Attached files
file | filename |
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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
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Form 10-Q
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(Mark one)
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☑
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2020
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☐
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to __________
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Commission file number 000-55006
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MacKenzie Realty Capital, Inc.
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(Exact name of registrant as specified in its charter)
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Maryland
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45-4355424
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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89 Davis Road, Suite 100, Orinda, CA 94563
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(Address of principal executive offices)
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(925) 631-9100
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(Registrant's telephone number, including area code)
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________________________________________________________________
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(Former name, former address and former fiscal year, if changed since last report)
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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 ☐
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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 ☐
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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.
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Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☑ Smaller reporting company ☐
Emerging growth company ☐
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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 ☐
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
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The number of the shares of issuer's Common Stock outstanding as of November 13, 2020 was 12,858,328.09.
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Page
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MacKenzie Realty Capital, Inc.
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September 30, 2020
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June 30, 2020
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(Unaudited)
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Assets
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Investments, at fair value
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Non-controlled/non-affiliated investments (cost of $47,656,794 and $48,895,786, respectively)
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$
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33,153,573
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$
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38,081,970
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Affiliated investments (cost of $12,605,580 and $12,426,110, respectively)
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12,158,035
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12,107,884
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Controlled investments (cost of $43,370,752 and $43,370,752, respectively)
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44,157,951
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43,515,291
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Total investments, at fair value (cost of $103,633,126 and $104,692,648, respectively)
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89,469,559
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93,705,145
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Cash and cash equivalents
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10,862,550
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8,957,393
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Accounts receivable
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911,540
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1,087,432
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Due from related entities
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154,865
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-
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Other assets
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99,723
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138,773
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Deferred offering costs, net
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161,521
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278,021
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Total assets
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$
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101,659,758
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$
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104,166,764
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Liabilities
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Accounts payable and accrued liabilities
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$
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49,649
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$
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135,040
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Capital pending acceptance
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9,000
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87,739
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Due to related entities
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677,034
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718,264
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Total liabilities
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735,683
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941,043
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Net assets
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Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,852,386.91 and 12,836,608.02 shares issued and outstanding, respectively
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1,285
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1,284
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Capital in excess of par value
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116,601,166
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116,455,600
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Total distributable earnings (distributions in excess of earnings)
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(15,678,376)
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(13,231,163)
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Total net assets
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100,924,075
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103,225,721
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Total liabilities and net assets
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$
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101,659,758
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$
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104,166,764
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Net asset value per share
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$
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7.85
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$
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8.04
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MacKenzie Realty Capital, Inc.
September 30, 2020
(Unaudited)
Name
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Asset Type
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Shares/Units
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Cost Basis
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Total Fair Value
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% of Net Assets
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American Finance Trust 7.5% PFD
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(4)
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Publicly Traded Company
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13,500.00
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$ 323,077
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$ 327,780
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0.31
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American Finance Trust Inc., Class A
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(4)
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Publicly Traded Company
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72,000.00
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498,397
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451,440
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0.45
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Apartment Investment & Management Company- Class A
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(4)
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Publicly Traded Company
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26,200.00
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999,945
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883,464
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0.88
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Ashford Hospitality Trust, Inc.
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(4)
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Publicly Traded Company
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36,000.00
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244,092
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59,400
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0.06
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Bluerock Residential Growth REIT, Inc.
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(4)
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Publicly Traded Company
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70,000.00
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513,940
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530,600
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0.53
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CBL & Associates Properties, Inc. - Preferred D
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(4)
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Publicly Traded Company
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188,000.00
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1,707,042
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142,880
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0.14
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CorEnergy Infrastructure 7.375% PFD A
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(4)
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Publicly Traded Company
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36,031.00
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621,401
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595,953
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0.59
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Host Hotels & Resorts Inc
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(4)
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Publicly Traded Company
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18,800.00
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229,354
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202,852
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0.20
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Independence Realty Trust, Inc.
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(4)
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Publicly Traded Company
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24,400.00
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288,996
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282,796
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0.28
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Mid-America Apartment Communities, Inc.
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(4)
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Publicly Traded Company
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3,700.00
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445,175
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429,015
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0.43
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NexPoint Residential Trust, Inc.
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(4)
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Publicly Traded Company
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6,300.00
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278,811
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279,405
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0.28
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New York City REIT, Inc. Class A
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(6)
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Publicly Traded Company
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32,821.00
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950,229
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400,416
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0.40
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One Liberty Properties, Inc.
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(4)
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Publicly Traded Company
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17,640.00
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255,805
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288,590
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0.29
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RLJ Lodging Trust
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(4)
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Publicly Traded Company
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23,300.00
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238,527
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201,778
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0.20
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The Macerich Company
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(4)
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Publicly Traded Company
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59,943.00
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1,018,578
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407,013
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0.40
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VEREIT, Inc
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(4)
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Publicly Traded Company
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40,700.00
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289,353
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264,550
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0.26
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WP Carey, Inc.
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(4)
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Publicly Traded Company
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4,300.00
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300,084
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280,188
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0.28
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Total Publicly Traded Companies
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9,202,806
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6,028,120
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5.98
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Benefit Street Partners Realty Trust, Inc.
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(5)
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Non Traded Company
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239,401.33
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3,488,167
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2,334,165
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2.29
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Carter Validus Mission Critical REIT II, Inc. Class A
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(5)
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Non Traded Company
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303,831.45
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1,735,829
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1,908,061
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1.89
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CIM Real Estate Finance Trust, Inc.
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(5)
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Non Traded Company
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522,521.37
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3,044,542
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2,387,923
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2.37
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CNL Healthcare Properties, Inc.
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(5)
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Non Traded Company
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268,532.71
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1,562,429
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1,251,362
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1.24
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Cole Credit Property Trust V, Inc.
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(5)
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Non Traded Company
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55,455.36
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693,789
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631,636
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0.63
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Cole Credit Property Trust V, Inc. Class T
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(5)
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Non Traded Company
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1,466.55
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18,438
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16,704
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0.02
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Cole Office & Industrial REIT (CCIT II), Inc. Class A
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(5)
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Non Traded Company
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55,471.46
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293,545
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389,964
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0.39
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Cole Office & Industrial REIT (CCIT II), Inc. Class T
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(5)
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Non Traded Company
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1,441.84
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6,906
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10,136
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0.01
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Corporate Property Associates 18 Global A Inc.
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(5)
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Non Traded Company
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4,695.14
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39,627
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29,720
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0.03
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First Capital Real Estate Trust, Inc.
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(5)(6)
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Non Traded Company
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3,792.51
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15,161
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13,388
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0.01
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FSP 303 East Wacker Drive Corp. Liquidating Trust
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(5)(6)
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Non Traded Company
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3.00
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30
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702
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-
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FSP Energy Tower I Corp. Liquidating Trust
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(2)(5)(6)
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Non Traded Company
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19.35
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7,929
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9,977
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0.01
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FSP Grand Boulevard Liquidating Trust
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(5)(6)
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Non Traded Company
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7.50
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8
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2,948
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-
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FSP Satellite Place
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(2)(5)(6)
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Non Traded Company
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19.60
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588,176
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544,017
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0.54
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Griffin Capital Essential Asset REIT, Inc.
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(5)
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Non Traded Company
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50.00
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467
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320
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-
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Griffin-American Healthcare REIT III, Inc.
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(5)
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Non Traded Company
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59,480.45
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324,537
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315,841
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0.31
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GTJ REIT, Inc.
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(5)
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Non Traded Company
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1,000.00
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11,530
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10,110
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0.01
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Healthcare Trust, Inc.
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(5)
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Non Traded Company
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482,626.54
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4,826,296
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2,205,603
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2.19
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Highlands REIT Inc.
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(5)(6)
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Non Traded Company
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23,313,870.21
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4,124,419
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3,497,081
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3.47
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HGR Liquidating Trust
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(5)(6)
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Non Traded Company
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73,170.41
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51,951
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51,951
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0.05
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Hospitality Investors Trust, Inc.
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(5)(6)
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Non Traded Company
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22,604.61
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91,693
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11,528
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0.01
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InvenTrust Properties Corp.
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(5)
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Non Traded Company
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2,409,500.08
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2,877,410
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3,011,875
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2.98
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|||||
KBS Real Estate Investment Trust II, Inc.
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(5)(6)
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Non Traded Company
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1,365,338.22
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3,413,034
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1,993,394
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1.98
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|||||
KBS Real Estate Investment Trust III, Inc.
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(5)
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Non Traded Company
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65,717.13
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550,359
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530,994
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0.53
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Moody National REIT II, Inc.
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(5)
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Non Traded Company
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1,924.03
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18,866
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14,449
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0.01
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New York City REIT, Inc.
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(5)(6)
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Non Traded Company
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-
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-
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-
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-
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New York City REIT, Inc. Class B
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(5)(6)
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Non Traded Company
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98,464.24
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2,850,705
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804,453
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0.80
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|||||
NorthStar Healthcare Income, Inc.
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(5)(6)
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Non Traded Company
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23,573.29
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87,643
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29,702
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0.03
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Phillips Edison & Company, Inc
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(5)
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Non Traded Company
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851,563.96
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6,286,760
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4,402,586
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4.36
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|||||
SmartStop Self Storage REIT, Inc.
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(5)
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Non Traded Company
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7,834.42
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57,239
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64,086
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0.06
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|||||
Steadfast Apartment REIT
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(5)
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Non Traded Company
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50.00
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476
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530
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-
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Strategic Realty Trust, Inc.
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(5)
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Non Traded Company
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327,376.03
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1,261,587
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661,300
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0.66
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|||||
Summit Healthcare REIT, Inc.
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(2)(5)(6)
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Non Traded Company
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1,409,436.22
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1,926,736
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1,761,795
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1.75
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The Parking REIT Inc.
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(5)(6)
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Non Traded Company
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17,989.90
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230,880
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90,129
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0.09
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|||||
Total Non Traded Companies (1)
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40,487,164
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28,988,430
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28.72
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3100 Airport Way South LP
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(5)
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LP Interest
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1.00
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355,000
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327,328
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0.34
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5210 Fountaingate, LP
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(2)(5)(6)
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LP Interest
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9.89
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500,000
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424,544
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0.42
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Bishop Berkeley, LLC
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(3)(5)
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LP Interest
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4,050.00
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4,050,000
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3,875,688
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3.84
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|||||
BP3 Affiliate, LLC
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(2)(5)(6)
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LP Interest
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1,668.00
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1,668,000
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1,668,000
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1.65
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|||||
BR Cabrillo LLC
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(5)(6)
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LP Interest
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346,723.23
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104,944
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104,017
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0.10
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|||||
BR Sunrise Parc Investment Co, LLC
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(2)(5)
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LP Interest
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6,656,668.02
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6,656,668
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6,656,668
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6.60
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|||||
Britannia Preferred Members, LLC -Class 1
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(3)(5)(6)
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LP Interest
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103.88
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2,597,000
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3,635,800
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3.60
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|||||
Britannia Preferred Members, LLC -Class 2
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(3)(5)(6)
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LP Interest
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514,858.30
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6,826,931
|
7,038,113
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6.97
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|||||
Capitol Hill Partners, LLC
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(3)(5)(6)
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LP Interest
|
190,000.00
|
1,900,000
|
1,485,800
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1.47
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|||||
Citrus Park Hotel Holdings, LLC
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(3)(5)
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LP Interest
|
5,000,000.00
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5,000,000
|
5,000,000
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4.95
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|||||
Dimensions28 LLP
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(3)(5)
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LP Interest
|
10,800.00
|
10,801,015
|
11,373,804
|
11.27
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|||||
Lakemont Partners, LLC
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(2)(5)
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LP Interest
|
1,000.00
|
941,180
|
831,120
|
0.82
|
|||||
MacKenzie Realty Operating Partnership, LP
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(3)(5)(6)
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LP Interest
|
1,451,642.63
|
12,145,905
|
11,714,756
|
11.61
|
|||||
Redwood Mortgage Investors VIII
|
(5)
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LP Interest
|
56,300.04
|
29,700
|
12,949
|
0.01
|
|||||
Satellite Investment Holdings, LLC - Class B
|
(5)(6)
|
LP Interest
|
0.31
|
22
|
8,518
|
0.01
|
|||||
Secured Income, LP
|
(2)(5)(6)
|
LP Interest
|
64,670.00
|
316,890
|
261,914
|
0.26
|
|||||
Total LP Interest
|
53,893,255
|
54,419,019
|
53.92
|
||||||||
Coastal Realty Business Trust, REEP, Inc. - A
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(3)(5)(6)
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Investment Trust
|
72,320.00
|
49,901
|
33,990
|
0.03
|
|||||
Total Investment Trust
|
49,901
|
33,990
|
0.03
|
||||||||
Total Investments
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$ 103,633,126
|
$ 89,469,559
|
88.65
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(1) Investments primarily in non-traded public REITs or their successors.
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(2) Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns between 5% and 25% of the portfolio company’s voting securities. As of
September 30, 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.
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(3) Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise
control over the management or policies of such portfolio company. As of September 30, 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.
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(4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of September 30, 2020, the total percentage of non-qualifying assets is 5.54%, and, as a business development company,
non-qualifying assets may not exceed 30% of our total assets.
|
(5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of September 30, 2020, 82.08% of the Company's total assets are in illiquid securities.
|
(6) Investments in non-income producing securities. As of September 30, 2020, 35.01% of the Company's total assets are in non-income producing securities.
|
MacKenzie Realty Capital, Inc.
June 30, 2020
Name
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Asset Type
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Shares/Units
|
Cost Basis
|
Total Fair Value
|
% of Net Assets
|
|||||
|
|
|
|
|
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|
|||||
American Finance Trust 7.5% PFD
|
(4)
|
Publicly Traded Company
|
34,000.00
|
$ 610,229
|
$ 797,980
|
0.78
|
|||||
American Finance Trust Inc., Class A
|
(4)
|
Publicly Traded Company
|
86,500.00
|
500,619
|
686,378
|
0.66
|
|||||
Apartment Investment & Management Company- Class A
|
(4)
|
Publicly Traded Company
|
26,200.00
|
999,945
|
986,168
|
0.96
|
|||||
Ashford Hospitality Trust, Inc.
|
(4)
|
Publicly Traded Company
|
360,000.00
|
244,092
|
260,136
|
0.25
|
|||||
Bluerock Residential Growth REIT, Inc.
|
(4)
|
Publicly Traded Company
|
70,000.00
|
513,940
|
565,600
|
0.55
|
|||||
CBL & Associates Properties, Inc. - Preferred D
|
(4)
|
Publicly Traded Company
|
188,000.00
|
1,707,042
|
169,200
|
0.16
|
|||||
City Office REIT, Inc. - Preferred A
|
(4)
|
Publicly Traded Company
|
12,196.00
|
201,436
|
288,679
|
0.28
|
|||||
CorEnergy Infrastructure 7.375% PFD A
|
(4)
|
Publicly Traded Company
|
36,031.00
|
621,401
|
487,139
|
0.47
|
|||||
Host Hotels & Resorts Inc
|
(4)
|
Publicly Traded Company
|
24,500.00
|
237,354
|
264,355
|
0.26
|
|||||
Independence Realty Trust, Inc.
|
(4)
|
Publicly Traded Company
|
33,000.00
|
295,551
|
379,170
|
0.37
|
|||||
NexPoint Residential Trust, Inc.
|
(4)
|
Publicly Traded Company
|
8,000.00
|
294,490
|
282,800
|
0.27
|
|||||
One Liberty Properties, Inc.
|
(4)
|
Publicly Traded Company
|
24,500.00
|
370,318
|
431,690
|
0.42
|
|||||
RLJ Lodging Trust
|
(4)
|
Publicly Traded Company
|
42,000.00
|
243,541
|
396,480
|
0.38
|
|||||
The Macerich Company
|
(4)
|
Publicly Traded Company
|
59,943.00
|
1,018,578
|
537,689
|
0.52
|
|||||
VEREIT, Inc
|
(4)
|
Publicly Traded Company
|
58,000.00
|
294,437
|
372,940
|
0.36
|
|||||
WP Carey, Inc.
|
(4)
|
Publicly Traded Company
|
5,000.00
|
301,375
|
338,250
|
0.33
|
|||||
Total Publicly Traded Companies
|
|
|
|
8,454,348
|
7,244,654
|
7.02
|
|||||
|
|
|
|
|
|
|
|||||
Benefit Street Partners Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
239,401.33
|
3,488,167
|
2,496,956
|
2.41
|
|||||
Carter Validus Mission Critical REIT II, Inc. Class A
|
(5)
|
Non Traded Company
|
288,506.00
|
1,666,123
|
1,632,944
|
1.58
|
|||||
CIM Real Estate Finance Trust, Inc.
|
(5)
|
Non Traded Company
|
522,144.54
|
3,043,423
|
2,349,650
|
2.28
|
|||||
CNL Healthcare Properties, Inc.
|
(5)
|
Non Traded Company
|
268,532.71
|
1,562,429
|
1,176,173
|
1.14
|
|||||
Cole Credit Property Trust V, Inc.
|
(5)
|
Non Traded Company
|
55,455.36
|
693,789
|
610,009
|
0.59
|
|||||
Cole Credit Property Trust V, Inc. Class T
|
(5)
|
Non Traded Company
|
1,466.55
|
18,438
|
16,132
|
0.02
|
|||||
Cole Office & Industrial REIT (CCIT II), Inc. Class A
|
(5)
|
Non Traded Company
|
17,792.56
|
114,700
|
124,370
|
0.12
|
|||||
Cole Office & Industrial REIT (CCIT II), Inc. Class T
|
(5)
|
Non Traded Company
|
1,441.84
|
6,906
|
10,078
|
0.01
|
|||||
Corporate Property Associates 18 Global A Inc.
|
(5)
|
Non Traded Company
|
4,695.14
|
39,627
|
30,471
|
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
|
39,128
|
0.04
|
|||||
FSP 303 East Wacker Drive Corp. Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
3.00
|
30
|
679
|
-
|
|||||
FSP Energy Tower I Corp. Liquidating Trust
|
(2)(5)(6)
|
Non Traded Company
|
19.35
|
7,929
|
9,810
|
0.01
|
|||||
FSP Grand Boulevard Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
7.50
|
8
|
2,851
|
-
|
|||||
FSP Satellite Place
|
(2)(5)(6)
|
Non Traded Company
|
19.60
|
588,176
|
532,579
|
0.52
|
|||||
Griffin Capital Essential Asset REIT, Inc.
|
(5)
|
Non Traded Company
|
23,044.28
|
151,802
|
144,027
|
0.14
|
|||||
Griffin-American Healthcare REIT III, Inc.
|
(5)
|
Non Traded Company
|
59,480.45
|
324,537
|
312,272
|
0.30
|
|||||
GTJ REIT, Inc.
|
(5)
|
Non Traded Company
|
1,000.00
|
11,530
|
9,280
|
0.01
|
|||||
Healthcare Trust, Inc.
|
(5)
|
Non Traded Company
|
479,718.92
|
4,806,568
|
3,271,683
|
3.17
|
|||||
Highlands REIT Inc.
|
(5)(6)
|
Non Traded Company
|
23,225,520.45
|
4,120,660
|
3,019,318
|
2.92
|
|||||
HGR Liquidating Trust
|
(5)(6)
|
Non Traded Company
|
73,170.41
|
244,648
|
292,682
|
0.28
|
|||||
Hospitality Investors Trust, Inc.
|
(5)(6)
|
Non Traded Company
|
20,493.11
|
90,607
|
20,083
|
0.02
|
|||||
InvenTrust Properties Corp.
|
(5)
|
Non Traded Company
|
2,235,413.80
|
2,710,159
|
2,749,559
|
2.66
|
|||||
KBS Real Estate Investment Trust II, Inc.
|
(5)(6)
|
Non Traded Company
|
1,365,338.22
|
3,754,369
|
2,266,461
|
2.20
|
|||||
KBS Real Estate Investment Trust III, Inc.
|
(5)
|
Non Traded Company
|
65,717.13
|
550,359
|
529,680
|
0.51
|
|||||
New York City REIT, Inc.
|
(5)(6)
|
Non Traded Company
|
319,024.14
|
3,800,940
|
3,110,485
|
3.01
|
|||||
NorthStar Healthcare Income, Inc.
|
(5)(6)
|
Non Traded Company
|
23,573.29
|
87,643
|
35,596
|
0.03
|
|||||
Phillips Edison & Company, Inc
|
(5)
|
Non Traded Company
|
851,563.96
|
6,286,760
|
4,589,930
|
4.45
|
|||||
SmartStop Self Storage REIT, Inc.
|
(5)
|
Non Traded Company
|
7,304.42
|
54,166
|
57,048
|
0.06
|
|||||
Steadfast Apartment REIT
|
(5)
|
Non Traded Company
|
73,226.79
|
815,995
|
741,055
|
0.72
|
|||||
Strategic Realty Trust, Inc.
|
(5)
|
Non Traded Company
|
321,296.92
|
1,252,790
|
649,020
|
0.63
|
|||||
Summit Healthcare REIT, Inc.
|
(2)(5)(6)
|
Non Traded Company
|
1,409,436.22
|
1,926,736
|
1,874,550
|
1.82
|
|||||
The Parking REIT Inc.
|
(5)(6)
|
Non Traded Company
|
17,989.90
|
230,880
|
90,129
|
0.09
|
|||||
Total Non Traded Companies (1)
|
|
|
|
42,474,614
|
32,808,076
|
31.78
|
|||||
|
|
|
|
|
|
|
|||||
3100 Airport Way South LP
|
(5)
|
LP Interest
|
1.00
|
355,000
|
320,253
|
0.31
|
|||||
5210 Fountaingate, LP
|
(2)(5)(6)
|
LP Interest
|
9.89
|
500,000
|
425,796
|
0.41
|
|||||
Bishop Berkeley, LLC
|
(3)(5)
|
LP Interest
|
4,050.00
|
4,050,000
|
3,854,223
|
3.73
|
|||||
BP3 Affiliate, LLC
|
(2)(5)(6)
|
LP Interest
|
1,668.00
|
1,668,000
|
1,668,000
|
1.62
|
|||||
BR Cabrillo LLC
|
(5)(6)
|
LP Interest
|
346,723.23
|
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
|
3.63
|
|||||
BR Sunrise Parc Investment Co, LLC
|
(2)(5)
|
LP Interest
|
2,720,911.00
|
2,720,911
|
2,720,911
|
2.64
|
|||||
Britannia Preferred Members, LLC -Class 1
|
(3)(5)(6)
|
LP Interest
|
103.88
|
2,597,000
|
3,505,950
|
3.40
|
|||||
Britannia Preferred Members, LLC -Class 2
|
(3)(5)(6)
|
LP Interest
|
514,858.30
|
6,826,931
|
7,089,599
|
6.87
|
|||||
Capitol Hill Partners, LLC
|
(3)(5)(6)
|
LP Interest
|
190,000.00
|
1,900,000
|
1,468,700
|
1.42
|
|||||
Citrus Park Hotel Holdings, LLC
|
(3)(5)
|
LP Interest
|
5,000,000.00
|
5,000,000
|
5,000,000
|
4.84
|
|||||
Dimensions28 LLP
|
(3)(5)
|
LP Interest
|
10,800.00
|
10,801,015
|
10,949,688
|
10.61
|
|||||
Lakemont Partners, LLC
|
(2)(5)
|
LP Interest
|
1,000.00
|
941,180
|
857,160
|
0.83
|
|||||
MacKenzie Realty Operating Partnership, LP
|
(3)(5)(6)
|
LP Interest
|
1,451,642.63
|
12,145,905
|
11,613,141
|
11.25
|
|||||
MPF Pacific Gateway - Class B
|
(2)(5)(6)
|
LP Interest
|
23.20
|
6,287
|
7,164
|
0.01
|
|||||
Redwood Mortgage Investors VIII
|
(5)
|
LP Interest
|
56,300.04
|
29,700
|
12,949
|
0.01
|
|||||
Satellite Investment Holdings, LLC - Class B
|
(5)(6)
|
LP Interest
|
0.31
|
22
|
8,960
|
0.01
|
|||||
Secured Income, LP
|
(2)(5)(6)
|
LP Interest
|
64,670.00
|
316,890
|
261,914
|
0.25
|
|||||
Total LP Interest
|
|
|
|
53,713,785
|
53,618,425
|
51.94
|
|||||
|
|
|
|
|
|
|
|||||
Coastal Realty Business Trust, REEP, Inc. - A
|
(3)(5)(6)
|
Investment Trust
|
72,320.00
|
49,901
|
33,990
|
0.03
|
|||||
Total Investment Trust
|
|
|
|
49,901
|
33,990
|
0.03
|
|||||
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|||||
Total Investments
|
|
|
|
$ 104,692,648
|
$ 93,705,145
|
90.77
|
(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, 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 June 30, 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 June 30, 2020, the total percentage of non-qualifying assets is 6.95%, 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 June 30, 2020, 83.00% of the Company's total assets are in illiquid securities.
|
(6) Investments in non-income producing securities. As of June 30, 2020, 36.00 % of the Company's total assets are in non-income producing securities.
|
MacKenzie Realty Capital, Inc.
(Unaudited)
|
||||||||
|
Three Months Ended
September 30, |
|||||||
|
2020
|
2019
|
||||||
Investment income
|
||||||||
Non-controlled/non-affiliated investments:
|
||||||||
Dividend and operational/sales distributions
|
$
|
412,206
|
$
|
961,792
|
||||
Interest and other income
|
203
|
178,385
|
||||||
Affiliated investments:
|
||||||||
Dividend and operational/sales distributions
|
116,213
|
218,771
|
||||||
Controlled investments:
|
||||||||
Dividend and operational/sales distributions
|
336,011
|
582,947
|
||||||
Total investment income
|
864,633
|
1,941,895
|
||||||
|
||||||||
Operating expenses
|
||||||||
Base management fee (note 5)
|
657,886
|
609,995
|
||||||
Portfolio structuring fee (note 5)
|
4,852
|
195,611
|
||||||
Administrative cost reimbursements (note 5)
|
155,200
|
170,000
|
||||||
Transfer agent cost reimbursements (note 5)
|
30,800
|
20,000
|
||||||
Amortization of deferred offering costs
|
141,889
|
193,692
|
||||||
Professional fees
|
98,404
|
117,602
|
||||||
Directors' fees
|
16,500
|
15,500
|
||||||
Printing and mailing
|
31,702
|
37,450
|
||||||
Other general and administrative
|
14,900
|
15,112
|
||||||
Total operating expenses
|
1,152,133
|
1,374,962
|
||||||
|
||||||||
Net investment income (loss)
|
(287,500)
|
|
566,933
|
|||||
|
||||||||
Realized and unrealized gain (loss) on investments
|
||||||||
Net realized gain (loss)
|
||||||||
Non-controlled/non-affiliated investments
|
1,022,409
|
109,014
|
||||||
Affiliated investments:
|
(6,057)
|
|
-
|
|||||
Total net realized gain
|
1,016,352
|
109,014
|
||||||
Net unrealized gain (loss)
|
||||||||
Non-controlled/non-affiliated investments
|
(3,689,407)
|
|
(609,427)
|
|
||||
Affiliated investments
|
(129,318)
|
|
118,820
|
|||||
Controlled investments
|
642,660
|
1,547,381
|
||||||
Total net unrealized gain (loss)
|
(3,176,065)
|
|
1,056,774
|
|||||
|
||||||||
Total net realized and unrealized gain (loss) on investments
|
(2,159,713)
|
|
1,165,788
|
|||||
|
||||||||
Net increase (decrease) in net assets resulting from operations
|
$
|
(2,447,213)
|
|
$
|
1,732,721
|
|||
|
||||||||
Net increase (decrease) in net assets resulting from operations per share
|
$
|
(0.19)
|
|
$
|
0.15
|
|||
|
||||||||
Weighted average common shares outstanding
|
12,849,527
|
11,391,769
|
MacKenzie Realty Capital, Inc.
(Unaudited)
|
Three Months Ended
|
|||||||
|
September 30, 2020
|
September 30, 2019
|
||||||
Operations
|
||||||||
Net investment income (loss)
|
$
|
(287,500)
|
|
$
|
566,933
|
|||
Net realized gain
|
1,016,352
|
109,014
|
||||||
Net unrealized gain (loss)
|
(3,176,065)
|
|
1,056,774
|
|||||
Net increase (decrease) in net assets resulting from operations
|
(2,447,213)
|
|
1,732,721
|
|||||
|
||||||||
Dividends
|
||||||||
Dividends to stockholders
|
-
|
(1,983,801)
|
|
|||||
|
||||||||
Capital share transactions
|
||||||||
Issuance of common stock
|
160,739
|
6,465,979
|
||||||
Issuance of common stock through reinvestment of dividends
|
-
|
815,931
|
||||||
Redemption of common stock
|
-
|
(631,026)
|
|
|||||
Selling commissions and fees
|
(15,172)
|
|
(588,024)
|
|
||||
Net increase in net assets resulting from capital share transactions
|
145,567
|
6,062,860
|
||||||
|
||||||||
Total increase (decrease) in net assets
|
(2,301,646)
|
|
5,811,780
|
|||||
|
||||||||
Net assets at beginning of the period
|
103,225,721
|
103,115,381
|
||||||
|
||||||||
Net assets at end of the period
|
$
|
100,924,075
|
$
|
108,927,161
|
MacKenzie Realty Capital, Inc.
(Unaudited)
|
||||||||
|
Three Months Ended
September 30, |
|||||||
|
2020
|
2019
|
||||||
Cash flows from operating activities:
|
||||||||
Net increase (decrease) in net assets resulting from operations
|
$
|
(2,447,213)
|
|
$
|
1,732,721
|
|||
Adjustments to reconcile net increase (decrease) in net assets resulting from
|
||||||||
operations to net cash from operating activities:
|
||||||||
Proceeds from sale of investments, net
|
5,204,809
|
1,956,636
|
||||||
Return of capital
|
4,284,031
|
8,340,149
|
||||||
Purchase of investments
|
(7,412,967)
|
|
(7,218,665)
|
|
||||
Net realized gain on investments
|
(1,016,352)
|
|
(109,014)
|
|
||||
Net unrealized (gain) loss on investments
|
3,176,065
|
(1,056,774)
|
|
|||||
Amortization of deferred offering costs
|
141,889
|
193,692
|
||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
175,892
|
1,633,018
|
||||||
Due from related entities
|
(154,865)
|
|
-
|
|||||
Other assets
|
30,065
|
(100,441)
|
|
|||||
Payment of deferred offering costs
|
(25,389)
|
|
(236,212)
|
|
||||
Accounts payable and accrued liabilities
|
(85,179)
|
|
(50,174)
|
|
||||
Due to related entities
|
(41,230)
|
|
(1,678,560)
|
|
||||
Net cash from operating activities
|
1,829,556
|
3,406,376
|
||||||
|
||||||||
Cash flows from financing activities:
|
||||||||
Proceeds from issuance of common stock
|
160,739
|
6,465,979
|
||||||
Redemption of common stock
|
-
|
(631,026)
|
|
|||||
Dividends to stockholders
|
-
|
(1,061,170)
|
|
|||||
Payment of selling commissions and fees
|
(6,399)
|
|
(685,012)
|
|
||||
Change in capital pending acceptance
|
(78,739)
|
|
878,533
|
|||||
Net cash from financing activities
|
75,601
|
4,967,304
|
||||||
|
||||||||
Net increase in cash and cash equivalents
|
1,905,157
|
8,373,680
|
||||||
|
||||||||
Cash and cash equivalents at beginning of the period
|
8,957,393
|
1,278,668
|
||||||
|
||||||||
Cash and cash equivalents at end of the period
|
$
|
10,862,550
|
$
|
9,652,348
|
||||
|
||||||||
Non-cash financing activities:
|
||||||||
Issuance of common stock through reinvestment of dividends
|
$
|
-
|
$
|
815,931
|
MacKenzie Realty Capital, Inc.
September 30, 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 expired on October 31, 2020.
On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s Board of Directors to withdraw the Company’s
election to be regulated as a business development company under the Investment Company Act of 1940, effective when the Company files the appropriate form with the SEC. The Company expects to submit the withdrawal to be effective with the SEC by the
end of December 2020.
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 September 30, 2020, the Company has raised approximately $130.20 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan ("DRIP")
of approximately $11.16 million. Of the shares issued by the Company in exchange for the total capital raised as of September 30, 2020, approximately $9.46 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, 2020, 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, 2020, other than those
expanded upon and described below.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These balances are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Cash and cash equivalents are carried at cost which approximates fair value. There were no
cash equivalents held as of September 30, 2020, and June 30, 2020.
Accounts Receivable
Accounts receivable represent dividends, distributions and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the
financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables and those deemed to be uncollectible are written-off only after all reasonable
collection efforts are exhausted. The Company has determined that all account receivable balances outstanding as of September 30, 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
September 30, 2020, and June 30, 2020, capital pending acceptance was $9,000 and $87,739, respectively.
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 third public offering through September 30, 2020 and June
30, 2020 were $585,583 and $560,194, respectively. These offering costs are deferred and expensed over a twelve-month period beginning from the date the registration was declared effective by the SEC. Total amortization of these deferred costs for
the three months ended September 30, 2020, and 2019 were $141,889 and $193,692, 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, 2019. Therefore, it did not incur any tax expense or
excise tax on its income from operations during the quarterly periods within the tax year 2019. Similarly, for the tax year 2020, the Parent Company will pay the requisite amounts of dividends by end of the year or through catch-up distributions in
tax year 2021 such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2020.
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 September 30, 2020, they did not have
any taxable income for tax years 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 September 30, 2020, and June 30, 2020, 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
SEC issued amendments to modernize the Regulation S-K disclosure requirements about description of business, legal proceedings and risk factors. The amendments permit registrants
to take a more principles-based approach to tailor business and risk factors disclosures to their circumstances and calls for enhanced disclosures. The amendments, which became effective on November 9, 2020, are designed to improve the readability of
these disclosures and discourage the repetition of non-material information. The adoption of this new guidance did not have a material impact on this Form 10-Q.
NOTE 3 –INVESTMENTS
The following table summarizes the composition of the Company's investments at cost and fair value as of September 30, 2020, and June 30, 2020:
September 30, 2020
|
June 30, 2020
|
|||||||||||||||
Asset Type
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
||||||||||||
Publicly Traded Companies
|
$
|
9,202,806
|
$
|
6,028,120
|
$
|
8,454,348
|
$
|
7,244,654
|
||||||||
Non Traded Companies
|
40,487,164
|
28,988,430
|
42,474,614
|
32,808,076
|
||||||||||||
LP Interests
|
53,893,255
|
54,419,019
|
53,713,785
|
53,618,425
|
||||||||||||
Investment Trust
|
49,901
|
33,990
|
49,901
|
33,990
|
||||||||||||
Total
|
$
|
103,633,126
|
$
|
89,469,559
|
$
|
104,692,648
|
$
|
93,705,145
|
The following table presents fair value measurements of the Company's investments as of September 30, 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
|
$
|
6,028,120
|
$
|
6,028,120
|
$
|
-
|
$
|
-
|
||||||||
Non Traded Companies
|
28,988,430
|
-
|
-
|
28,988,430
|
||||||||||||
LP Interests
|
54,419,019
|
-
|
-
|
54,419,019
|
||||||||||||
Investment Trust
|
33,990
|
-
|
-
|
33,990
|
||||||||||||
Total
|
$
|
89,469,559
|
$
|
6,028,120
|
$
|
-
|
$
|
83,441,439
|
The following table presents fair value measurements of the Company's investments as of June 30, 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
|
$
|
7,244,654
|
$
|
7,244,654
|
$
|
-
|
$
|
-
|
||||||||
Non Traded Companies
|
32,808,076
|
-
|
-
|
32,808,076
|
||||||||||||
LP Interests
|
53,618,425
|
-
|
-
|
53,618,425
|
||||||||||||
Investment Trust
|
33,990
|
-
|
-
|
33,990
|
||||||||||||
Total
|
$
|
93,705,145
|
$
|
7,244,654
|
$
|
-
|
$
|
86,460,491
|
The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the
three months ended September 30, 2020:
Balance at July 1, 2020
|
$
|
86,460,491
|
||
Purchases of investments
|
4,407,988
|
|||
Transfers to Level I
|
(950,235)
|
|
||
Proceeds from sales, net
|
(1,011,748)
|
|
||
Return of capital
|
(4,284,031)
|
|
||
Net realized gains
|
30,048
|
|||
Net unrealized losses
|
(1,211,074)
|
|
||
Ending balance at September 30, 2020
|
$
|
83,441,439
|
The transfers of $950,235 from Level III to Level I category during the three months ended September 30, 2020 resulted from one of the Company's investments converting from a non-traded REIT to publicly traded REIT.
Transfers are assumed to have occurred at the beginning of the period.
For the three months ended September 30, 2020, changes in unrealized losses, net included in earnings relating to Level III investments still held at September 30, 2020, were $1,870,083.
The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value
hierarchy) for the three months ended September 30, 2019:
Balance at July 1, 2019
|
$
|
101,094,142
|
||
Purchases of investments
|
7,218,665
|
|||
Proceeds from sales, net
|
(1,494,978)
|
|
||
Return of capital
|
(8,340,149)
|
|
||
Net realized gains
|
112,412
|
|||
Net unrealized losses
|
546,258
|
|||
Ending balance at September 30, 2019
|
$
|
99,136,350
|
For the three months ended September 30, 2019, changes in unrealized gains, net included in earnings relating to Level III investments still held at September 30, 2019 were $852,217.
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at September 30, 2020:
Asset Type
|
Fair Value
|
Primary Valuation Techniques
|
Unobservable Inputs Used
|
Range
|
Wt. Average
|
||||||||||
|
|
|
|||||||||||||
Non Traded Companies
|
$
|
554,126
|
Direct Capitalization Method
|
Capitalization rate
|
6.5% - 7.4%
|
|
7.4%
|
|
|||||||
|
|
Liquidity discount
|
30.0% - 32.0%
|
|
32.0%
|
|
|||||||||
Non Traded Companies
|
27,015
|
Estimated Liquidation Value
|
Sponsor provided value
|
||||||||||||
|
|
Liquidity discount
|
9.0% - 78.0%
|
|
44.0%
|
|
|||||||||
Non Traded Companies
|
28,407,289
|
Market Activity
|
Secondary market industry publication
|
||||||||||||
|
|
Liquidity discount *
|
15.0% - 33.0%
|
|
19.8%
|
|
|||||||||
|
|
|
|||||||||||||
LP Interests
|
25,364,915
|
Direct Capitalization Method
|
Capitalization rate
|
3.4% - 6.8%
|
|
5.2%
|
|
||||||||
|
|
Liquidity discount
|
5.0% - 40.0%
|
|
15.6%
|
|
|||||||||
LP Interests
|
15,292,468
|
Discounted Cash Flow
|
Discount rate
|
9.0% - 20.0%
|
|
11.6%
|
|
||||||||
|
|
Discount term (months)
|
6.0 - 9.0
|
|
4.1
|
|
|||||||||
LP Interests
|
13,486,773
|
Estimated Liquidation Value
|
Sponsor provided value
|
||||||||||||
|
|
Underlying property sales contract
|
|||||||||||||
|
|
Underlying property appraisal
|
|||||||||||||
|
|
Liquidity discount
|
43.0%
|
|
|
||||||||||
LP Interests
|
274,863
|
Market Activity
|
Underlying security sales contract
|
||||||||||||
|
|
Secondary market industry publication
|
|||||||||||||
|
|
Contributed capital
|
|||||||||||||
|
|
|
|||||||||||||
Investment Trust
|
33,990
|
Market Activity
|
Underlying security sales contract
|
||||||||||||
|
|
|
|||||||||||||
|
$
|
83,441,439
|
|
|
* In the
past years, 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 second and third quarters of 2020. While
the most active of these securities had transactions reported based on new COVID-19 occupancy and financial information, one of the Level III investments only had earlier reported transactions. Therefore, to determine the fair values of these
non-traded securities as of September 30, 2020, management reviewed and evaluated multiple data sources 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 uncertainty 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, 2020:
Asset Type
|
Fair Value
|
Primary Valuation Techniques
|
Unobservable Inputs Used
|
Range
|
Wt. Average
|
||||||||||
|
|
|
|||||||||||||
Non Traded Companies
|
$
|
541,858
|
Direct Capitalization Method
|
Capitalization rate
|
6.5% - 7.6%
|
|
7.5%
|
||||||||
|
|
Liquidity discount
|
32.0% - 35.0%
|
|
32.1%
|
||||||||||
Non Traded Companies
|
65,856
|
Estimated Liquidation Value
|
Sponsor provided value
|
||||||||||||
|
|
Liquidity discount
|
12.0% - 78.0%
|
|
45.1%
|
||||||||||
Non Traded Companies
|
32,200,362
|
Market Activity
|
Secondary market industry publication
|
||||||||||||
|
|
Liquidity discount *
|
7.5% - 12.5%
|
|
7.6%
|
||||||||||
|
|
|
|||||||||||||
LP Interests
|
24,974,379
|
Direct Capitalization Method
|
Capitalization rate
|
3.4% - 6.8%
|
|
5.2%
|
|||||||||
|
|
Liquidity discount
|
5.0% - 40.0%
|
|
15.5%
|
||||||||||
LP Interests
|
14,976,861
|
Discounted Cash Flow
|
Discount rate
|
9.0% - 20.0%
|
|
11.6%
|
|||||||||
|
|
Discount term (months)
|
6.0 - 9.0
|
7.1
|
|||||||||||
LP Interests
|
11,724,322
|
Estimated Liquidation Value
|
Sponsor provided value
|
||||||||||||
|
|
Underlying property sales contract
|
|||||||||||||
|
|
Underlying property appraisal
|
|||||||||||||
|
|
Liquidity discount
|
19.0% - 43.0%
|
|
41.5%
|
||||||||||
LP Interests
|
1,942,863
|
Market Activity
|
Underlying security sales contract
|
||||||||||||
|
|
Secondary market industry publication
|
|||||||||||||
|
|
Contributed capital
|
|||||||||||||
|
|
|
|||||||||||||
Investment Trust
|
33,990
|
Market Activity
|
Underlying security sales contract
|
||||||||||||
|
|
|
|||||||||||||
|
$
|
86,460,491
|
|
|
* In the past years, 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 second quarter of 2020. While the most active of these securities had transactions reported based on new COVID-19 occupancy and financial information, two of the Level III investments only
had earlier reported transactions. Therefore, to determine the fair values of these non-traded securities as of June 30, 2020, management reviewed and evaluated multiple data sources 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.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has adversely impacted the fair value of our investments as of September 30, and June 30, 2020, and the values assigned as of this date
may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the COVID-19 pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly
valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time
period earlier, generally two to three months, than the quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining
performance or non-compliance with debt covenants, as applicable, as a result of the COVID-19 pandemic. As a result, our valuations at September 30, and June 30, 2020 may not show the complete or continuing impact of the COVID-19 pandemic and the
resulting measures taken in response thereto. In addition, write downs in the value of our investments have reduced, and any additional write downs may further reduce, our net asset value. Accordingly, we may continue to incur additional net
unrealized losses or may incur realized losses subsequent to September 30, 2020, which could have a material adverse effect on our business, financial condition and results of operations.
Unconsolidated Significant Subsidiaries
Our investments are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our unconsolidated controlled
investments are considered “significant subsidiaries,” if any. In evaluating these investments, there are three tests utilized to determine if any of our controlled investments are considered significant subsidiaries: the investment test, the asset
test, and the income test. Rule 3-09 of Regulation S-X requires separate audited financial statements for any unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires
summarized financial information in an annual report if any of the three tests exceeds 10%.
As of September 30, and June 30, 2020, none of our investments was considered a significant subsidiary under Rule 3-09 and 4-08(g) with the exception of MacKenzie Realty Operating Partnership, LP, which was determined
to be a significant subsidiary under the asset test as the partnership’s total assets exceeded 20% of the Company’s total assets as of September 30 and June 30, 2020. Under the Rule 3-09, separate audited financial statements are required to be
included in the Company’s annual report. However, as disclosed below under Note 5, the partnership was formed in May 2020 and its fiscal year does not end until December 31, 2020. Therefore, separate audited financial statements of this partnership
for its year ended December 31, 2020 will be included in the Company’s annual report for the fiscal year ended June 30, 2021. The summarized financial information of the partnership as of September 30, 2020 is as follows:
Total Assets
|
$
|
45,360,529
|
||
Total Liabilities
|
$
|
25,763,939
|
||
Total Equity
|
$
|
19,596,590
|
NOTE 4—MARGIN LOANS
The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow on certain securities held in the account and
to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin
balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of September 30, 2020, the Company had $2,519,992 of margin credit available for cash withdrawal or the ability to
purchase up to $19,287,335 in additional shares. As of June 30, 2020, the Company had $2,655,155 of margin credit available for cash withdrawal or the ability to purchase up to $18,770,519 in additional publicly traded securities. As of September 30,
2020 and June 30, 2020, 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 months ended September 30, 2020 and 2019, were $4,852 and $195,611, respectively.
The base management fees for the three ended September 30, 2020 and 2019 were $657,886 and $609,995, 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
|
|||||||||
|
||||||||||||||||
Quarter ended:
|
||||||||||||||||
September 30, 2020
|
$
|
20,000,000
|
$
|
80,000,000
|
$
|
28,769,486
|
$
|
128,769,486
|
||||||||
|
||||||||||||||||
Quarter ended:
|
||||||||||||||||
September 30, 2019
|
$
|
20,000,000
|
$
|
80,000,000
|
$
|
15,998,789
|
$
|
115,998,789
|
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 neither Income Fee nor Capital Gains Fee accrual for the three months ended September 30, 2020 and 2019.
Organization and Offering Costs Reimbursement:
As provided in the Amended and Restated Investment Advisory Agreement and the prospectus of the Company, offering costs incurred and paid by the Company in excess of $1,650,000
on the 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. Total offering costs incurred on the third public offering as of September 30, and June 30, 2020, were $585,583 and $560,194, respectively, both of which were also below the reimbursement threshold. Therefore, there
were no amounts reimbursable from the Adviser as of September 30, 2020 and June 30, 2020.
Of the cumulative offering costs incurred on the third public offering by the Company as of September 30 and June 30, 2020, MacKenzie had paid on behalf of the Company a total of $318,933 and
$300,212, respectively. Of the amounts paid by MacKenzie, as of September 30 and June 30, 2020, the Company had not reimbursed MacKenzie in the amounts of $18,721and $52,492. Therefore, those amounts were recorded as payable to MacKenzie and
included as a part of due to related entities in the statements of assets and liabilities as of September 30, and June 30, 2020.
During the three months ended September 30, 2020 and 2019, total offering costs paid by MacKenzie on behalf of the Company were $25,388 and $143,230, 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 months ended September 30, 2020 and 2019, were $155,200 and $170,000, respectively. Transfer agent services cost reimbursement for the three months
ended September 30, 2020 and 2019 was $30,800 and $20,000, respectively.
The table below outlines the related party expenses incurred for the three months ended September 30, 2020, and 2019 and unpaid as of September 30, 2020, and June 30, 2020.
Three Months Ended
|
Unpaid as of
|
|||||||||||||||
Types and Recipient
|
September 30, 2020
|
September 30, 2019
|
September 30, 2020
|
June 30, 2020
|
||||||||||||
Base Management fees- the Adviser
|
$
|
657,886
|
609,995
|
$
|
657,886
|
$
|
657,280
|
|||||||||
Portfolio Structuring fee- the Adviser
|
4,852
|
195,611
|
-
|
-
|
||||||||||||
Administrative Cost Reimbursements- MacKenzie
|
155,200
|
170,000
|
-
|
-
|
||||||||||||
Transfer agent cost reimbursements - MacKenzie
|
30,800
|
20,000
|
-
|
-
|
||||||||||||
Organization & Offering Cost (2) - MacKenzie
|
25,388
|
143,230
|
18,721
|
52,492
|
||||||||||||
Other expenses (1)- MacKenzie
|
427
|
8,492
|
||||||||||||||
Due to related entities
|
$
|
677,034
|
$
|
718,264
|
(1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie.
(2) Offering costs paid by MacKenzie- discussed in Note 5 under organization and offering costs reimbursements. These are amortized over twelve-month period as discussed in Note 2.
Controlled or Affiliated Investments:
Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and
generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of September 30, 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.
September 30, 2020
|
||||||||||||||||||||||||||||||||
Name of issuer and title of issue
|
Fair Value at
June 30, 2020 |
Gross Additions
|
Transfers
|
Gross Reductions (1)
|
Net Realized Gains (losses)
|
Net Change in Unrealized Gains/(Losses)
|
Fair Value at
September 30, 2020 |
Interest/Dividend/Other income
Three Months Ended September 30, 2020 |
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Affiliated Investments:
|
||||||||||||||||||||||||||||||||
5210 Fountaingate, LP
|
$
|
425,796
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(1,252
|
)
|
$
|
424,544
|
$
|
-
|
|||||||||||||||
BP3 Affiliate, LLC
|
1,668,000
|
-
|
-
|
-
|
-
|
-
|
1,668,000
|
-
|
||||||||||||||||||||||||
BR Everwood Investment Co, LLC
|
3,750,000
|
-
|
-
|
(3,750,000
|
)
|
-
|
-
|
-
|
5,200
|
|||||||||||||||||||||||
BR Sunrise Parc Investment Co, LLC
|
2,720,911
|
3,935,757
|
-
|
-
|
-
|
-
|
6,656,668
|
104,698
|
||||||||||||||||||||||||
FSP Energy Tower I Corp. Liquidating Trust
|
9,810
|
-
|
-
|
-
|
-
|
167
|
9,977
|
-
|
||||||||||||||||||||||||
FSP Satellite Place
|
532,579
|
-
|
-
|
-
|
-
|
11,438
|
544,017
|
-
|
||||||||||||||||||||||||
Lakemont Partners, LLC
|
857,160
|
-
|
-
|
-
|
-
|
(26,040
|
)
|
831,120
|
6,315
|
|||||||||||||||||||||||
MPF Pacific Gateway - Class B
|
7,164
|
-
|
-
|
(231
|
)
|
(6,057
|
)
|
(876
|
)
|
-
|
-
|
|||||||||||||||||||||
Secured Income, LP
|
261,914
|
-
|
-
|
-
|
-
|
-
|
261,914
|
-
|
||||||||||||||||||||||||
Summit Healthcare REIT, Inc.
|
1,874,550
|
-
|
-
|
-
|
-
|
(112,755
|
)
|
1,761,795
|
-
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
$
|
12,107,884
|
$
|
3,935,757
|
$
|
-
|
$
|
(3,750,231
|
)
|
$
|
(6,057
|
)
|
$
|
(129,318
|
)
|
$
|
12,158,035
|
$
|
116,213
|
|||||||||||||
Controlled Investments:
|
||||||||||||||||||||||||||||||||
Bishop Berkeley, LLC
|
$
|
3,854,223
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
21,465
|
$
|
3,875,688
|
$
|
23,011
|
||||||||||||||||
Britannia Preferred Members, LLC -Class 1
|
3,505,950
|
-
|
-
|
-
|
-
|
129,850
|
3,635,800
|
-
|
||||||||||||||||||||||||
Britannia Preferred Members, LLC -Class 2
|
7,089,599
|
-
|
-
|
-
|
-
|
(51,486
|
)
|
7,038,113
|
-
|
|||||||||||||||||||||||
Capitol Hill Partners, LLC
|
1,468,700
|
-
|
-
|
-
|
-
|
17,100
|
1,485,800
|
-
|
||||||||||||||||||||||||
Citrus Park Hotel Holdings, LLC
|
5,000,000
|
-
|
-
|
-
|
-
|
-
|
5,000,000
|
115,000
|
||||||||||||||||||||||||
Coastal Realty Business Trust, REEP, Inc. - A
|
33,990
|
-
|
-
|
-
|
-
|
-
|
33,990
|
-
|
||||||||||||||||||||||||
Dimensions28 LLP
|
10,949,688
|
-
|
-
|
-
|
-
|
424,116
|
11,373,804
|
198,000
|
||||||||||||||||||||||||
MacKenzie Realty Operating Partnership, LP
|
11,613,141
|
-
|
-
|
-
|
-
|
101,615
|
11,714,756
|
-
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
$
|
43,515,291
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
642,660
|
$
|
44,157,951
|
$
|
336,011
|
June 30, 2020
|
||||||||||||||||||||||||||||||||
Name of issuer and title of issue
|
Fair Value at
June 30, 2019 |
Gross Additions
|
Transfers
|
Gross Reductions (1)
|
Net Realized Gains (losses)
|
Net Change in Unrealized Gains/(Losses)
|
Fair Value at
June 30, 2020 |
Interest/Dividend/Other income
Year Ended June 30, 2020 |
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Affiliated Investments:
|
||||||||||||||||||||||||||||||||
5210 Fountaingate, LP
|
$
|
552,693
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
(126,897
|
)
|
$
|
425,796
|
$
|
-
|
|||||||||||||||
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
|
479,871
|
||||||||||||||||||||||||
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
|
253,410
|
||||||||||||||||||||||||
BR Westerly Investment Co, LLC
|
-
|
4,120,667
|
-
|
(4,120,667
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
FSP Energy Tower I Corp. Liquidating Trust
|
57,566
|
-
|
-
|
(49,637
|
)
|
-
|
1,881
|
9,810
|
37,438
|
|||||||||||||||||||||||
FSP Satellite Place
|
712,585
|
41,693
|
-
|
-
|
-
|
(221,699
|
)
|
532,579
|
-
|
|||||||||||||||||||||||
Lakemont Partners, LLC
|
1,007,700
|
-
|
-
|
(58,820
|
)
|
-
|
(91,720
|
)
|
857,160
|
26,135
|
||||||||||||||||||||||
MPF Pacific Gateway - Class B
|
7,316
|
-
|
-
|
-
|
-
|
(152
|
)
|
7,164
|
-
|
|||||||||||||||||||||||
Secured Income, LP
|
302,009
|
-
|
-
|
-
|
-
|
(40,095
|
)
|
261,914
|
-
|
|||||||||||||||||||||||
Summit Healthcare REIT, Inc.
|
2,587,408
|
4,488
|
-
|
-
|
-
|
(717,346
|
)
|
1,874,550
|
-
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
$
|
15,916,187
|
$
|
10,955,759
|
$
|
-
|
$
|
(13,812,455
|
)
|
$
|
583,331
|
$
|
(1,534,938
|
)
|
$
|
12,107,884
|
$
|
1,011,245
|
||||||||||||||
Controlled Investments:
|
||||||||||||||||||||||||||||||||
Addison NC, LLC
|
3,600,000
|
$
|
-
|
$
|
(2,000,000
|
)
|
$
|
-
|
$
|
-
|
$
|
(1,600,000
|
)
|
$
|
-
|
$
|
-
|
|||||||||||||||
Addison Property Member, LLC
|
7,314,855
|
-
|
(7,316,326
|
)
|
-
|
-
|
1,471
|
-
|
1,176,187
|
|||||||||||||||||||||||
Bishop Berkeley, LLC
|
4,051,013
|
-
|
-
|
-
|
-
|
(196,790
|
)
|
3,854,223
|
69,034
|
|||||||||||||||||||||||
Britannia Preferred Members, LLC -Class 1
|
2,986,550
|
-
|
-
|
-
|
-
|
519,400
|
3,505,950
|
-
|
||||||||||||||||||||||||
Britannia Preferred Members, LLC -Class 2
|
7,758,915
|
-
|
-
|
-
|
-
|
(669,316
|
)
|
7,089,599
|
-
|
|||||||||||||||||||||||
Capitol Hill Partners, LLC
|
1,852,500
|
-
|
-
|
-
|
-
|
(383,800
|
)
|
1,468,700
|
-
|
|||||||||||||||||||||||
Citrus Park Hotel Holdings, LLC
|
-
|
5,000,000
|
-
|
-
|
-
|
-
|
5,000,000
|
287,500
|
||||||||||||||||||||||||
Coastal Realty Business Trust, REEP, Inc. - A
|
39,053
|
-
|
-
|
-
|
-
|
(5,063
|
)
|
33,990
|
-
|
|||||||||||||||||||||||
Dimensions28 LLP
|
10,886,076
|
-
|
-
|
-
|
-
|
63,612
|
10,949,688
|
485,321
|
||||||||||||||||||||||||
MacKenzie Realty Operating Partnership, LP
|
-
|
2,829,579
|
9,316,326
|
-
|
-
|
(532,764
|
)
|
11,613,141
|
-
|
|||||||||||||||||||||||
Sunlit Holdings, LLC
|
-
|
5,000,000
|
-
|
(5,000,000
|
)
|
-
|
-
|
-
|
334,111
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
|
$
|
38,488,962
|
$
|
12,829,579
|
$
|
-
|
$
|
(5,000,000
|
)
|
$
|
-
|
$
|
(2,803,250
|
)
|
$
|
43,515,291
|
$
|
2,352,153
|
(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 September 30, 2020, and June 30, 2020:
• |
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.
|
MacKenzie Realty Operating Partnership, LP (the “OP”):
On May 20, 2020, the Company formed an operating partnership, MacKenzie Realty Operating Partnership, LP (the “OP”). Prior to the formation of the OP, the Company had preferred equity interests in
Addison NC, LLC (“Addison NC”) and Addison Property Member, LLC (“Addison Member”). Both companies had ownership interests in Addison Property Owner, LLC (“Property Owner”), which owned an office and industrial development real estate property called
Addison Corporate Center. On June 8, 2020, the Company and the OP entered into and closed on a Contribution Agreement with Addison Member, Addison NC, the managing members and other affiliates of these two entities (collectively referred to as the
“Addison Group”) whereby the Addison Group and the Company agreed to contribute all of their interests in Property Owner to the OP in exchange for partnership Units in the OP (“OP Units”). At closing, the OP issued 516,144 of Class A OP units to the
Addison Group.
At closing, the Company also contributed $1,555,861 in cash to the OP, of which $1,311,458 was directly paid to the lender to pay down principal, fees, and reserve deposits in order to secure an extension of Property
Owner’s $24.4 million existing mortgage debt (the “Loan”) for up to 2 years, and pursuant to which the lender agreed to the assignment of the membership interests in Property Owner to the OP and to have the Company be the replacement guarantor of the
recourse obligations under the Loan. The Loan is secured by the properties owned by Property Owner. In exchange for the cash contributed to the OP and the contribution of the Company’s previously owned indirect equity interest in the Property Owner
to the OP, the Company received 1,451,642.63 Class B units in the OP. As a result of these transactions, the Company became the general partner and the majority owner of the OP, which is now the sole owner of the Addison Corporate Center.
At closing, the parties also entered into the Agreement of Limited Partnership of the OP that provides for redemption rights for the contributors (and its permitted transferees) to redeem the Class A OP Units for cash
or shares of the Company, at the Company’s election. The OP Units will also receive distributions at the same rate paid to holders of the Company’s common stock.
During the three months ended September 30, 2020, the Company provided short term advances to the OP in the amount of $154,865, which were recorded as due from related entities in the consolidated statements of assets
and liabilities.
MPF Pacific Gateway:
MPF Pacific Gateway, which is managed by MacKenzie, is a holding company that owns an investment in a REIT Liquidating Trust. During the three months ended September 30, 2020, the company made the final liquidating
distributions of $230 and dissolved. The Company’s remaining cost basis in the company as of the liquidation date was $6,287.
NOTE 6 – DEBT GUARANTY
On June 8, 2020, as part of the Contribution Agreement discussed above under Note 5, the Company replaced as the loan guarantor and the maturity date of the Loan was extended to April 30, 2021, with an option to
further extend the maturity date to April 30, 2022. Under the Loan Modification Agreement and Replacement Guaranty, the Company guaranteed only the “Recourse Obligations” under the Loan, typically referred to as “Bad Boy Acts” (such as fraud,
intentional misrepresentation, willful misconduct, waste, conversion, intentional failure to pay taxes or maintain insurance, filing for bankruptcy, etc.). As of September 30, 2020, the Company has not recorded any debt guaranty obligation since the
borrower, Property Owner, was current on the Loan payments and has sufficient cash flow to meet its monthly payments and there have been no inappropriate actions that would give rise to a guaranty obligation. In addition, the appraised value of the
collateral was higher than the loan balance of $24.4 million as of September 30, 2020.
NOTE 7 – FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights of the Company for the three months ended September 30, 2020, and the year ended June 30, 2020.
|
For
The Three Months Ended
|
For The Year Ended
|
||||||
|
September 30, 2020
|
June 30, 2020
|
||||||
Per Share Data:
|
(Unaudited)
|
|||||||
|
||||||||
Beginning net asset value ("NAV")
|
$
|
8.04
|
$
|
9.44
|
||||
|
||||||||
Net investment income (loss) (1)
|
(0.02
|
)
|
0.28
|
|||||
Net realized gain (1)
|
0.08
|
0.15
|
||||||
Net unrealized loss (1)
|
(0.25
|
)
|
(1.39
|
)
|
||||
Net increase in net assets resulting from operations
|
(0.19
|
)
|
(0.96
|
)
|
||||
|
||||||||
Redemption of common stock below NAV (1) (6)
|
-
|
0.01
|
||||||
Dividends to stockholders (1) (5)
|
-
|
(0.45
|
)
|
|||||
Ending NAV
|
$
|
7.85
|
$
|
8.04
|
||||
|
||||||||
Weighted average common Shares outstanding
|
12,849,527
|
12,198,040
|
||||||
Shares outstanding at the end of period
|
12,852,387
|
12,836,608
|
||||||
Net assets at the end of period
|
$
|
100,924,075
|
$
|
103,225,721
|
||||
Average net assets (2)
|
$
|
102,074,898
|
$
|
103,170,551
|
||||
|
||||||||
Ratios to average net assets
|
||||||||
Total expenses (7)
|
1.13
|
%
|
5.10
|
%
|
||||
Net investment loss (7)
|
(0.28
|
)%
|
3.36
|
%
|
||||
Total rate of return (2) (3) (7)
|
(2.40
|
)%
|
(11.37
|
)%
|
(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 8 – SHARE OFFERINGS AND FEES
During the three months ended September 30, 2020, the Company issued 15,778.89 shares with gross proceeds of $160,739. For the three months ended September 30, 2020, the Company
incurred selling commissions and fees of $15,172.
During the three months ended September 30, 2019, the Company issued 653,014 shares with gross proceeds of $6,465,979 and 90,659 shares pursuant to the DRIP at $9 per share with
gross proceeds of $815,931. For the three months ended September 30, 2019, the Company incurred selling commissions and fees of $588,024.
NOTE 9 – SHARE REPURCHASE PLAN
On May 11, 2020, after assessing the impacts of the Covid-19 pandemic, the Company’s board of directors unanimously approved the suspension of the Company’s Share Repurchase Program, effective
immediately. As a result, the Company did not repurchase any shares during the three months ended September 30, 2020.
During the three months ended September 30, 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, 2020:
|
||||||||||||
August 13, 2019 through September 16, 2019
|
70,114.03
|
$
|
9.00
|
$
|
631,026
|
|||||||
|
70,114.04
|
$
|
631,026
|
NOTE 10 –STOCKHOLDER DIVIDENDS AND INCOME TAXES
On March 31, 2020, after assessing the impacts of the Covid-19 pandemic, the Company’s board of directors unanimously approved the suspension of regular quarterly dividends to the Company’s
stockholders, effective immediately. As a result, the Company did not pay or accrue any dividend for the quarter ended September 30, 2020.
The following table reflects the dividends the Company declared on its common stock during the three months ended September 30, 2019:
|
Dividends
|
|||||||
During the Quarter Ended
|
Per Share
|
Amount
|
||||||
September 30, 2019
|
$
|
0.175
|
$
|
1,983,801
|
||||
|
$
|
0.175
|
$
|
1,983,801
|
Of the total $1,983,801 of dividends declared during the three months ended September 30, 2019, $813,102 was the DRIP portion of the dividend that was declared but not accrued as of
September 30, 2019. The amount was included with the dividends declared during the three months ended December 31, 2019.
During the three months ended September 30, 2019, the Company paid dividends of $1,877,101, of which $815,931 were reinvested in the DRIP. Total cash dividends paid during the three
months ended June 30, 2019 was $1,061,070.
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 year ended December 31, 2019, (the most recent tax year end completed and filed) were as follows:
|
December 31, 2019
|
||
Capital gain
|
$
|
2,415,285
|
|
Ordinary income
|
3,085,298
|
||
Return of capital
|
24,521
|
||
Total dividends
|
$
|
5,525,104
|
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 2020 will not be made until we
file our tax return for the tax year ended December 31, 2020.
The components of undistributed earnings on a tax basis as of December 31, 2019 (the most recent tax year end completed and filed) were as follows:
|
December 31, 2019
|
||
Undistributed long term capital gain
|
$
|
-
|
|
Unrealized fair value appreciation
|
4,813,649
|
||
|
$
|
4,813,649
|
The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of:
|
September 30, 2020
|
June 30, 2020
|
||||||
Aggregate gross unrealized appreciation
|
$
|
3,919,583
|
$
|
4,054,329
|
||||
Aggregate gross unrealized depreciation
|
(15,231,042)
|
|
(12,067,004)
|
|
||||
Net unrealized appreciation (depreciation)
|
$
|
(11,311,459)
|
|
$
|
(8,012,675)
|
|
||
|
||||||||
Aggregate cost (tax basis)
|
$
|
100,781,020
|
$
|
101,717,821
|
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 effect of the withdraw of our BDC election, 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.
Authorization to Withdraw BDC Election
On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s Board of Directors to withdraw the Company’s
election to be regulated as a business development company under the Investment Company Act of 1940, effective when the Company files the appropriate form with the SEC. The Company expects to submit the withdrawal to be effective with the SEC by the
end of December 2020.
Withdrawal of our election to be regulated as a BDC will not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will
continue to file periodic reports on Form 10-K, Form 10-Q, and Form 8-K, and file proxy statements and other reports required under the Exchange Act. Following withdrawal of our election to be regulated as a BDC, the application and presentation of
our financial statements under accounting principles generally accepted in the United States of America (“GAAP”) could change.
The Company has undertaken several steps to meet the requirements for withdrawal of its election to be regulated as a BDC, including (i) preparing a plan of operations in contemplation of such a change to the status of
the Company, (ii) evaluating potential investments in real estate assets that will allow the Company to transition to direct real estate asset investments, (iii) reviewing the potential adjusted investment strategy with potential capital providers,
and (iv) consulting with outside counsel as to the requirements for withdrawing its election as a BDC.
During this transition period, the Company may liquidate some of its securities portfolio. By the end of the first year after withdrawal of its election, the Company anticipates that its securities portfolio will
comprise less than 20% of its assets.
Investment Plan
While we remain a BDC, 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.
While we remain a BDC, 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.
While we remain a BDC, 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 September 30, 2020, and June 30, 2020:
|
September 30, 2020
|
June 30, 2020
|
||||||||||||||
Asset Type
|
Cost
|
Fair Value
|
Cost
|
Fair Value
|
||||||||||||
Publicly Traded Companies
|
$
|
9,202,806
|
$
|
6,028,120
|
$
|
8,454,348
|
$
|
7,244,654
|
||||||||
Non Traded Companies
|
40,487,164
|
28,988,430
|
42,474,614
|
32,808,076
|
||||||||||||
LP Interests
|
53,893,255
|
54,419,019
|
53,713,785
|
53,618,425
|
||||||||||||
Investment Trust
|
49,901
|
33,990
|
49,901
|
33,990
|
||||||||||||
Total
|
$
|
103,633,126
|
$
|
89,469,559
|
$
|
104,692,648
|
$
|
93,705,145
|
Net Asset Value
September 30, 2020 vs. June 30, 2020:
Our NAV as of September 30, 2020, was $7.85 per share compared to $8.04 per share as of June 30, 2020, a $0.19 per share decrease of approximately 2.31%. The net decrease during the
three months was due to (i) net unrealized loss on investments of $0.25 per share, and (ii) net investment loss of $0.02 per share. The decreases were partly offset by an increase resulting from net realized gain from sale of investments of $0.08 per
share.
Results of Operations
COVID-19 pandemic
Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level.
However, 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 significant negative economic impacts, including steep
declines in certain stock market segments and in the traded prices for certain real-estate related assets. As a result of these impacts, we have experienced a large decrease in fair values of some of our investments as of September 30, 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. The long-term impact of the COVID-19 pandemic on the United States and world economies remains
uncertain, but may result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted.
MacKenzie and our Adviser have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. They implemented business continuity plans and the management team is
in place to respond to changes in the global environment quickly and effectively. To protect the health and safety of their team members, they successfully transitioned almost their entire workforce to remote work environments. They are working
closely with our clients to support them as necessary and as seamlessly as possible.
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. In anticipation of reduced revenues and uncertain future economic conditions, the board of directors discontinued dividends starting March 2020 and share redemptions
starting May 2020.
Three Months Ended September 30, 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 September 30, 2020, and 2019, was $0.86 million and $1.94 million, respectively. The decrease of $1.08 million or 55.7%, was primarily due to suspensions of dividends and distributions from our investments as a
result of the COVID-19 pandemic. During the three months ended September 30, 2020, the Company received $0.51 million of distributions from operations, sales and liquidations as compared to $1.20 million during the three months ended September 30,
2019. During the three months ended September 30, 2020, we received dividends and other investment income of $0.35 million as compared to $0.74 million during the three months ended September 30, 2019.
Operating Expenses:
Base management fee:
The base management fee for the three months ended September 30, 2020 was $0.66 million as compared to $0.61 million for the three months ended September 30, 2019. This increase of
$0.05 million, or 8.2% was due to an increase in the Gross Invested Capital by $12.77 million from $116.00 million as of September 30, 2019, to $128.77 million as of September 30, 2020.
Portfolio structuring fee:
The portfolio structuring fee for the three months ended September 30, 2020, was less than 0.01 million as compared to $0.20 million during the three months ended September 30,
2019. This decrease was because the Company raised lower amount of new capital during the three months ended September 30, 2020. During the three months ended September 30, 2020, the Company raised new capital of $0.16 million as compared to $6.47
million during the three months ended September 30, 2019 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 September 30, 2020 and 2019. This was because the cumulative net investment income and net realized
gains were below the threshold of 7% of Contributed Capital.
Administrative cost reimbursements and Transfer agent reimbursements:
Costs reimbursed to MacKenzie for the three months ended September 30, 2020, was $0.16 million as compared to $0.17 million for the three months ended September 30, 2019. The slight decrease was due
to a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to September 30, 2019, as a result of the decrease in the Company’s capital raising activities.
Transfer agent cost reimbursement paid to MacKenzie for three months ended September 30, 2020 was $0.03 million as compared to $0.02 for the three months ended September 30, 2019. The slight increase
was due to additional software maintenance and implementation costs incurred by MacKenzie.
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 September 30, 2020 and 2019, were $0.30 million and $0.39 million. The decrease of $0.09 million was mainly due a larger amount of amortization of deferred offering costs for the three months ended
September 30, 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 September 30, 2020, the Company had a net realized gain of $1.02 million as compared to net realized loss of $0.11 million during the three months
ended September 30, 2019. Total realized gains for the three months ended September 30, 2020, were realized from sales of eleven publicly traded securities, one limited partnership interest and three non-traded REIT securities. Total realized gains
for the three months ended September 30, 2019, were primarily realized from sales of two non-traded REIT securities.
Net unrealized gain/loss on investments:
During the three months ended September 30, 2020, we recorded net unrealized losses of $3.18 million, which were net of $0.81 million of unrealized gains reclassification
adjustment. The reclassification adjustment was the accumulated unrealized gains as of June 30, 2020, that were realized during the three months ended September 30, 2020. Accordingly, the net unrealized losses excluding the reclassification
adjustment for the three months ended September 30, 2020, were $2.37 million, which resulted from fair value depreciations of $1.88 million from non-traded REIT securities and $1.11 million from publicly traded REIT securities partly offset by a fair
value appreciation of $0.62 million from limited partnership interests. The significant decline in the fair value during the current quarter was mainly due to the COVID-19 pandemic resulting in declines in domestic stock markets and in the traded
prices for other financial assets as discussed above.
During the three months ended September 30, 2019, we recorded net unrealized gains of $1.06 million; however, this is net of $0.05 million of unrealized losses reclassification
adjustment. The reclassification adjustment was the accumulated unrealized losses as of June 30, 2019, that were realized during the three months ended September 30, 2019. Accordingly, the net unrealized gains excluding the reclassification
adjustment for the three months ended September 30, 2019, were $1.01 million, which resulted from fair value appreciation of $1.86 million from limited partnership interests and $0.5 million from publicly traded REIT securities offset by fair value
depreciation of $1.35 million from non-traded REIT securities.
Income tax provision (benefit):
The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2019. Therefore, it did not incur any tax expense or
excise tax on its income from operations during the quarterly periods within the tax year 2019. Similarly, for the tax year 2020, we believe the Parent Company will pay the requisite amounts of dividends during the year such that it will not owe any
income taxes. Therefore, the Parent Company did not record any income tax provisions during 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 September 30, 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.
Liquidity and Capital Resources
Capital Resources
We offered to sell up to $150 million of shares 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 September 30, 2020, the Company has raised total gross proceeds of $119.04 million from the issuance of shares under three public offerings, $42.46 million from the IPO, which concluded in October 2016, $67.99 million from the second public
offering, which concluded in October 2019, and $8.59 million from our third public offering. In addition, we have raised $11.16 million from the issuance of shares under the DRIP. Of the total capital raised from the public offerings as of September
30, 2020, we have used $9.46 million to repurchase shares under the Company’s share repurchase program. We are planning to issue preferred equity in the near future, but do not currently have any. 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. While we remain as a BDC, we do not have any plans to borrow money on a long-term basis or issue debt
securities at the Company level; however, after our BDC status is withdrawn, we may borrow money within the underlying companies in which we have majority ownership. In addition, 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 September 30, 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. The third public offering ended on October 31, 2020.
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 (from investment income and realized capital gains), making payments to any lenders
or senior security holders, paying operating expenses. If all shares registered in our current public offering are sold, we will receive investable cash totaling approximately $133.76 million, of which approximately $7.52 million has been received
as of September 30, 2020.
The Company finished the quarter ended September 30, 2020 with substantial liquidity, including $10.86 million in cash and cash equivalents, and only $0.74 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. Therefore,
in anticipation of uncertain future economic conditions, our board of directors discontinued dividends starting March 2020 and share redemptions starting May 2020. 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:
Three months ended September 30, 2020:
For the three months ended September 30, 2020, we experienced a net increase in cash of $1.91 million. During this period, we generated cash of $1.83 million from our operating
activities and $0.08 million from our financing activities.
The net cash inflow of $1.83 million from operating activities resulted from $4.28 million from distributions received from our investments that are considered return of capital and
$5.26 million from sales and liquidations of investments offset by $7.41 million of cash used in purchasing investments and $0.30 million used in operating expenses, net of investment income.
The net cash inflow of $0.08 million from financing activities resulted from the sale of shares under our third public offering with gross proceeds of $0.09 million (net of $0.08
million of decrease in capital pending acceptance) offset by cash outflows of $0.01 million from payments of selling commissions and fees.
Three months ended September 30, 2019:
For the three months ended September 30, 2019, we experienced a net increase in cash of $8.37 million. During this period, we generated cash of $3.40 million from our operating
activities and $4.97 from our financing activities.
The net cash inflow of $3.40 million from operating activities resulted from $8.34 million of distributions received from investments that are considered return of capital, $1.95
million from sales of investments and $0.33 million from investment income, net of operating expenses, offset by cash outflow of $8.34 million from purchases of investments.
The net cash inflow of $4.97 million from financing activities resulted from the sale of shares under our second public offering with gross proceeds of $7.35 million (adjusted for
$0.88 million of increase in capital pending acceptance) offset by cash outflows of $1.06 million from payments of cash dividends, $0.63 million from share redemptions, and $0.69 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, 2020, included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2020.
Dividends to Stockholders
We pay quarterly dividends to stockholders to the extent that we have income from operations available. Our quarterly dividends, if any, will be determined by our Board of Directors after a review and
distributed pro-rata to holders of our shares; we declare dividends on a monthly basis, but pay each quarter. 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 make dividends if the amount of such dividend would exceed our annual accrued and received revenues, less operating costs. Dividends in kind are not permitted, except as provided in our Charter.
We have elected to be treated as a REIT under the Code. 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.
On March 31, 2020, after assessing the impacts of the Covid-19 pandemic, the Company’s board of directors unanimously approved the suspension of regular quarterly dividends to the Company’s
stockholders, effective immediately. As a result, the Company did not pay or accrue any dividend for the quarter ended September 30, 2020. However, if there is any REIT taxable income to be distributed for tax year ended December 31, 2020, we intend
to meet the REIT distribution requirements by making the requisite distributions by end of December 31, 2020 or through catch-up distributions in tax year 2021 as permitted by the REIT tax rules.
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 September 30, 2020, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented 88% 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 September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
There have been no material changes to our risk factors discussed in "Risk Factors" in our annual report on Form 10-K for the fiscal year ended June 30, 2020.
None.
Issuer Purchases of Equity Securities
None
None.
Not applicable.
None.
Exhibit
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Description
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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.
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Date: November 13, 2020
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By: /s/ Robert Dixon
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President and Chief Executive Officer
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Date: November 13, 2020
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By: /s/ Paul Koslosky
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Treasurer and Chief Financial Officer
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