,338
|
|||
|
||||||||
Aggregate cost (tax basis)
|
$
|
98,242,431
|
$
|
95,014,809
|
Statements by MacKenzie Realty Capital, Inc. and its wholly owned subsidiary MRC TRS, Inc. (the "Company," "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 Annual Report on Form 10-K.
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 are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act. Our objective is to generate both
current income and capital appreciation through real estate-related investments. We have elected to be treated as a REIT under the Code and as a REIT, we are not 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. Our wholly owned subsidiary, MRC TRS, Inc., is subject to corporate federal and state income tax on its taxable income at regular statutory rates.
We are managed by the Adviser, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate.
Investment Plan
Our investments are generally expected to range in size from $10,000 to $3 million. However, we may make smaller or larger investments from time to time on an opportunistic basis.
We focus primarily on real estate-related securities. We 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 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.
We generally seek to invest in interests of real estate-related limited partnerships and REITs. Under normal market conditions, we invest at least 80.0% of our total assets in
common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities. A real estate company is one that (i) derives at least 50.0% of its revenue from the ownership, construction,
financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50.0% of its assets invested in such real estate. We do not invest in general partnerships, joint ventures, or other entities that do
not afford limited liability to their security holders. However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities. We generally consider purchasing
securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully
invested their capital in real properties or other real estate-related investments.
We may also acquire (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real estate), (ii)
securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20.0% of our available capital, securities of issuers that own assets other than real estate.
Investment income
We 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 are generated in connection with our investments and recognized as earned.
Expenses
Our primary operating expenses include the payment of: (i) investment advisory fees to our Adviser; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie
in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing,
monitoring and servicing our investments. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We will bear all other
expenses of our operations and transactions, including:
· |
the cost of calculating our NAV;
|
· |
the cost of effecting sales and repurchases of our shares and other securities;
|
· |
interest payable on debt, if any, to finance our investments;
|
· |
fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees;
|
· |
transfer agent and safekeeping fees;
|
· |
fees and expenses associated with marketing efforts;
|
· |
federal and state registration fees, and any stock exchange listing fees in the future;
|
· |
federal, state, and local taxes, if any;
|
· |
Independent Directors' fees and expenses;
|
· |
brokerage commissions;
|
· |
fidelity bond, directors and officers errors and omissions liability insurance, and other insurance premiums;
|
· |
direct costs and expenses of administration, including printing, mailing, and staff;
|
· |
fees and expenses associated with independent audits and outside legal costs;
|
· |
costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act, and applicable federal and state securities laws; and
|
· |
all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses
incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and
related expenses of our Chief Compliance Officer, our Chief Financial Officer, Director of Accounting and Financial Reporting, General Counsel, and any administrative support staff.
|
In addition, we will bear organization and offering expenses in connection with our third public offering up to $1,650,000 plus the savings realized by the Company to the extent
that broker fees incurred are less than 10%. Any additional amounts with respect to shares being sold pursuant to the third public offering will be paid by our Adviser.
Portfolio Investment Composition
The following table summarizes the composition of our investments at cost and fair value as of March 31, 2020, and June 30, 2019:
|
March 31, 2020
|
June 30, 2019
|
||||||||||||||
Asset Type
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
||||||||||||
Publicly Traded Companies
|
$
|
8,685,404
|
$
|
6,540,726
|
$
|
2,186,682
|
$
|
2,151,006
|
||||||||
Non Traded Companies
|
39,808,296
|
35,063,043
|
33,844,099
|
35,641,290
|
||||||||||||
LP Interests
|
50,884,206
|
52,705,975
|
61,157,573
|
65,413,799
|
||||||||||||
Investment Trust
|
49,901
|
31,821
|
49,901
|
39,053
|
||||||||||||
Total
|
$
|
99,427,807
|
$
|
94,341,565
|
$
|
97,238,255
|
$
|
103,245,148
|
Net Asset Value
March 31, 2020 vs. December 31, 2019:
Our NAV as of March 31, 2020, was $8.43 per share compared to $9.19 per share as of December 31, 2019, a $0.76 per share decrease of approximately 8.27%. The net decrease during the
three months was due to (i) net unrealized loss on investments of $0.79 per share, (ii) a dividend to stockholders of $0.12 per share (on a weighted average basis) and (iii) net realized loss from sale of investments of $0.01 per share. The decreases
were partly offset by increases resulting from (i) net investment income of $0.15 per share and (ii) issuance of shares (net of selling commissions and dealer manager fees) above NAV per share resulting in an increase of a $0.01 per share.
March 31, 2020 vs. June 30, 2019:
Our NAV as of March 31, 2020, was $8.43 per share compared to $9.44 per share as of June 30, 2019, a $1.01 per share decrease of approximately 10.7%. The net decrease during the
nine months was due to (i) net unrealized loss on investments of $0.92 per share, (ii) dividends to stockholders of $0.46 per share (on a weighted average basis), and (iii) issuance of shares (net of selling commissions and dealer manager fees) below
NAV per share resulting in a decrease of a $0.01 per share. The decreases were partly offset by increases resulting from (i) net investment income of $0.27 per share (ii) net realized gain from sale of investments of $0.10 per share and (iii)
redemption of shares below NAV resulting in gain of $0.01 per share.
Results of Operations
COVID-19 pandemic
The COVID-19 has triggered significant uncertainty regarding the value of our assets. Measures taken to limit the impact of the COVID-19 pandemic, including social distancing and
other restrictions on travel, congregation, and business operations have already resulted in steep declines in domestic stock markets and in the traded prices for other financial assets. As a result of these significant declines, the fair values of
some of our investments have significantly decreased as of March 31, 2020. In addition, some of the companies in which we have invested have cancelled their quarterly dividends and distributions for the current and future quarters. While these
cancellations did not have a significant impact on the Company’s total investment income for the quarter ended March 31, 2020, we anticipate these cancellations will have a larger impact in future quarters. The long-term impact of the COVID-19
pandemic on the United States and world economies remains uncertain.
MacKenzie and our Adviser have taken numerous steps, and plan to take further actions, to address the COVID-19 pandemic. They implemented business continuity plans to respond to
changes in the global environment. To protect the health and safety of their team members, they transitioned almost their entire workforce to remote work environments. They are reaching out regularly to managers of our assets to provide advice and
support.
The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position and operating
results. This includes the evaluation and implementation of certain efforts to help us mitigate the impact that reduced revenues from distributions and capital events may have on our 2020 financial results. We are focusing on maintaining a strong
balance sheet and liquidity position and searching for opportunistic investments. Our cash and investments totaled $13.1 million at the end of the first quarter of 2020.
Three Months Ended March 31, 2020, and 2019:
Investment Income:
Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment
income for the three months ended March 31, 2020, and 2019, was $3.09 million and $1.74 million, respectively. The increase of $1.35 million or 77.6%, was primarily due to an increase our investment income from sales and liquidation distributions.
During the three months ended March 31, 2020, the Company received $1.35 million of sales and liquidations distributions from four investments whereas during the three months ended March 31, 2019, the Company did not receive any sales and liquidation
distributions. Investment income from dividends and distributions from operations, interest and other investment income remained comparable during these two periods.
Operating Expenses:
Base management fee:
The base management fee for the three months ended March 31, 2020 was $0.65 million as compared to $0.57 million for the three months ended March 31, 2019. This increase of $0.08
million, or 14.0% was due to an increase in the Gross Invested Capital by $22.35 million from $104.72 million as of March 31, 2019, to $127.07 million as of March 31, 2020.
Portfolio structuring fee:
The portfolio structuring fees for the three months ended March 31, 2020, and 2019 remained comparable at $0.20 million and $0.19 million, respectively. This is because the total
capital raised by the Company during these two periods also remained comparable. During the three months ended March 31, 2020 and 2019, the Company raised new capital of $6.56 million and $6.08 million, respectively, through issuance of new shares
excluding the DRIP.
Subordinated incentive fee:
The subordinated incentive fee has two components; Capital Gains Fee and Income Fee. Capital Gains Fee is based on realized gains (including the distributions received from
sales/capital transactions) and the Income Fee is based on net investment income.
There was neither Income Fee nor Capital Gains Fee for the three months ended March 31, 2020. This was because the cumulative net investment income and net realized gains were
below the threshold of 7% of Contributed Capital.
There was no Income Fee for the three months ended March 31, 2019 as the cumulative net investment income did not exceed the threshold of 7% of the Contributed Capital as of March
31, 2019. Capital Gains Fee for the three months ended March 31, 2019, was $0.08 million as the cumulative realized capital gains as of March 31, 2019, were over the threshold of 7% of Contributed capital. The Company records the Capital Gains Fee
accrual on the consolidated statements of operations and statements of assets and liabilities when net realized capital gains less unrealized capital depreciation on its investments exceed the incentive fee threshold of 7% of Contributed Capital.
However, the actual incentive fee payable to the Adviser related to capital gains will be determined and payable in arrears at the end of each fiscal year.
Administrative cost reimbursements and Transfer agent reimbursements:
Costs reimbursed to MacKenzie for the three months ended March 31, 2020, was $0.17 million as compared to $0.16 million for the three months ended March 31, 2019. The increase was due to an increase
in the allocable portion of overhead and other expenses incurred by MacKenzie since March 31, 2019, as a result of the increase in the Company’s operating activities.
Effective November 1, 2018, transfer agent services are now provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost
reimbursement) is being paid by the Company to MacKenzie for this service, but the Company is reimbursing MacKenzie for the cost of certain software purchased to implement the service. This service was previously provided by a third party and the
costs incurred were expensed under other general and administrative expenses. Transfer agent cost reimbursement paid to MacKenzie for three months ended March 31, 2020 was $0.02 million. There was no transfer agent services cost reimbursement for the
three months ended March 31, 2019, because MacKenzie did not begin the service until November 2018 and the reimbursement did not start until March 14, 2019.
Other operating expenses:
Other operating expenses include amortization of deferred offering costs, professional fees, directors’ fees printing and mailing, and other general and administrative expenses.
Other operating expenses for the three months ended March 31, 2020 and 2019, were $0.18 million and $0.23 million. The decrease of $0.05 million was mainly due a larger amount of amortization of deferred offering costs for the three months ended
March 31, 2019 as compared to the same period in 2020. The decrease in amortization of deferred offering costs was due to the deferred offering costs relating to the second public offering fully amortized as of December 31, 2019 as the offering
terminated in October 2019. According to our accounting policy, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period. Any deferred offering costs that
have not been amortized upon the expiration or earlier termination of an offering will be accelerated and expensed upon such expiration or termination.
Net realized gain/loss on investments:
During the three months ended March 31, 2020, the Company had a realized loss of $0.17 million as compared to net realized loss of $0.81 million during the three months ended
March 31, 2019. Total realized loss for the three months ended March 31, 2020, were realized from the final liquidation of two limited partnership interests. Total realized losses for the three months ended March 31, 2019, were primarily realized
from sales of sixteen publicly traded securities.
Net unrealized gain/loss on investments:
During the three months ended March 31, 2020, we recorded net unrealized losses of $9.86 million, which were net of $1.08 million of unrealized gains reclassification adjustment.
The reclassification adjustment was the accumulated unrealized gains as of December 31, 2019, that were realized during the three months ended March 31, 2020. Accordingly, the net unrealized losses excluding the reclassification adjustment for the
three months ended March 31, 2020, were $8.78 million, which resulted from fair value depreciations of $4.51 million from non-traded REIT securities, $2.89 million from limited partnership interests and $1.38 million from publicly traded REIT
securities. The significant decline in the fair value during the current quarter was mainly due to the COVID-19 pandemic resulting in steep declines in domestic stock markets and in the traded prices for other financial assets as discussed above.
During the three months ended March 31, 2019, we recorded net unrealized gain of $0.15 million; however, this is net of $0.96 million of unrealized losses reclassification
adjustment. The reclassification adjustment was the accumulated unrealized losses as of December 31, 2018, that were realized during the three months ended March 31, 2019. Accordingly, the net unrealized losses excluding the reclassification
adjustment for the three months ended March 31, 2019, were $0.81 million, which resulted from fair value depreciation of $0.64 million from publicly traded REIT securities, $0.16 from non-traded REIT securities and $0.01 million from limited
partnership interests.
Income tax provision (benefit):
The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2018. Therefore, it did not incur any tax expense or
excise tax on its income from operations during the quarterly periods within the tax year 2018. Similarly, for the tax year 2019, we believe the Parent Company paid the requisite amounts of dividends during the year such that it will not owe any
income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal period within the tax year 2019.
TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of March 31, 2020, they did not have any
taxable income for tax year 2019 or 2020. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2019 and 2020.
Nine months Ended March 31, 2020, and 2019:
Investment Income:
Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment
income for the nine months ended March 31, 2020, and 2019, was $7.42 million and $8.51 million, respectively. The decrease of $1.09 million or 12.8%, was mainly due to a decrease of $2.74 million in our sales and liquidation distributions partly
offset by an increase of $1.65 million in our dividend, distributions, interest and other investment income. During the nine months ended March 31, 2019, the Company received sales and liquidation distributions of $4.43 million from four investments
following the sales of underlying properties. During the nine months ended March 31, 2020, the Company received $1.70 million of sales or liquidation distributions from seven investments. The increase of $1.65 million in dividend, distributions,
interest and other investment income was due to increase in our investment portfolio size. As of March 31, 2019, the Company had an investment portfolio with a total cost basis of $93.46 million which increased to $99.43 million as of March 31, 2020.
Operating Expenses:
Base management fee:
The base management fee for the nine months ended March 31, 2020 was $1.89 million as compared to $1.62 million for the nine months ended March 31, 2019. This increase of $0.27
million, or 16.7% was due to an increase in the Gross Invested Capital by $22.35 million from $104.72 million as of March 31, 2019, to $127.07 million as of March 31, 2020.
Portfolio structuring fee:
The portfolio structuring fees for the nine months ended March 31, 2020, and 2019 remained comparable at $0.56 million for both periods. This is because the total capital raised by
the Company during these two periods also remained comparable. During the nine months ended March 31, 2020 and 2019, the Company raised new capital of $18.53 million and $18.33 million, respectively, through issuance of new shares excluding the DRIP.
Subordinated incentive fee:
There was neither Income Fee nor Capital Gains Fee for the nine months ended March 31, 2020. This was because the cumulative net investment income and net realized gains were below
the threshold of 7% of Contributed Capital.
There was no Income Fee for the nine months ended March 31, 2019, as the net investment income for the period was below the threshold of 7% Contributed Capital. Capital Gains Fee
accrual for the nine months ended March 31, 2019 was $1.29 million as the cumulative realized capital gains as of March 31, 2019, were over the threshold of 7% of Contributed capital. The Company records the Capital Gains Fee accrual when net
realized capital gains less unrealized capital depreciation on its investments exceed the incentive fee threshold of 7% of Contributed Capital. However, the actual incentive fee payable to the Adviser related to capital gains will be determined and
payable in arrears at the end of each fiscal year.
Administrative cost reimbursements and Transfer agent reimbursements:
Costs reimbursed to MacKenzie for the nine months ended March 31, 2020, was $0.51 million as compared to $0.47 million for the nine months ended March 31, 2019. The increase was primarily due to an
increase in the allocable portion of overhead and other expenses incurred by MacKenzie since March 31, 2019, as a result of the increase in the Company’s operating activities.
Effective November 1, 2018, transfer agent services are now provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost
reimbursement) is being paid by the Company to MacKenzie for this service, but the Company is reimbursing MacKenzie for the cost of certain software purchased to implement the service. This service was previously provided by a third party and the
costs incurred were expensed under other general and administrative expenses. Transfer agent cost reimbursement paid to MacKenzie for nine months ended March 31, 2020 was $0.06 million. There was no transfer agent services cost reimbursement paid to
MacKenzie for the nine months ended March 31, 2019, because MacKenzie did not begin the service until November 2018 and the reimbursement did not start until March 14, 2019. Transfer agent service fees for the four months the Company received the
services from a third party during the nine months ended March 31, 2019 (during the period MacKenzie did not provide the service) was $0.03 million.
Other operating expenses:
Other operating expenses include amortization of deferred offering costs, professional fees, directors’ fees printing and mailing, and other general and administrative expenses.
Other operating expenses for the nine months ended March 31, 2020 and 2019, were $1.10 million and $0.72 million. The increase of $0.38 million or 52.8% increase was due a larger amount of amortization of deferred offering costs during the nine
months ended March 31, 2020 as compared to the same period in 2019. The increase in amortization of deferred offering costs was due to amortization of the remaining unamortized deferred offering costs relating to the second public offering after the
offering concluded in October 2019. According to our accounting policy, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period. Any deferred offering costs
that have not been amortized upon the expiration or earlier termination of an offering will be accelerated and expensed upon such expiration or termination.
Net realized gain on investments:
During the nine months ended March 31, 2020, the Company had a realized gain of $1.24 million as compared to $1.22 million during the nine months ended March 31, 2019. Total
realized gains for the nine months ended March 31, 2020, were primarily realized from sales of three non-traded REIT securities with a total realized gain of $0.20 million, three limited partnership interests with a net total gain of $0.41 million
and one publicly traded REIT security with a gain of 0.63 million.
Total realized gains for the nine months ended March 31, 2019, were realized from liquidations of eight non-traded REIT securities with total realized gain of $2.93 million offset
by losses of $1.71 million realized from sales of twenty-three publicly traded REIT securities and liquidation of two limited partnership securities.
Net unrealized gain/loss on investments:
During the nine months ended March 31, 2020, we recorded net unrealized losses of $11.09 million, which were net of $1.19 million of an unrealized gains reclassification adjustment.
The reclassification adjustment was the accumulated unrealized gains as of June 30, 2019, that were realized during the nine months ended March 31, 2020. Accordingly, the net unrealized losses excluding the reclassification adjustment for the nine
months ended March 31, 2020, were $9.90 million, which resulted from fair value depreciations of $6.50 million from non-traded REIT securities, $1.25 million from limited partnership interests and $2.15 million from publicly traded REIT securities.
The significant decline in the fair value during the current quarter was mainly due to the COVID-19 pandemic resulting in steep declines in domestic stock markets and in the traded prices for other financial assets as discussed above.
During the nine months ended March 31, 2019, we recorded net unrealized loss of $3.05 million, which was net of $1.98 million of an unrealized gains reclassification adjustment.
The reclassification adjustment was the accumulated unrealized gains as of June 30, 2018, that was realized during the nine months ended March 31, 2019. Accordingly, the net unrealized losses excluding the reclassification adjustment for the nine
months ended March 31, 2019, were $1.07 million, which resulted from fair value depreciation of $2.61 million from limited partnership interests and $0.31 million from publicly traded REIT securities offset by fair value appreciation of $1.85
million from non-traded REIT securities. The large fair value depreciation in limited partnership interests mostly resulted from distributions of sales proceeds by three partnerships (The Weatherly, LTD, The Weatherly Building, LLC, and Uniprop
Manufactured Housing Income Fund II) following the sales of underlying properties. The Company recorded $4.43 million of distribution income from sales transactions, which is a part of the investment income discussed above, from these three
partnerships during the nine months ended March 31, 2019.
Income tax provision (benefit):
Income tax provision for nine months ended March 31, 2020, and 2019 are discussed above under the three months ended section.
Liquidity and Capital Resources
Capital Resources
We offered to sell shares with total gross proceeds of $150 million under our second public offering which ended on October 28, 2019. In September 2019, we filed our third
registration statement with the SEC for the public offering of 15 million shares with total potential gross proceeds of $153.75 million. The third registration statement was declared effective by the SEC on October 31, 2019 and the public offering
commenced shortly thereafter. As of March 31, 2020, the Company has raised total gross proceeds of $117.90 million from the issuance of shares under three public offerings, $42.46 million from the IPO, which concluded in October 2016, and $67.99
million from the second public offering and $7.45 million from our third public offering. In addition, we have raised $10.66 million from the issuance of shares under the DRIP. Of the total capital raised from the public offerings as of March 31,
2020, we have used $9.46 million to repurchase shares under the Company’s share repurchase program. We do not have any plans to issue any preferred equity. We plan to fund future investments with the net proceeds raised from our third offering and
any future offerings of securities and cash flows from operations, 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. We currently do not have any plans to borrow money on a long-term basis or issue debt securities; however, from time to time we may draw on the margin
line of credit on a temporary basis to bridge our investment purchases and sales or capital raising. As of March 31, 2020, we were selling our shares on a continuous basis at a price of $10.25 which may be below NAV per share from time to time, as
approved by our stockholders.
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),
and the payment of operating expenses. If all the shares registered under our third registration statement in the third public offering are sold, we would receive investable cash totaling approximately $138.38 million.
The Company finished the quarter ended March 31, 2020 with substantial liquidity, including $13.07 million in cash and cash equivalents, and only $3.00 million of liabilities.
However, the Company has historically relied upon distributions and capital gains from its investments to fund dividends. During and following the outbreak of COVID-19, we do not believe we can rely on our traditional sources of cash flow. As such,
our Board of Directors determined that it was prudent to cancel all regular dividends. The Company intends to continue to qualify as a REIT and to meet the associated testing requirements, including paying out at least 90% of its taxable income.
Cash Flows:
Nine months ended March 31, 2020:
For the nine months ended March 31, 2020, we experienced a net increase in cash of $11.79 million. During this period, we generated cash of $1.71 million from our operating
activities and $10.08 million from our financing activities.
The net cash inflow of $1.71 million from operating activities resulted from $31.37 million from distributions received from our investments that are considered return of capital,
$6.45 million from sales and liquidations of investments and $2.67 million from investment income, net of operating expenses offset by $38.78 million of cash used in purchasing investments.
The net cash inflow of $10.08 million from financing activities resulted from the sale of shares under our second and third public offering with gross proceeds of $18.54 million
(adjusted for $0.01 million of increase in capital pending acceptance) offset by cash outflows of $3.56 million from payments of cash dividends, $3.19 million from share redemptions, and $1.71 million from payments of selling commissions and fees.
Nine months ended March 31, 2019:
For the nine months ended March 31, 2019, we experienced a net decrease in cash of $6.65 million. During this period, we generated cash of $13.07 million from our financing
activities and used $19.72 million for our operating activities.
The net cash outflow of $19.72 million from operating activities resulted from $94.71 million of cash used in purchasing investments that was offset by cash inflows of $56.96
million from sales and liquidations of investments, $14.04 million from distributions received that are considered return of capital, and $3.99 million from investment income, net of operating expenses.
The net cash inflow of $13.07 million from financing activities resulted from the sale of shares under our current public offering with gross proceeds of $18.69 million (adjusted
for $0.36 million of increase in capital pending acceptance) offset by cash outflows of $2.78 million from payments of cash dividends, $1.17 million from share redemptions, and $1.67 million from payments of selling commissions and fees.
Contractual Obligations
We have entered into two contracts under which we have material future commitments: (i) the Amended and Restated Investment Advisory Agreement, under which the Adviser serves as our
investment adviser, and (ii) 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 Amended and Restated Investment Advisory Agreement in future periods (after the up-front payment of the portfolio structuring fee during the public offering) will be (i) a percentage
of the value of our Gross Invested Capital; 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. There have been no
changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2019, included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2019.
Dividends to Stockholders
We typically intend to pay quarterly dividends to our stockholders to the extent that we have income from operations available. Our quarterly dividends, if any, will be determined
by our Board of Directors near the beginning of each quarter based on the estimated quarterly income and will be 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. During the quarter ended March 31,
2020, the Company initially declared a quarterly dividend of $0.17938 per share, which equals to $0.05979 per share per month. However, on March 31, 2020, the board of directors revoked the dividend declared for the month of March 2020. In addition,
the Company’s board of directors unanimously approved the suspension of regular quarterly dividends to the Company’s stockholders, effective immediately. The dividends declared for January and February 2020 were paid on April 29, 2020.
We qualified and elected to be taxed as a REIT beginning with the tax year ended December 31, 2014. As a REIT, we are required to distribute at least 90% of our REIT taxable income
to the stockholders and meet certain other conditions. Our current intention is to make any dividends in additional shares under our DRIP out of assets legally available therefore, unless a stockholder elects to receive dividends in cash, or their
participation in our DRIP is restricted by a state securities regulator. If one holds shares in the name of a broker or financial intermediary, they should contact the broker or financial intermediary regarding their election to receive dividends in
cash. We can offer no assurance that we will achieve results that will permit the payment of any cash dividends and, if we issue senior securities, we are prohibited from paying dividends if doing so causes us to fail to maintain the asset coverage
ratios stipulated by the 1940 Act or if dividends are limited by the terms of any of our borrowings.
Our current investment portfolio, as well as our future investments, primarily consists 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 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, 2020, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented 86% of our total assets as
of that date. As discussed in Note 3 to our financial statements ("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 exposes us to a high degree of business and financial risk because 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.
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, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. LEGAL PROCEEDINGS
None.
In addition to the information set forth in this Report, you also should carefully review and consider the information contained in our other reports and periodic filings that we
make with the SEC, including, without limitation, the information contained under the caption "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The risks and uncertainties described in our 2019 Annual
Report are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we presently deem to be immaterial, also may materially adversely affect our business, financial condition and results of operations.
Significant additional risk factors that we face since our 2019 Annual Report are described below:
The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, has and could continue to materially and adversely
impact or disrupt our financial condition, results of operations, cash flows and performance.
Our operating results depend, in large part, on the underlying assets in which we invest generating revenues from leases to residential or commercial tenants and the ability of
tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID-19 pandemic, and measures implemented to prevent its spread, may adversely affect our portfolio companies’ returns
and profitability and, as a result, our ability to make distributions to our stockholders or to realize appreciation in the value of our investments. The spread of COVID-19 could result in further increases in unemployment, and tenants that
experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent in full on a timely basis. In some cases, the companies in which we have invested may have to restructure tenants’ rent obligations, and
they may not be able to do so on terms as favorable to us as those currently in place. Numerous state, local, federal, and industry-initiated efforts may also affect property owners' ability to collect rent or enforce remedies for the failure to pay
rent. This may lead to reduction or cancellation of dividends, which will in turn effect our ability to pay our expenses and to pay dividends to our shareholders. Until such time as the virus is contained or eradicated and commerce and employment
return to more customary levels, we may experience material reductions in our operating revenue.
The full effects of the COVID-19 pandemic are highly uncertain and cannot be predicted.
The World Health Organization has declared the COVID-19 outbreak to be a pandemic, and the President of the United States declared it a national emergency. Globally, population movement and trade
have been restricted. Within the United States, various state and local governmental authorities have issued stay-at-home orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. We do not yet know the duration of the
pandemic or all of its future effects, but it has already had negative effects on global health and the world economy. The full effects of the pandemic and its duration is unknown.
None.
Issuer Purchases of Equity Securities
The following table presents information with respect to the Company’s purchases of its common stock during the period covered by this report:
Period
|
Total Number of Shares Purchased
|
Average Price Paid
Per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
|
Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans
|
||||||||||||
During the year ended June 30, 2020:
|
||||||||||||||||
August 13, 2019 through September 16, 2019
|
70,114.03
|
$
|
9.00
|
70,114.03
|
-
|
|||||||||||
November 18, 2019 through December 19, 2019
|
102,739.90
|
$
|
9.00
|
102,739.90
|
-
|
|||||||||||
February 14, 2020 through March 18, 2020
|
178,344.44
|
$
|
9.19
|
178,344.44
|
-
|
|||||||||||
351,198.37
|
351,198.37
|
|||||||||||||||
|
None.
Not applicable.
None.
Item 6. EXHIBITS
Exhibit
|
Description
|
|
|
|
|
|
|
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 14, 2020
|
|
By: /s/ Robert Dixon__________________
|
|
|
President and Chief Executive Officer
|
|
|
|
Date: May 14, 2020
|
|
By: /s/ Paul Koslosky _______________
|
|
|
Treasurer and Chief Financial Officer
|
33