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

Form 10-Q

(Mark one)
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission file number 000-55006

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

Maryland
45-4355424
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
89 Davis Road, Suite 100, Orinda, CA 94563
(Address of principal executive offices)
 
(925) 631-9100
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of class
Trading symbol (s)
Name of exchange on which registered
Common Stock, $0.0001 par value per share
MKZR
Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes ☑ No ☐

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

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☑
Smaller reporting company ☑
Emerging growth company ☐
      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No  ☑
 
The number of the shares of issuer’s Common Stock outstanding as of November 14, 2024 was 13,435,762.80.
 
TABLE OF CONTENTS

 
 
Page
PART I.
FINANCIAL INFORMATION
  
     
Item 1.
Consolidated Financial Statements
  
 
 
 
 
1
 
2
 
3
 
4
 
5
     
Item 2.
33
   
 
Item 3.
48
   
 
Item 4.
48
   
 
PART II.
OTHER INFORMATION
 
   
 
Item 1.
49
   
 
Item 1A.
49
   
 
Item 2.
49
   
 
Item 3.
49
   
 
Item 4.
49
 
 
 
Item 5.
49
   
 
Item 6.
50


Part I. FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements

MacKenzie Realty Capital, Inc.
Consolidated Balance Sheets
(Unaudited)

    September 30, 2024     June 30, 2024  
Assets
            
Real estate assets
            
Land
  
$
35,690,148
     $ 34,053,565  
Building, fixtures and improvements
    
170,102,235
       157,251,012  
Intangible lease assets
    
12,174,178
       10,976,549  
Less: accumulated depreciation and amortization
    
(14,922,760
)
     (12,684,205 )
Total real estate assets, net
    
203,043,801
       189,596,921  
Cash and cash equivalents
    
10,693,380
       11,777,930  
Restricted cash
    
778,923
       778,330  
Investments, at fair value
     1,763,318       2,138,104  
Unconsolidated investment (non-security), at fair value
     1,784,470       3,906,326  
Investments income, rents and other receivables    
1,601,868
       1,239,666  
Deferred offering costs, net
     465,500       -  
Prepaid expenses and other assets
     1,181,326
       1,254,722  
Assets held for sale, net
     22,221,715       22,395,769  
Total assets
  
$
243,534,301
     $ 233,087,768  
                 
Liabilities
                
Mortgage notes payable, net
  
$
127,281,972
     $ 113,687,699  
Notes payable
     1,780,913       1,635,773  
Deferred rent and other liabilities
     1,362,654
       1,193,209  
Finance lease liabilities
     2,431,963       1,887,984  
Dividend payable    
2,378,697
       2,313,822  
Accounts payable and accrued liabilities    
4,255,449
       2,311,554  
Below-market lease liabilities, net
    
1,354,541
       1,284,832  
Due to related entities    
114,561
       171,260  
Capital pending acceptance
     96,700       297,000  
Liabilities held for sale
     442,702       355,543  
Total liabilities
    
141,500,152
       125,138,676  
                 
Equity
                
Common stock, $0.0001 par value, 80,000,000 shares authorized; 13,435,656.79 and 13,302,572.99 shares issued and outstanding as of September 30, 2024 and June 30, 2024, respectively.
    
1,344
       1,330  
Preferred stock, $0.0001 par value, 20,000,000 shares authorized:
                
Series A Preferred stock, 765,429.60 and 761,370.46 shares issued and outstanding as of  September 30, 2024 and June 30, 2024, respectively.
     77       76  
Series B Preferred stock, 63,909.52 and 49,564.56 shares issued and outstanding as of September 30, 2024 and June 30, 2024, respectively.
     6       5  
Capital in excess of par value
    
137,981,396
       137,072,283  
Accumulated deficit
    
(64,537,486
)
     (54,715,347 )
Total stockholders’ equity
    
73,445,337
       82,358,347  
Non-controlling interests
    
28,588,812
       25,590,745  
Total equity
    
102,034,149
       107,949,092  
                 
Total liabilities and equity
  
$
243,534,301
     $ 233,087,768  
 
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

1
MacKenzie Realty Capital, Inc.
Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
  
    2024
     2023
  
Revenue
            
Rental and reimbursements
  
$
4,952,229
     $ 3,559,981  
                 
Expenses
                
Depreciation and amortization
     2,280,756       1,559,668  
Interest expense
    
1,891,709
       1,321,951  
Property operating and maintenance
     1,877,597       1,390,004  
Asset management fees to related party (Note 8)
    
848,458
       787,077  
General and administrative
     433,717       207,276  
Professional fees
     428,016
       319,370  
Administrative cost reimbursements to related party (Note 8)
     167,464       189,183  
Directors’ fees
     57,703       25,500  
Transfer agent cost reimbursements to related party (Note 8)
    1,536       16,567  
Impairment loss
     4,406,249       -  
Total operating expenses
    
12,393,205
       5,816,596  
 
                
Operating loss
    
(7,440,976
)
     (2,256,615 )
                 
Other income (loss)
                
    Dividend and distribution income from equity securities at fair value    
23,989
       220,688  
    Net unrealized loss on equity securities at fair value    
(2,553
)
     (729,793 )
    Net loss from equity method investments at fair value    
(140,099
)
     (1,442,982 )
Net realized gain from investments
    
151,370
       -  
                 
Net loss    
(7,408,269
)
     (4,208,702 )
Net income attributable to non-controlling interests
    
(401,996
)
     (120,336 )
Net income attributable to preferred stockholders Series A and B
     (332,414 )     (268,383 )
Net loss attributable to common stockholders  
$
(8,142,679
)
   $ (4,597,421 )
                 
Net loss per share attributable to common stockholders
  
$
(0.61
)
   $ (0.35 )
                 
Weighted average common shares outstanding
    
13,345,967
       13,284,673
  
 
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

2
MacKenzie Realty Capital, Inc.
 Consolidated Statements of Changes in Equity
 (Unaudited)


   Common Stock
     Series A Preferred Stock
     Series B Preferred Stock     Additional Paid-
in Capital
     Accumulated
Deficit
    
Total
Stockholders’
Equity
    
Non-controlling
Interests
    
Total Equity
  
   
Number of
Shares
     Par
Value
     Number of
Shares
     Par
Value
     Number of
Shares
     Par
Value
                      
Three Months Ended September 30, 2024
                                           
 
                                                                  
Balance, June 30, 2024
    
13,302,572.99
    
$
1,330
       761,370.46     $ 76       49,564.56     $ 5    
$
137,072,283
    
$
(54,715,347
)
  
$
82,358,347
     $ 25,590,745     $ 107,949,092  
Contributions by non-controlling interest holders
     -       -       -       -       -       -       -       -       -       360,000       360,000  
Distributions to non-controlling interest holders
    
-
      
-
       -       -       -       -      
-
      
-
      
-
       (432,416 )     (432,416 )
Dividends to common stockholders
    
-
      
-
       -       -       -       -      
-
      
(1,679,460
)
    
(1,679,460
)
     -       (1,679,460 )
Dividends to Series A preferred stockholders
     -       -       -       -       -       -       -       (287,036 )     (287,036 )     -       (287,036 )
Dividends to Series B preferred stockholders
     -       -       -       -       -       -       -       (45,378 )     (45,378 )     -       (45,378 )
Net income (loss)    
-
      
-
       -       -       -       -      
-
      
(7,810,265
)
    
(7,810,265
)
     401,996       (7,408,269 )
Operating Partnership Class A conversion to common stock
     83.80       - *     -       -       -       -       859       -       859       (859 )     -  
Stock-based compensation
     133,000.00       14       -       -       -       -       465,486       -       465,500       -       465,500  
Issuance of Series A preferred stock through reinvestment of dividends
     -       -       2,059.14       1
    -       -       46,332       -       46,333       -       46,333  
Issuance of Series B preferred stock through reinvestment of dividends     -       -       -       -       84.96       - *     1,912       -       1,912       -       1,912  
Issuance of Series A preferred stock
     -       -       2,000.00       - *     -       -       50,000       -       50,000       -       50,000  
Issuance of Series B preferred stock
     -       -       -       -       14,260.00       1       356,498       -       356,499       -       356,499  
Increase in liquidation preference - Series B preferred stock
     -       -       -       -       -       -       34,037       -       34,037       -       34,037  
Operating Partnership Series A Preferred Units issued     -       -       -       -       -       -       -       -       -       2,712,194       2,712,194  
Issuance Operating Partnership Series A Preferred Units through reinvestment of dividends
    -       -       -       -       -       -       -       -       -       23,514       23,514  
Increase liquidation preference of Operating Partnership Series B Preferred Units     -       -       -       -       -       -       -       -       -       24,307       24,307  
Payment of selling commissions and fees
    
-
      
-
       -       -       -       -      
(46,011
)
    
-
       (46,011 )     (90,669 )     (136,680 )
Balance, September 30, 2024
    
13,435,656.79
    
$
1,344
       765,429.60     $ 77       63,909.52     $ 6    
$
137,981,396
    
$
(64,537,486
)
   $ 73,445,337     $ 28,588,812     $ 102,034,149  

 
  
Common Stock
    
Series A Preferred Stock
    
Additional Paid-
in Capital
    
Accumulated
Deficit
    
Total
Stockholders’
Equity
    
Non-controlling
Interests
    
Total Equity
  
 
  
Number of
Shares
    
Par
Value
    
Number of
Shares
    
Par
Value
                      
Three Months Ended September 30, 2023
                                    
 
                                                      
Balance, June 30, 2023
    
13,243,279.96
    
$
1,324
      
671,340.45
    
$
67
    
$
133,762,999
    
$
(34,856,258
)
  
$
98,908,132
    
$
12,103,874
    
$
111,012,006
  
Distributions to non-controlling interest holders
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(188,302
)
    
(188,302
)
Dividends to common stockholders
    
-
      
-
      
-
      
-
      
-
      
(1,652,688
)
    
(1,652,688
)
    
-
      
(1,652,688
)
Dividends to Series A preferred stockholders
    
-
      
-
      
-
      
-
      
-
      
(268,383
)
    
(268,383
)
    
-
      
(268,383
)
Net income (loss)
   
-
      
-
      
-
      
-
      
-
      
(4,329,038
)
    
(4,329,038
)
    
120,336
      
(4,208,702
)
Operating Partnership Class A conversion to common stock
     2,265.00       - *
    -       -       23,216       -       23,216       (23,216 )     -  
Issuance of Series A preferred stock
     -       -       54,394.20       6       1,359,344       -       1,359,350       -       1,359,350  
Issuance of common stock through reinvestment of dividends
    
60,063.66
      
6
      
-
      
-
      
443,265
      
-
      
443,271
      
-
      
443,271
  
Issuance of Series A preferred stock through reinvestment of dividends
    -       -       1,771.45       - *
    39,858       -       39,858       -       39,858  
Issuance of Operating Partnership Series A Preferred Units through reinvestment of dividends     -       -       -       -       -       -       -       20,454       20,454  
Payment of selling commissions and fees
    
-
      
-
      
-
      
-
      
(143,695
)
    
-
      
(143,695
)
    
-
      
(143,695
)
Redemptions of common stock
    
(64,092.00
)
    
(6
)
    
-
      
-
      
(472,993
)
    
-
      
(472,999
)
    
-
      
(472,999
)
Balance, September 30, 2023
    
13,241,516.62
    
$
1,324
      
727,506.10
    
$
73
    
$
135,011,994
    
$
(41,106,367
)
  
$
93,907,024
    
$
12,033,146
    
$
105,940,170
  

*Amount is less than $1.

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

3
MacKenzie Realty Capital, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

 
  
Three Months Ended
September 30,
  

 
2024
    
2023
  
Cash flows from operating activities:
           
Net loss
  
$
(7,408,269
)
  
$
(4,208,702
)
Adjustments to reconcile net loss to net cash from operating activities:
                
Net unrealized loss on equity securities at fair value
    
2,553
      
729,793
  
Net loss from equity method investments at fair value
    
140,694
      
1,537,455
  
Net realized gain on investments
    
(151,370
)
    
-
  
Impairment loss
     4,406,249       -  
Straight-line rent
     -       (16,270 )
Depreciation and amortization
    
2,280,756
      
1,559,668
  
Amortization of deferred financing costs and debt mark-to-market
    
301,588
      
248,437
  
Accretion of above (below) market lease, net
    
(67,324
)
     (95,434 )
Changes in assets and liabilities:
                
Investments income, rents and other receivables
    
(319,497
)
    
327,940
  
Prepaid expenses and other assets
    
101,663
      
12,522
  
Deferred rent and other liabilities
    
58,063
      
(19,896
)
Accounts payable and accrued liabilities
    
1,313,789
      
441,883
  
Due to related entities
    
(14,536
)
    
(330
)
Net cash from operating activities
    
644,359
      
517,066
  
 
                
Cash flows from investing activities:
                
Proceeds from sale of investments
     670,727       -  
Investments in real estate assets
     (5,826,304 )     (5,055,288 )
Purchase of investments
     (171,064 )     (393,530 )
Return of capital distributions
    
-
      
21,000
  
Net cash from investing activities
    
(5,326,641
)
    
(5,427,818
)
 
                
Cash flows from financing activities:
                
Proceeds from mortgage notes payable
     5,889,891       2,945,715  
Payments on mortgage notes payable
    
(403,206
)
    
(294,927
)
Payments on notes payable
    
(4,860
)
    
(4,676
)
Dividend to common stockholders
    
(1,662,824
)
    
(1,345,908
)
Dividend to Series A preferred stockholders
    (238,403 )     -  
Dividend to Series B preferred stockholders
    (6,013 )     -  
Proceeds from issuance of Series A preferred stock
    
50,000
      
1,359,350
  
Proceeds from issuance of Series B preferred stock
    356,499       -  
Payment on finance lease liabilities
     (56,021 )     (14,216 )
Payment of selling commissions and fees
    
(169,793
)
    
(184,766
)
Contributions by non-controlling interests holders
    
359,999
      
-
  
Distributions to non-controlling interests holders
     (342,071 )     (167,365 )
Redemption of common stock, net of stock redemption payable
    
-
      
(444,999
)
Capital pending acceptance
    
(200,300
)
    
(396,600
)
Net cash from financing activities
    
3,572,898
      
1,451,608
  
 
                
Net decrease in cash, cash equivalents and restricted cash
    
(1,109,384
)
    
(3,459,144
)
Cash, cash equivalents and restricted cash at beginning of the period
    
13,077,339
      
18,141,019
  
Cash, cash equivalents and restricted cash at end of the period
  
$
11,967,955
    
$
14,681,875
  
 
                
Cash and cash equivalents at end of the period
  
$
10,693,380
    
$
13,981,263
  
Restricted cash at end of the period
    
778,923
      
71,793
  
Cash and restricted cash at end of the period classified as assets held for sale
    
495,652
      
628,819
  
Total cash, cash equivalents, restricted cash and cash classified as held for sale at end of the period
  
$
11,967,955
    
$
14,681,875
  
 
                
Supplemental disclosure of non-cash financing activities and other cash flow information:
                
Issuance of Series A preferred stock through reinvestment of dividends   $ 46,333     $ 39,858  
Issuance of Series B preferred stock through reinvestment of dividends
   $ 1,912     $ -  
Increase in liquidation preference of Series B preferred stock
  
$
34,037
    
$
-
  
Issuance Operating Partnership Preferred Units - Series A through reinvestment of dividends
  
$
23,514
    
$
20,454
  
Cash paid for interest
  
$
1,611,521
    
$
1,015,556
  
Increase in liquidation preference of Operating Partnership Preferred Units - Series B   $ 24,307     $ -  
Issuance of the Operating Partnership Preferred Units for the purchase of Green Valley Medical Center, LP (Note 1)
   $ 2,712,194     $ -  
Fair value of assets acquired from consolidation of Green Valley Medical Center, LP
  
$
13,621,753
    
$
-
  
Fair value of liabilities assumed from consolidation of Green Valley Medical Center, LP
   $ 8,904,457     $ -  
Stock-based compensation
   $ 465,500     $ -  
Operating Partnership Class A conversion to common stock
   $ 859     $ -  
Capitalized construction in progress outstanding as accounts payable
   $ 670,977     $ -  
Issuance of common stock through reinvestment of dividends
   $ -
     $ 443,271  

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

4
Table of Contents
MacKenzie Realty Capital, Inc.
Notes to Consolidated Financial Statements
September 30, 2024
(Unaudited)
NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION


MacKenzie Realty Capital, Inc. (the “Parent Company” together with its subsidiaries as discussed below, collectively, the “Company,” “we,” “us,” or “our”) was incorporated under the general corporation laws of the State of Maryland on January 27, 2012. We have 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”). We are 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. We commenced our operations on February 28, 2013, and our fiscal year-end is June 30.

 

We filed our initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of our common stock. The initial public offering commenced in January 2014 and concluded in October 2016. We filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of our common stock. The second offering commenced in December 2016 and concluded on October 28, 2019. We filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of our 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 April 29, 2024, our common stock became eligible for trading on the OTCQX Best Market under the ticker symbol of MKZR. In addition, on November 6, 2024, Nasdaq approved the listing of the Company’s common stock, and trading commenced on November 11, 2024.



We are externally managed by MacKenzie Capital Management, LP (“MacKenzie”) under a turnkey administration agreement dated and effective as of January 1, 2021 (the “Administration Agreement”). MCM Advisers, LP (the “Investment Adviser”), an affiliate of MacKenzie, advises us in our assessment, acquisition, and divestiture of securities under the advisory agreement amended and restated effective January 1, 2021 (the “Amended and Restated Investment Advisory Agreement”). Another affiliate of Mackenzie, MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”; together, the “Investment Adviser” and the “Real Estate Adviser” may be referred to as “Adviser” or “Advisers” as appropriate) advises us in our assessment, acquisition, and divestiture of real estate assets. We pursue a strategy focused on investing primarily in real estate assets, and to a lesser extent (intended to be less than 20% of our portfolio) 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.

Our wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operated 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. We terminated TRS effective December 31, 2022, after the sale of its sole investment and transferred the ownership of MacKenzie NY 2, to the Parent Company. The financial statements of TRS (through its termination date) and MacKenzie NY 2 have been consolidated with the Parent Company. Effective tax year 2023, MacKenzie NY 2 has elected to be treated as a taxable REIT subsidiary.

 
On May 20, 2020, we formed an operating partnership, MacKenzie Realty Operating Partnership, LP (the “Operating Partnership”) for the purpose of acquiring and operating real estate assets. As of September 30, 2024, we own all limited partnership units of the Operating Partnership except for 82,148.28 Class A Limited Partnership units, 1,060,150.83 Series A preferred units and 43,212.86 Series B preferred units. Upon liquidation of the Operating Partnership, (i) the 82,148.28 Class A Limited Partnership units are convertible into the Company’s common shares on a 1:1 conversion ratio; (ii) the 1,060,150.83 Series A preferred units are entitled to a liquidation preference of $26,503,771 (based on the stated value of $25 per share for the Series A preferred units); and (iii) the 43,212.86 Series B preferred units are entitled to a liquidation preference of $1,080,322 (based on the stated value of $25 per share for the Series B preferred units). The Parent Company has contributed $82,093,593 in capital to the Operating Partnership since inception; thus, the Class A, Series A and Series B Preferred Units represent approximately 25.72% of all capital contributions.


In March 2021, we, together with our joint venture partners, formed two operating companies: Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential apartment buildings located in Oakland, California. We own 98.45% and 98.75% of equity units of Madison and PVT, respectively. The joint venture partners own the remaining 1.55% and 1.25% equity units of Madison and PVT, respectively, and also hold a carried interest in both companies. We are the controlling majority owner of both companies; therefore, effective March 31, 2021, we have consolidated the financial statements of these companies.
 
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On April 13, 2021, we filed a preliminary offering circular (the “Offering Circular”) pursuant to Regulation A with the SEC to sell up to $50 million of shares of our Series A preferred stock at an initial offering price of $25.00 per share. We filed a post-effective amendment to the Offering Circular on October 14, 2022, and increased the offering to sell up to $75 million of shares of our Series A preferred stock. The post-effective amendment to this Offering Circular was declared effective on November 13, 2022. We filed a second post-effective amendment to the Offering Circular on November 1, 2023, which amended the offering to sell an aggregate of up to $75 million of shares of either our Series A preferred stock or our Series B preferred stock. This post-effective amendment to the Offering Circular was qualified by the SEC on November 14, 2023.


On October 4, 2021, through the Operating Partnership, we acquired a 90% economic interest in Hollywood Hillview Owner, LLC (“Hollywood Hillview”), a Delaware limited liability company, to acquire and operate a multifamily building (“Hollywood Apartments”) located in Los Angeles, California. The remaining 10% economic interest in Hollywood Hillview is owned by an unaffiliated third party, True USA, LLC. Hollywood Hillview owns 100% of the membership interests in PT Hillview GP, LLC (the “PT Hillview”). We are the controlling majority owner of Hollywood Hillview; therefore, effective December 31, 2021, we have consolidated the financial statements of Hollywood Hillview.

 

On January 25, 2022, through the Operating Partnership, we acquired a 98% limited liability company interest in MacKenzie BAA IG Shoreline LLC (“MacKenzie Shoreline”), formed to acquire, renovate, and own the 84-unit multifamily building located at 1841 Laguna Street, Concord, CA. The joint venture partners own the remaining 2% of the limited liability company interest as well as a carried interest. We are the controlling majority owner of the MacKenzie Shoreline; therefore, effective June 30, 2022, we have consolidated the financial statements of MacKenzie Shoreline.

 

On April 1, 2022, we, and our newly formed, wholly owned subsidiary, FSP Merger Sub, Inc. (“Merger Sub”) entered into a reverse triangular merger agreement with FSP Satellite Place Corp. (“FSP Satellite”), pursuant to which the Merger Sub merged with and into FSP Satellite with FSP Satellite as the surviving entity, but renamed MacKenzie Satellite Place Corp. (“MacKenzie Satellite”), effective June 1, 2022, at which time MacKenzie Satellite became our wholly owned subsidiary. MacKenzie Satellite owns the Satellite Place Office Building, a six-story Class “A” suburban office building containing approximately 134,785 rentable square feet of space located on approximately 10 acres of land in Duluth, GA. The former shareholders of FSP Satellite received cash or shares of the Company, based upon their election. All former shareholders of FSP Satellite holders elected to be paid in cash with the exception of two shareholders who elected to receive common and preferred stocks in the amount of $27,503 and $13,752, respectively. Subsequent to the completion of the merger, we have consolidated the financial statements of MacKenzie Satellite effective June 30, 2022.

 

On May 6, 2022, the Operating Partnership purchased 100% of the membership interests in eight limited liability companies (each a “Management Company”) and one parcel of entitled land from The Wiseman Company, LLC (“Wiseman”) for $18,333,000 and $3,050,000, respectively. Each Management Company is the sole general partner and owns all general partnership interest in a limited partnership (each a “Wiseman Partnership”) that owns a Class A or B office property in Napa, Fairfield, Suisun, or Woodland, California (the “Wiseman Properties”). As part of the purchase agreement, $4,650,000 of the purchase price was paid through the issuance of 206,666.67 Preferred Units of the Operating Partnership and $750,000 of the land purchase price was paid through the issuance of 77,881.62 Class A units of the Operating Partnership. We have consolidated the financial statements of the eight limited liability companies, which hold the general partnership interests in the limited partnerships, effective June 30, 2022.

 

Wiseman is a full-service real estate syndicator, developer, broker, and property manager founded in 1979. Concurrently with acquiring the Management Companies and land from Wiseman, the Operating Partnership also negotiated the right to acquire the limited partnership interests in each Wiseman Partnership at pre-determined prices over a two-year period that expired in May 2024. Management believed this transaction was strategically important as it focuses the portfolio on our desired geographic area (Western United States) and created a captive pipeline of properties. We completed the acquisition of all of the limited partnership interests in five of the eight partnerships prior to the expiration of the two-year window, and one shortly thereafter via a separate agreement. We may acquire the remaining limited partnership interests via separate agreements in the future, but there is no agreement or obligation to do so. We acquired all the limited partnership interests in, and therefore all the equity in, the following partnership on the following dates: First & Main, LP (“First and Main”) in July 2022, 1300 Main, LP (“1300 Main”) in October 2022, Woodland Corporate Center Two, LP (“Woodland Corporate Center Two”) in January 2023, Main Street West, LP (“Main Street West”) in February 2023, One Harbor Center, LP (“One Harbor Center”) in May 2024 and Green Valley Medical Center, LP (“Green Valley Medical Center”) in August 2024. Some of these acquisitions were paid in all cash, and some were purchased through issuance of 459,620.35 and 43,212.86 of the Operating Partnership’s Series A and Series B preferred units, respectively. We consolidated the financial statements of these six limited partnerships after we completed the acquisition of the limited partnership interests in each of these Wiseman Partnerships.

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On February 6, 2023, we formed a new entity, MRC Aurora, LLC (the “MRC Aurora”) for the purpose of owning, developing, renovating, leasing, managing, renting, and potentially selling certain real property and building and improvements located at 5000 Wiseman Way, Fairfield, California (the “Aurora Project”). The Parent Company is the manager and the Operating Partnership is the sole common member of MRC Aurora. The Operating Partnership contributed the entitled land located at 5000 Wiseman Way, Fairfield, California to MRC Aurora in exchange for the common membership interest in MRC Aurora. MRC Aurora commenced selling its preferred units in February 2024 with the goal of raising $10 million in preferred capital and closed on a construction loan of $17.15 million on February 21, 2024, to fund the development of the Aurora Project. Since the Operating Partnership has 100% of the voting rights and we, as the manager, have the managing and operating rights of MRC Aurora, we have consolidated the financial statements of MRC Aurora.


On September 1, 2023, we formed 220 Campus Lane, LLC (“220 Campus Lane”) to acquire, lease and operate a vacant office building located at 220 Campus Lane, Fairfield, CA (“220 Campus Lane Office Building”) and Campus Lane Residential, LLC (“Campus Lane Residential”) to acquire and develop a parcel of vacant land adjacent to 220 Campus Lane Office Building into a multi-family residential community. 220 Campus Lane acquired the 220 Campus Lane Office Building, and Campus Lane Residential acquired the vacant land in September 2023. The entitlement process for the vacant land is currently underway, but our goal of commencing construction in late 2025 will be dependent upon the City’s approval of our development application that was submitted in April 2024 and securing the necessary financial resources. We own 100% of both of these companies; therefore, we consolidated the financial statements of these companies after the acquisitions were completed on September 8, 2023.

On January 1, 2024, the Operating Partnership acquired 100% membership interest in GV Executive Center, LLC (“GVEC”), which owns an office building located in Fairfield, California known as “Green Valley Executive Center” from an affiliate of our Advisers, for a net purchase price of $8,703,127, which was paid through issuance of 386,805.64 Series A Preferred Units of the Operating Partnership. The net acquisition price was determined based on the price paid for the building by the affiliate in August 2022 adjusted for the company’s other current assets and liabilities as of the acquisition date. The acquisition of GVEC was approved by our Independent Directors.

On August 26, 2024, the Company entered into a letter agreement with Maxim Group LLC (“Maxim”) to provide general financial advisory and investment banking services to the Company in connection with, among other things, strategic planning, potential uplisting to a U.S. exchange (Nasdaq, New York Stock Exchange), and potential rights offering, equity issuance or other mechanisms to enhance corporate and shareholder value. In connection with the agreement, the Company has issued in a private placement an aggregate amount of 133,000 shares of common stock to Maxim’s affiliate, approximately 1% of the Company’s outstanding stock. The common stock does not have any conversion rights.

As of September 30, 2024, we have raised approximately $119.10 million from our three common stock public offerings, $18.56 million from our Series A preferred stock offering and $1.65 million from our Series B preferred stock offering pursuant to the Offering Circular. As of September 30, 2024, we have issued common and Series A and Series B preferred shares with gross proceeds of $15.56 million and $0.30 million, respectively, under our DRIP. Of the total shares issued by us as of September 30, 2024, approximately $14.28 million and $0.11 million, respectively, worth of common and Series A preferred stock shares have been repurchased under our 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 Regulation S-X. We follow the accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of our wholly owned consolidated subsidiaries and majority-owned controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of our results for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

The assets and liabilities of each of the consolidated subsidiaries are separate from those of the Parent Company and the Operating Partnership. Consequently, the assets of the consolidated subsidiaries are not available to settle the obligations of the Parent Company or the Operating Partnership, and the obligations of the subsidiaries does not constitute obligations of the Parent Company or the Operating Partnership.

These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2024, included in our annual report on Form 10-K filed with the SEC.

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There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2024.

Certain prior period information has been reclassified to conform to the current year end presentation. The reclassification has no effect on our consolidated balance sheet or the consolidated statement of operations as previously reported.

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

Our cash and cash equivalents represent current bank accounts and other bank deposits free of encumbrances and having maturity dates of three months or less from the respective dates of deposit. We limit cash investments to financial institutions with high credit standing; therefore, we believe our cash investments are not exposed to any significant credit risk. The restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, and debt service and leasing costs held by lenders. These balances are insured by the Federal Deposit Insurance Corporation up to certain limits. Often, the cash balances held in financial institutions by us may exceed these insured limits.

Restricted cash is subject to legal or contractual restrictions as to withdrawal or use, including restrictions that require the funds to be used for a specified purpose and restrictions that limit the purpose for which the funds can be used.

Investment Income Receivable

Investment income receivable represents dividends, distributions, and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the consolidated financial statements. We monitor and adjust our receivables, and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. We believe, based on the credit worthiness of the obligors, that all investments income receivable balances outstanding as of September 30, 2024 and June 30, 2024, are collectible and do not require recording any uncollectible allowance.
 
Rents and Other Receivables
 
We will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. We exercise judgment in establishing these allowances and consider payment history and current credit status of tenants in developing these estimates. As of September 30, 2024 and June 30, 2024, we recognized an allowance for doubtful accounts of $182,218 and $213,797, respectively.
 
Capital Pending Acceptance
 
We conduct closings for new issuance of our stocks twice per month and admit new stockholders effective beginning the first of each month. Subscriptions are effective only upon our 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 balance sheets. As of September 30, 2024 and June 30, 2024, capital pending acceptance was $96,700 and $297,000, 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 generally distributes at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) to the stockholders and meets certain other conditions. To the extent it satisfies the annual distribution requirement but distributes less than 100% of its REIT taxable income, it will be subject to U.S. federal corporate income tax on its undistributed taxable income. In addition, it will be subject to a 4% nondeductible excise tax if the actual amount that it pays to its stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
 
The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2023. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2023. In addition, for the tax year 2024, we intend to pay the requisite amounts of dividends during the year and meet other REIT requirements such that the Parent Company 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 2024.

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MacKenzie NY 2 is subject to corporate federal and state income tax on its taxable income at regular statutory rates. As of September 30, 2024, it did not have any taxable income for tax year 2023 and 2024. Therefore, we did not record any tax provisions during any fiscal periods within the tax year 2023 and 2024. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return.

The Operating Partnership is a limited partnership. Hollywood Hillview, MacKenzie Shoreline, Madison, PVT, 220 Campus Lane, Campus Lane Residential and GVEC are limited liability companies. First & Main, 1300 Main, Woodland Corporate Center Two, Main Street West, One Harbor Center, and Green Valley Medical Center are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which, subject to the minority exceptions described in this document, ultimately is the Company. Therefore, no income tax provisions are recorded for these entities.

We 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 liabilities attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, we consider 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, 2024 and June 30, 2024, there were no uncertain tax positions. Management’s determinations regarding ASC 740 are 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.

Subsequent Events
 
Subsequent events are events or transactions that occur after the date of the consolidated balance sheets but before the date the consolidated financial statements are issued. Subsequent events that provide additional evidence about conditions that existed at the date of the consolidated balance sheets are considered in the preparation of the consolidated financial statements presented herein. Subsequent events that occur after the date of the consolidated balance sheets that do not provide evidence about the conditions that existed as of the date of the consolidated statements of changes in equity are considered for disclosure based upon their significance in relation to our consolidated financial statements taken as a whole.

Fair Value of Financial Instruments
 
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. We believe that the carrying amounts of our financial instruments, consisting of cash, restricted cash, investments income, rent and other receivables, prepaid expenses and other assets, mortgage notes payable, accounts payable and accrued liabilities, below-market lease liabilities, net, deferred rent and other liabilities and due to related entities, approximate the fair values of such items based on their nature, terms, and interest rates.

Equity Securities
 
We have minority and non-controlling equity investments in various limited partnerships and non-traded entities, which do not have readily determinable fair values. We do not have controlling interests in these entities. Thus, these investments have been recorded as investments in equity securities in accordance with ASC Topic 321, Investments – Equity Securities, and measured at fair value. The changes in the fair value of these investments are recorded in the consolidated statements of operations.

Equity Method Investments with Fair Value Option Election
 
We elected the fair value option of accounting for the investments listed below that would have otherwise been recorded under the equity method of accounting. The primary purpose of electing the fair value option was to enhance the transparency of our financial condition. Changes in the fair value of these investments, which are inclusive of equity in income, are recorded in the consolidated statements of operations during the period such changes occur.

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The below list of investments would have been accounted for under the equity method if the fair value method had not been elected and have been included in investments in the consolidated balance sheets as of September 30, 2024 and June 30, 2024:

Investee
Legal Form
Asset Type
  
% Ownership
      
Fair Value as of
September 30, 2024
 
5210 Fountaingate, LP
Limited Partnership
LP Interest
    
9.92
%
    
$
4,950
  
Lakemont Partners, LLC
Limited Liability Company
LP Interest
    
17.02
%
      
768,050
  
Martin Plaza Associates, LP
Limited Partnership
GP Interest
    1.00 % *
    474,540  
Westside Professional Center I, LP
Limited Partnership
GP Interest
    1.00 % *
    1,309,931  
Total
                
$
2,557,471
  

Investee
Legal Form
Asset Type
  
% Ownership
      
Fair Value as of
June 30, 2024
 
5210 Fountaingate, LP
Limited Partnership
LP Interest
     9.92 %     $ 4,950  
Lakemont Partners, LLC
Limited Liability Company
LP Interest
     17.02 %       791,990  
Green Valley Medical Center, LP
Limited Partnership
GP Interest
    1.00 % *     2,005,102
  
Martin Plaza Associates, LP
Limited Partnership
GP Interest
    1.00 % *     465,053
  
Westside Professional Center I, LP
 Limited Partnership
GP Interest
    1.00 % *     1,436,171
  
Total
                
$
4,703,266
  

*The general partner has a 1% partnership interest but is also entitled to profit sharing distributions ranging from 25% to 50% after certain thresholds are met.

Unconsolidated Investments (Non-security) at Fair Value

Certain of our investments are equity method investments that do not meet the consolidation requirements under ASC 810 and, pursuant to GAAP, are shown as unconsolidated investments (non-security) at fair value in the consolidated balance sheets. Under the 1940 Act, these investments are considered “voting securities” as opposed to “investment securities”. Therefore, we listed the following equity method investments separately from the rest of the equity method investments at fair value in the consolidated balance sheets: (i) as of September 30, 2024, our voting securities in Martin Plaza Associates, LP and Westside Professional Center I, LP (“Westside Professional Center”); and (ii) as of June 30, 2024, our voting securities in Green Valley Medical Center, Martin Plaza Associates, LP and Westside Professional Center.

Assets and Liabilities Held for Sale

We classify long-lived assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met:


•
Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group);

•
The asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal groups);

•
An active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated;

•
The sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year;

•
The asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value. The price at which a long-lived asset (disposal group) is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset (disposal group). A market price that is reasonable in relation to fair value indicates that the asset (disposal group) is available for immediate sale, whereas a market price in excess of fair value indicates that the asset (disposal group) is not available for immediate sale; and

•
Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

On the day that these criteria are met, we suspend depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases. The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. The prior period investment properties and liabilities associated with those investment properties that are classified as held for sale have been classified separately as assets and liabilities held for sale on the consolidated balance sheet as of June 30, 2024 for comparative purposes. Refer to Note 5.

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Leases

Six of our properties, 1300 Main, Main Street West, Woodland Corporate Center, Green Valley Executive Center, One Harbor Center and Green Valley Medical Center had solar equipment leases in place at the time of our acquisition. Therefore, these existing solar leases were reassessed at the acquisition date and were recorded as finance leases in accordance with ASC 842. We record leases on the consolidated balance sheets in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The discount rate used in determining the lease liability is based upon incremental borrowing rates that we could obtain for similar loans as of the date of commencement or renewal. We do not record leases on the consolidated balance sheets that are classified as short term (less than one year).

At lease inception, we determine the lease term by considering the minimum lease term and all optional renewal periods that are reasonably certain to be exercised. The lease term is also used to calculate straight-line rent expense. The depreciable life of leasehold improvements is limited by the estimated lease term, including renewals if they are reasonably certain to be exercised. Our leases do not contain residual value guarantees or material variable lease payments that will impact our ability to pay dividends or cause us to incur additional expenses.

The amortization of the right-of-use asset arising from finance leases is expensed through depreciation and amortization expense and the interest on the related lease liability is expensed through interest expense on our consolidated statements of operations.

Impairment of Real Estate Assets
 
We continually monitor events and changes in circumstances that could indicate that the carrying value of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment emerge, we assess whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this assessment, if we do not believe that we will recover the carrying value of the real estate and related intangible assets, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets.

During the quarter ended September 30, 2024, due to an early lease termination by the anchor tenant at our Main Street West Office Building, we recorded an impairment loss of $4,406,249. We utilized a third-party appraisal to estimate the fair value of the property and determine the impairment amount. We consider these inputs as Level 3 measurements within the fair value hierarchy.

Stock-based Compensation

ASC 718, Stock-based Compensation, requires generally that all equity awards granted to employees and consultants be accounted for at fair value. This fair value is measured at grant date for stock settled awards, and at subsequent exercise or settlement for cash-settled awards. Under this method, we recorded the 133,000 shares of common stock issued to Maxim discussed in Note 1 at fair value as a deferred offering cost. The fair value is computed based on the trading price of the common stock on the OTCQX capital market at the grant date of August 26, 2024.

Reportable Segments
 
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have one reportable segment, income-producing real estate properties, which consists of activities related to investing in real estate. The real estate properties are geographically diversified throughout the United States, and we evaluate operating performance on an overall portfolio level.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures, to enhance reportable segment disclosure requirements, primarily through increased disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all periods presented. Early adoption is permitted. We are currently evaluating the impact of these amendments on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes – Improvements to Income Tax, to enhance the transparency and decision usefulness of income tax disclosures, primarily related to rate reconciliation and income taxes paid information. The amendment is effective for annual periods beginning after December 15, 2024, and should be applied on a prospective basis, with the option to apply retrospectively. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. We are currently evaluating the impact of adopting these amendments on our consolidated financial statements.

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In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses. The ASU’s purpose is to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). This ASU is effective for the Company’s annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements.

NOTE 3 – INVESTMENTS IN REAL ESTATE
 
The following tables provide summary information regarding our operating properties, which are owned through our subsidiaries. The ownership interest shown below is the percentage of the property owned by the subsidiary, not the percentage of the subsidiary owned by the Parent Company or the Operating Partnership.
 
Consolidated Operating Properties
 
Property Name:
  
Commodore Apartments
  
Pon de Leo Apartments
  
Hollywood Apartments
  
Shoreline Apartments
Property Owner:
  
Madison-PVT Partners LLC
  
PVT-Madison Partners LLC
  
PT Hillview GP, LLC
  
MacKenzie BAA IG Shoreline LLC
Location:
  
Oakland, CA
  
Oakland, CA
  
Hollywood, CA
  
Concord, CA
Number of Tenants:
   44  
38
  
52
  
71
Year Built:
   1912  
1929
  
1917
  
1968
Ownership Interest:
  
100%
  
100%
  
100%
  
100%
               
Property Name:
  
Satellite Place Office Building
  
First & Main Office Building
  
1300 Main Office Building
   Woodland Corporate Center
Property Owner:
  
MacKenzie Satellite Place Corp.
  
First & Main, LP
  
1300 Main, LP
   Woodland Corporate Center Two, LP
Location:
  
Duluth, GA
  
Napa, CA
  
Napa, CA
   Woodland, CA
Number of Tenants:
  
4
  
9
  
7
   14
Year Built:
  
2002
  
2001
  
2020
   2004
Ownership Interest:
  
100%
  
100%
  
100%
   100%
                 
Property Name:
  Main Street West Office Building   220 Campus Lane Office Building   Green Valley Executive Center   One Harbor Center
Property Owner:
  Main Street West, LP   220 Campus Lane, LLC   GV Executive Center, LLC   One Harbor Center, LP
Location:
  Napa, CA   Fairfield , CA   Fairfield , CA   Suisun,CA
Number of Tenants:
  8   4   17   13
Year Built:
  2007   1990   2006   2001
Ownership Interest:
  100%   100%   100%   100%
                 
Property Name:   Green Valley Medical Center            
Property Owner:   Green Valley Medical Center, LP            
Location:   Fairfield , CA            
Number of Tenants:   13            
Year Built:   2002            
Ownership Interest:   100%            

                
 
12
The following table presents the purchase price allocation of real estate asset acquired during the three months ended September 30, 2024 based on asset acquisition accounting.

Property Name:
   Green Valley Medical Center
  
Acquisition Date:
   August 1, 2024
  
Purchase Price Allocation
      
Land
  
$
1,582,517
  
Building
     9,469,081  
Site Improvements     705,581  
Tenant Improvements     518,070  
Lease In Place
     556,019  
Leasing Commissions     231,042  
Legal & Marketing Lease Up Costs
     90,214  
Solar Finance Lease     600,000  
Total assets acquired
     13,752,525  
         
Net leasehold liability    
(74,271
)
         
Total assets acquired, net   $ 13,678,254  

The total depreciation expense of our operating properties for the three months ended September 30, 2024 and 2023 were $1,581,524 and $1,129,775, respectively.

Operating Leases:
 
Our real estate assets are leased to tenants under operating leases that contain varying terms and expirations. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. We retain substantially all the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, we do not require a security deposit from tenants on our commercial real estate properties, depending upon the terms of the respective leases and the creditworthiness of the tenants. Even when required, security deposits generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of the security deposit. Security deposits received in cash related to tenant leases are included in other accrued liabilities in the accompanying consolidated balance sheets and were immaterial as of September 30, 2024 and June 30, 2024.

The following table presents the components of income from real estate operations for the three months ended September 30, 2024 and 2023:
 
   
Three Months Ended
    
Three Months Ended
  
   
September 30, 2024
    
September 30, 2023
  
             
Lease income - Operating leases
  
$
4,619,178
    
$
3,355,790
  
Variable lease income (1)
    
333,051
      
204,191
  
   
$
4,952,229
    
$
3,559,981
  


(1)
Primarily includes tenant reimbursements for utilities and common area maintenance.
 
13
As of September 30, 2024, the future minimum rental income from our real estate properties under non-cancelable operating leases are as follows:
 
Year ended June 30, :
  
Rental Income
  
2025
  
$
9,594,194
  
2026
    
10,020,489
  
2027
    
7,960,704
  
2028
    
6,755,787
  
2029
    
5,802,065
  
Thereafter
    
11,327,022
  
Total
  
$
51,460,261
  
 
Lease Intangibles, Above-Market Lease Assets and Below-Market Lease Liabilities, Net
 
As of September 30, 2024 and June 30, 2024, our acquired lease intangibles, above-market lease assets, and below-market lease liabilities were as follows:

   
As of September 30, 2024
  
   
Lease Intangibles
    
Above-Market
Lease Asset
    
Below-Market
Lease Liabilities
  
                   
Cost
  
$
11,349,308
    
$
824,870
    
$
2,914,040
  
Accumulated amortization
    
(4,496,547
)
    
(286,485
)
    
(1,559,499
)
Total
  
$
6,852,761
    
$
538,385
    
$
1,354,541
  
                         
Weighted average amortization period (years)
     4.8
       4.6
       4.8
  

    As of June 30, 2024
  
   
Lease Intangibles
    
Above-Market
Lease Asset
    
Below-Market
Lease Liabilities
  
                   
Cost
  
$
10,738,744
    
$
702,254
    
$
2,717,150
  
Accumulated amortization
    
(4,168,692
)
    
(226,628
)
    
(1,432,318
)
Total
  
$
6,570,052
    
$
475,626
    
$
1,284,832
  
                         
Weighted average amortization period (years)
     4.8
       4.6       4.8
  

Our amortization of lease intangibles, above-market lease assets and below-market lease liabilities for the three months ended September 30, 2024 and 2023, were as follows:


   
Three Months Ended September 30, 2024
  
   
Lease Intangibles
    
Above-Market
Lease Asset
    
Below-Market
Lease Liabilities
  
Amortization
  
$
699,232
    
$
59,857
    
$
(127,181
)
 
   
Three Months Ended September 30, 2023
  
   
Lease Intangibles
    
Above-Market
Lease Asset
    
Below-Market
Lease Liabilities
  
Amortization
  
$
429,893
    
$
29,426
    
$
(124,860
)

14
The following table provides the projected amortization expense and adjustments to revenue from tenants for intangible assets and liabilities for the next five years:
 
   
Year Ended June 30,
  
   
2025 (remainder)
    
2026
    
2027
    
2028
    
2029
     Thereafter
 
In-place leases, to be included in amortization
  
$
1,817,144
    
$
1,845,616
    
$
1,108,030
    
$
743,286
    
$
595,407
     $ 840,225  
                                                 
Above-market lease intangibles
   $
144,259
     $
137,574
     $
99,803
     $
53,296
     $
43,298
     $
60,155  
Below-market lease liabilities
    
(313,725
)
    
(354,995
)
    
(264,696
)
    
(177,823
)
    
(138,172
)
     (105,130 )

 
$
(169,466
)
  
$
(217,421
)
  
$
(164,893
)
  
$
(124,527
)
  
$
(94,874
)
   $ (44,975 )

NOTE 4 – INVESTMENTS
 
The following table summarizes the composition of our equity method investments with fair value option election and other equity securities at fair value as of September 30, 2024 and June 30, 2024:
 
    Fair Value
    Fair Value
 
Asset Type     September 30, 2024    
June 30, 2024
  
Non Traded Companies
   $
990,317
     $
1,341,164  
GP Interests (Equity method investment with fair value option election)
   
1,784,470
       3,906,326  
LP Interests (Equity method investment with fair value option election)
    
773,001
       796,940  
Total
  
$
3,547,788
     $
6,044,430  

Our above total investments at fair value are disclosed in two separate lines as investments and unconsolidated investments (non-securities) in the consolidated balance sheets as of September 30, 2024 and June 30, 2024.

During the three months ended September 30, 2024, we realized a total net gain of $151,370 from two investment liquidations and disposals (Blackstone Real Estate Income Trust, Inc. and Highlands REIT, Inc.). During the three months ended September 30, 2023, no realized gain or loss on investments was recognized.
The following table presents fair value measurements of our investments as of September 30, 2024 and June 30, 2024, according to the fair value hierarchy that is described in our annual report on Form 10-K:
 
    As of September 30, 2024
  
Asset Type
  
Total
    
Level I
    
Level II
    
Level III
  
Non Traded Companies
   $
990,317
     $
-
     $
-
     $
990,317
  
GP Interests
     1,784,470       -       -       1,784,470  
LP Interests
    
773,001
      
-
      
-
      
773,001
  
Total
  
$
3,547,788
    
$
-
    
$
-
    
$
3,547,788
  

    As of June 30, 2024           
Asset Type
  
Total
    
Level I
    
Level II
    
Level III
  
Non Traded Companies
   $
1,341,164
     $
-
     $
-
     $
1,341,164
  
GP Interests
     3,906,326       -       -       3,906,326  
LP Interests
    
796,940
      
-
      
-
      
796,940
  
Total
  
$
6,044,430
    
$
-
    
$
-
    
$
6,044,430
  
 
15
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, 2024:
 
Balance at July 1, 2024
  
$
6,044,430
  
Purchases of investments
    
171,064
  
Transfer to Investments in Real Estate
     (2,627,725 )
Proceeds from sales, net
    (670,727 )
Net realized gain
     151,370  
Net unrealized gain
    
479,376
  
Ending balance at September 30, 2024
  
$
3,547,788
  

For the three months ended September 30, 2024, net change in unrealized losses included in earnings relating to Level III investments still held at September 30, 2024 was $146,930.

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, 2023:

Balance at July 1, 2023
  
$
22,148,980
  
Purchases of investments
    
393,530
  
Return of capital distributions     (21,000 )
Net unrealized loss
   
(2,267,248
)
Ending balance at September 30, 2023
  
$
20,254,262
  

There were no transfers of investments from Level III to Level I category during the three months ended September 30, 2023.

For the three months ended September 30, 2023, net change in unrealized losses included in earnings relating to Level III investments still held at September 30, 2023 was $2,267,248.
 
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at September 30, 2024:
 
Asset Type
  
Fair Value
  
Primary Valuation
Techniques
  
Unobservable Inputs Used
  
Range
  
Weighted
Average
  
                       
Non Traded Companies
   $
990,317
 
Market Activity
  
Secondary market industry publication
          
       
Acquisition cost
             
                             
GP Interests     1,784,470  
Direct Capitalization Method
 
Capitalization rate
    6.3% - 6.5%     6.4%  
                
Discount rate
    6.8% - 7.0%    
6.9%
  
                             
LP Interests
    
768,051
  
Discounted Cash Flow
  
Discount rate
    
7.0%
   
7.0%
  
LP Interests
    
4,950
  
Estimated Liquidation Value
  
Sponsor provided value
      
                             
   
$
3,547,788
                      
 
16
The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2024:
 
Asset Type
  
Fair Value
  
Primary Valuation
Techniques
  
Unobservable Inputs Used
  
Range
  
Weighted
Average
  
                       
Non Traded Companies
   $
1,341,164
 
Market Activity
  
Secondary market industry publication
              
              Acquisition cost              
                             
GP Interests
    
3,906,326
 
Direct Capitalization Method
  
Capitalization rate
    
6.3% - 6.5%
    
6.3%
  
                                       
Discount rate
    
6.8% - 7.0%
     7.0%   
                             
LP Interests
    
791,990
  
Discounted Cash Flow
  
Discount rate
     7.0%    
7.0%
  
LP Interests
    
4,950
  
Estimated Liquidation Value
  
Sponsor provided value
          
                             
   
$
6,044,430
                      

Summarized Financial Statements for Equity Method Investments (Fair Value Option)
 
Our investments in securities are generally in small and mid-sized companies in a variety of industries. In accordance with the Rule 8-03(b)(3) of Regulation S-X applicable for smaller reporting companies, we must determine which of our equity method investments measured at fair value under the Fair Value Option are considered “significant”, if any. Regulation S-X mandates the use of three different tests to determine if any of our investments are considered significant investments: the investment test, the asset test, and the income test. The rule requires summarized financial statements for any significant equity method investments in an annual and interim report if any of the three tests exceed 20%.
 
In addition to the SEC rules, ASC 323-10-50-3(c) requires summarized financial statements of our equity method investments, including those reported under the fair value option, if they are material individually or in aggregate.

None of our equity method investments accounted under the fair value option were determined to be individually significant under any of the tests and are not material in aggregate as of September 30, 2024.
 
Unconsolidated Significant Subsidiaries

In accordance with SEC Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our investments in securities are considered “significant subsidiaries”, if any. Regulation S-X mandates the use of three different tests to determine if any of our controlled investments are 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, 2024 and June 30, 2024, none of our investments in securities were considered unconsolidated significant subsidiaries under the SEC rules described above.

NOTE 5 – REAL ESTATE ACQUISITIONS AND HELD FOR SALE

As discussed in Note 1, on August 1, 2024, the Operating Partnership completed the acquisition of 100% limited partnership interest in Green Valley Medical Center for a total purchase price of $3,004,194, of which $2,712,194 was paid through the issuance of 120,541.96 Series A Preferred Units of the Operating Partnership.

Assets and Liabilities Held for Sale

In August 2024, the Company decided to list Hollywood Apartments for sale and met the criteria to be classified as held for sale, which requires us to present the related assets and liabilities as separate line items in our consolidated balance sheets. We recorded these assets and liabilities at the lesser of the carrying value or fair value less costs to sell. As of September 30, 2024, we did not record any impairment loss allowance on assets held for sale.

17
The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in our consolidation balance sheets:

   
  
September 30, 2024
    
June 30, 2024
  
Assets
            
Real estate assets
            
Land
  
$
8,704,577
    
$
8,704,577
  
Building, fixtures and improvements
    
14,243,695
      
14,236,895
  
Intangible lease assets
    
468,324
      
464,449
  
Less: accumulated depreciation
    
(1,468,443
)
    
(1,373,139
)
accumulated amortization
    
(371,378
)
    
(364,622
)
Total real estate assets, net
    
21,576,775
      
21,668,160
  
Cash and cash equivalents
    
69,564
      
77,016
  
Restricted cash
    
426,088
      
444,063
  
Investment income, rent and other receivable
    
146,101
      
176,277
  
Prepaid expenses and other assets
    
3,187
      
30,253
  
Total assets
  
$
22,221,715
    
$
22,395,769
  
 
                
Liabilities
                
Deferred rent and other liabilities
   $
245,597
     $
241,267
  
Accounts payable and accrued liabilities
    
196,985
      
113,917
  
Due to related entities
    
120
      
359
  
Total liabilities
  
$
442,702
    
$
355,543
  


NOTE 6 –LEASES



Lessee Arrangements



As discussed in Note 2, we acquired six partnerships which had solar equipment leases in place. We reassessed the leases as of the acquisition date and recorded them as finance leases in accordance with ASC 842. Our leases have remaining terms of 3.92 to 8.50 years. Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications, are as follows:


  Balance Sheet Classification  
September 30, 2024
     June 30, 2024  
Right-of-use assets:
              
Finance leases
Real estate assets, net
  
$
2,283,692
     $
1,799,962  
                   
Lease liabilities:
                  
Finance leases
Finance lease liabilities
  
$
2,431,963
     $
1,887,984  



We have included these leases in real estate assets, net as follows:


   
September 30, 2024
     June 30, 2024  
Building, fixtures and improvements
  
$
2,622,675
     $
2,022,675  
Accumulated depreciation
    
(338,983
)
     (222,713 )
Real estate assets, net
  
$
2,283,692
     $
1,799,962  


Lease Expense



The components of total lease cost were as follows for the three months ended September 30, 2024 and 2023:


   
September 30, 2024
    September 30, 2023
 
Finance lease cost
            
Right-of-use asset amortization
  
$
116,270
     $
20,493  
Interest expense
    
24,967
       7,083  
Total lease cost
  
$
141,237
     $
27,576  

18
Lease Obligations



Future undiscounted lease payments for finance leases with initial terms of one year or more are as follows:


Fiscal Year Ending June 30, :
  
Finance Leases
  
2025 (remainder)
  
$
267,706
  
2026
    
378,742
  
2027
    
388,783
  
2028
    
399,268
  
2029
    
563,133
  
Thereafter
    
811,288
  
Total undiscounted lease payments
    
2,808,920
  
Less: Imputed interest
    
(376,957
)
Net lease liabilities
  
$
2,431,963
  

Supplemental Lease Information

   
September 30, 2024
     June 30, 2024  
Finance lease weighted average remaining lease term (years)
  
6.07 years
       5.83 years
  
Finance lease weighted average discount rate
    
5.0%

    5.0%
                 
Cash paid for amounts included in the measurement of lease liabilities
                
Financing cash flows from finance leases
  
$
56,021
     $
104,416  
             
 
Right-of-use assets obtained in exchange for new finance lease liabilities
  
$
600,000
     $
1,363,980  

NOTE 7 – VARIABLE INTEREST ENTITIES

A variable interest in a variable interest entity (VIE) is an investment or other interest that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. Our variable interests in VIEs include limited partnership interests. VIEs sometimes finance the purchase of assets by issuing limited partnership interests that are either collateralized by or indexed to the assets held by the VIE.
 
The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers: (a) which variable interest holder has the power to direct activities of the VIE that most significantly impact the VIE’s economic performance; (b) which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; (c) the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; (d) the VIE’s capital structure; (e) the terms between the VIE and its variable interest holders and other parties involved with the VIE; and (f) related-party relationships. We reassess our evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether we are the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

Nonconsolidated VIEs
 
As of September 30, 2024 and June 30, 2024, two of our unconsolidated VIEs include interests in limited partnerships and limited liability companies. We have determined that the Company is not the primary beneficiary of these entities because the managing partner or member of each of these VIEs has the power to direct the activities that most significantly affect the VIE’s economic performance. Accordingly, these VIEs have not been consolidated with us, and they have been reported as investments at fair value in the September 30, 2024 and June 30, 2024 consolidated balance sheets.
 
19
The table below presents a summary of the nonconsolidated VIEs in which we hold variable interests:
 
Total Nonconsolidated VIEs
  
As of September 30, 2024
     As of June 30, 2024  
Fair value of investments in VIEs
  
$
773,001
     $ 796,940  
Carrying value of variable interests - assets
  
$
867,358
     $ 867,358  
Maximum Exposure to Loss:
                
Limited Partnership Interest
  
$
867,358
     $ 867,358  
 
Our exposure to the obligations of VIEs is generally limited to the carrying value of the limited partnership interests in these entities.

NOTE 8 – RELATED PARTY TRANSACTIONS
 
Advisory Agreements Effective January 1, 2021:
 
As discussed in Note 1, on January 26, 2021, our Board of Directors approved, effective January 1, 2021, two advisory agreements, an Advisory Management Agreement with the Real Estate Adviser and the Amended and Restated Investment Advisory Agreement with the Investment Adviser.
 
The terms of the Advisory Management Agreement with the Real Estate Adviser provide that we will continue to pay an Asset Management Fee on essentially the same terms as we were paying the Investment Adviser prior to 2021, namely based upon a percentage of Invested Capital (3% of the first $20 million, 2% of the next $80 million, and 1.5% over $100 million).  Invested Capital is equal to the amount calculated by multiplying the total number of outstanding shares, preferred shares, and the partnership units (units in our operating partnership issued by us and held by persons other than us) issued by us by the price paid for each or the value ascribed to each in connection with their issuance.  The Advisory Management Agreement also provides for a 2.5% Acquisition Fee on new (non-security) purchases, subject to certain limitations designed to eliminate incentives to “churn” our assets.  The new Advisory Management Agreement also provides for an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement.
 
The Investment Adviser will receive an annual fee equal to $100 for providing the investment advice to us as to our securities portfolio under the Amended and Restated Investment Advisory Agreement.

During the three months ended September 30, 2024 and 2023, we incurred asset management fees of $848,458 and $787,077, respectively.
 
The asset management fees mentioned above were based on the following quarter ended Invested Capital segregated in three columns based on the annual fee rate:

Asset Management Fee Annual %
    
3.0%

   
2.0%

   
1.5%

 
Total Invested
Capital
  
                               
Quarter ended:
                              
September 30, 2024
  
$
20,000,000
    
$
80,000,000
    
$
81,925,868
    
$
181,925,868
  

                               
Quarter ended:
                                
September 30, 2023
  
$
20,000,000
    
$
80,000,000
    
$
64,229,944
    
$
164,229,944
  
 
During the three months ended September 30, 2024 and 2023, we did not incur or accrue any incentive management fee under the new Advisory Management Agreement.
 
Property Management and Leasing Services:
 
On May 6, 2022, the Real Estate Adviser’s newly formed wholly owned subsidiary, Wiseman Company Management, LLC (“WCM”), purchased the property management and leasing services rights from Wiseman. Therefore, effective as of the acquisition date, WCM has been providing property management and leasing services to the limited partnerships acquired from WCM affiliates in accordance with the pre-existing agreements. There have been no changes to any of the management services agreements terms with these limited partnerships since the acquisition of the property management service rights. In addition, WCM also provides the property management and leasing services to 220 Campus Lane under a similar term as the eight-property partnership.

20
During the three months ended September 30, 2024, these WCM managed limited partnerships paid total property management fees of $167,077 and total leasing commissions of $310,573 to WCM. In addition, during the three months ended September 30, 2024, the ten partnerships also paid $497,663 to WCM for direct operating costs and construction of tenant improvements.

During the three months ended September 30, 2023, the WCM managed limited partnerships paid total property management fees of $125,750 and leasing commissions of $64,908 to WCM. In addition, during the three months ended September 30, 2023, the WCM managed limited partnerships also paid $399,771 to WCM for direct operating costs and construction of tenant improvements.
 
Organization and Offering Costs Reimbursement:

As detailed in the Offering Circular, offering costs incurred and paid by us in excess of $825,000 (excluding legal fees) in connection with the offering of preferred stock will be reimbursed by the Advisers except to the extent that 10% in broker fees are not incurred during the issuance of the preferred shares. In such case, the broker fees savings are available to us for paying marketing expenses or other non-cash compensation and therefore the broker fees savings increases the offering cost reimbursement threshold from the Advisers. As of September 30, 2024, we incurred $1,430,452 (excluding legal fees) of offering costs, of which $1,408,217 relates to offering cost paid by Mackenzie on behalf of us in connection with the preferred stock offering. As of June 30, 2024, we incurred $1,385,342 (excluding legal fees) of offering costs, of which $1,363,107 relates to offering cost paid by Mackenzie on behalf of us in connection with the preferred stock offering. The total offering cost incurred as of September 30, 2024 and June 30, 2024 were in excess of the total offering cost reimbursement threshold including the broker savings by $299,326, and $259,575, respectively. The cumulative offering costs in excess of the reimbursable threshold have been reimbursed by the Advisor during the year ended June 30, 2024 and the quarter ended September 30, 2024.
 
Administration Agreement:
 
Under the Administration Agreement, we reimburse MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services, subject to the independent directors’ approval. In addition, we reimburse MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of our Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff.
 
Since November 1, 2018, MacKenzie has provided transfer agent services, with the out-of-pocket costs incurred by MacKenzie being reimbursed by us. No fee (only cost reimbursement) is paid to MacKenzie for this service. Effective March 5, 2024, to comply with Nasdaq listing requirements, we hired Securities Transfer Corporation, a third-party transfer agent, to provide these services for our common and Series B preferred stocks. However, effective September 30, 2024, Computershare Limited, another third-party transfer agent, took over as transfer agent for our common stocks.
 
The administrative cost reimbursements for the three months ended September 30, 2024 and 2023 were $167,464 and $189,183, respectively. The transfer agent services cost reimbursement for the three months ended September 30, 2024 and 2023 were $1,536 and $16,567, respectively.
The table below outlines the related party expenses incurred for the three months ended September 30, 2024 and 2023, and unpaid as of September 30, 2024, and June 30, 2024.
 
   
Three Months Ended
    
Unpaid as of
  
Types and Recipient
  
September 30, 2024
    
September 30, 2023
    
September 30, 2024
    
June 30, 2024
  
                         
Asset management fees- the Real Estate Adviser
  
$
848,458
    
$
787,077
    
$
-
    
$
-
  
Administrative cost reimbursements- MacKenzie
     167,464       189,183       -       -  
Asset acquisition fees- the Real Estate Adviser (1)
    
292,000
      
107,500
      
-
      
-
  
Transfer agent cost reimbursements - MacKenzie
    
1,536
      
16,567
      
-
      
-
  
Organization & Offering Cost (2) - MacKenzie
     5,360      
8,260
      
37,229
      
79,632
  
Other expenses (3)- MacKenzie and Subsidiary’s GPs
     -       -       77,332       91,987  
Due to related entities
                  
$
114,561
    
$
171,619
  

(1)
Asset acquisition fees paid to the Real Estate Adviser were capitalized as a part of the real estate basis in accordance with our policy. The acquisition fee paid during the three months ended September 30, 2024 was for the acquisition of Green Valley Medical Center in August 2024.
(2)
Offering costs paid by MacKenzie - discussed in this Note under organization and offering costs reimbursements.
(3)
Expenses paid by MacKenzie and General Partner of a subsidiary on behalf of us and subsidiary.

21
NOTE 9 – MARGIN LOANS
 
We have a brokerage account through which we buy and sell publicly traded securities. The provisions of the account allow us 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, 2024 and June 30, 2024, we had no margin credit available for cash withdrawal or the ability to purchase in additional securities. Accordingly, as of September 30, 2024 and June 30, 2024, there was no amount outstanding under this short-term credit line.

NOTE 10 – MORTGAGE NOTES PAYABLE, NOTES PAYABLE AND DEBT GUARANTY

Madison and PVT Notes Payable

On February 26, 2021, Madison and PVT obtained mortgage loans from First Republic Bank in the amounts of $6,737,500 and $8,387,500, respectively, both at a fixed interest rate of 3.0% per annum through April 1, 2026. Effective May 1, 2026, interest rates will be the average of the twelve most recently published yields on U.S. Treasury securities adjusted a constant maturity of one year as published by the Federal Reserve System in the Statistical Release H.15 plus 2.75% per annum. The loans were obtained to finance the acquisition of the Commodore Apartments and The Park View (f/k/a as Pon De Leo Apartments), which are located in Oakland, California. The loans mature on April 1, 2031, and are cross-collateralized by both properties owned by Madison and PVT. The loan requires interest only monthly payments through April 1, 2026, and beginning May 1, 2026, monthly payments of principal and interests are due based on 360 months of amortization period. The remaining unpaid principal balance is due at maturity date. Accordingly, as of September 30, 2024 and June 30, 2024, the outstanding loan balances for both years were $6,737,500 and $8,387,500, on the Madison and PVT mortgage loans, respectively. The mortgage notes payable balances are disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

PT Hillview Notes Payable

On October 4, 2021, PT Hillview entered into a loan agreement with Ladder Capital Finance in the amount of $17,500,000. The annual interest rate was equal to the greater of (i) a floating rate of interest equal to 5.5% plus LIBOR, and (ii) 5.75%. The loan was obtained to finance the acquisition of Hollywood Apartments. The loan is secured by Hollywood Apartments and has an initial maturity date of October 6, 2023, which could be extended for two successive 12-month terms (the “Maturity Date”). On August 14, 2023, PT Hillview exercised the first extension option to extend the term of the loan to October 6, 2024. The loan requires interest-only monthly payments with the principal balance due at maturity date. Interest is due based on a 360-day amortization period. The outstanding balances as of September 30, 2024 and June 30, 2024 was $17,500,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets. PT Hillview also entered into an interest rate cap agreement on October 4, 2021, as required by the lender. The interest rate cap agreement was revised on September 29, 2023. We have not recorded the fair value and the changes in the fair value of the contract in our consolidated financial statements as the amounts were insignificant to our consolidated financial statements.

Pursuant to Section 2.4.5 of the loan agreement, the lender determined that a substitute benchmark rate transition event occurred. Accordingly, the loan agreement was amended on March 15, 2023 to update the interest rate on the loan. Pursuant to the amendment, effective April 6, 2023, the annual interest rate shall be equal to the greater of (i) a floating rate of interest equal to 5.61148% plus the secured overnight financing rate (SOFR) published by Federal Reserve Bank of New York, and (ii) 5.75%.

We (along with three other principals of True USA) guaranteed: (1) the “Recourse Obligations” as defined in the loan agreement, which are triggered only if the borrower of the loan engages in “Bad Boy Acts” (such as fraud, intentional misrepresentation, willful misconduct, waste, conversion, intentional failure to pay taxes or maintain insurance, filing for bankruptcy, ADA noncompliance, and environmental contamination, etc.), (2) a “Debt Service and Carry Guaranty” under the loan, which guarantees the payment of interest on the loan and other “Basic Carrying Costs”, and (3) a “Guaranty of Completion” guaranteeing that the redevelopment work contracted to be performed will be completed as agreed. As of September 30, 2024, we have not recorded any guaranty obligations since we have not engaged in any bad boy acts, substantial cash reserves are maintained to cover the basic carrying costs and the redevelopment construction work was completed as agreed.

In August 2024, the underlying property was listed for sale. Subsequently, on October 3, 2024, the loan agreement was amended to update the extension option. Pursuant to the amended loan agreement, PT Hillview has the option to extend the term of the loan beyond the current maturity date for three periods from October 6, 2024 to November 6, 2024 with a principal paydown of $515,000, the first extension option, from November 6, 2024 to December 6, 2024 with a principal paydown of $410,000, the second extension option, and from December 6, 2024 to February 6, 2025 with a principal paydown of $410,000, which is the final extension option.

22
MacKenzie Shoreline Mortgage Notes Payable

On May 6, 2021, MacKenzie Shoreline entered into a loan agreement with Pacific Premier Bank, in the amount of $17,650,000. The annual interest rate under the agreement is 3.65% for the first 60 months, and a variable interest rate based on a 6-month CME Term Secured Overnight Financing Rate plus a margin of 3.00 percentage points, for months thereafter until maturity. The loan was obtained to finance the acquisition of Shoreline Apartments. The loan matures on June 1, 2032, and is secured by Shoreline Apartments. The loan requires interest only monthly payments through June 30, 2027, and beginning July 1, 2027, monthly payments of principal and interests are due based on 360 months of amortization period. Accordingly, the outstanding loan balance as of September 30, 2024 and June 30, 2024, was $17,650,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

First & Main Mortgage Notes Payable

On January 4, 2021, First & Main entered into a loan agreement with Exchange Bank, in the amount of $12,000,000 at a fixed annual interest rate of 3.75%. The loan was obtained to finance the acquisition of First & Main Office Building. The loan matures on February 1, 2026, and is secured by First & Main Office Building. The loan requires monthly payments of principal and interest based on a 25-year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022, as discussed in Note 5. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024, was $10,880,252 and $10,963,355, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

The following table provides the projected principal payments on the loan for the next two years:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
254,222
  
         
2026
    
10,626,030
  
         
Total
  
$
10,880,252
  

First & Main Other Note Payables:

Junior Debt

In 2018, First & Main voted to issue $1,000,000 in interest-only junior promissory notes. The notes were issued in 2018 and 2019 with an original maturity date of December 31, 2023 and included no prepayment penalty for early retirement. Of the total promissory notes, notes with a total principal balance of $350,000 were paid off as of December 31, 2023. The maturity dates of the remaining promissory notes were extended to: December 31, 2025 for notes with a principal balance of $100,000, December 31, 2026, for notes with a principal balance of $100,000, and December 31, 2028 for the remaining notes with a principal balance of $450,000. Interest on the notes is payable on the first day of each month at 7% per annum. The promissory notes are disclosed as a part of the notes payable in the consolidated balance sheets.


In March 2024, the partnership obtained a new loan with the principal amount of $200,000 in an interest-only junior promissory note. The note was issued on March 8, 2024 with a maturity date of March 31, 2025. Interest on the note is payable on the first day of each month at 8.5% per annum.

Small Business Administration (“SBA”) Loan

In June 2020, First & Main borrowed $151,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75% starting on December 20, 2022. Monthly payments will be $731. The loan is disclosed as a part of the notes payable in the consolidated balance sheets.

Solar System Loan (First & Main)

In August 2020, First & Main borrowed $220,000 from The Wiseman Family Trust to fund the installation of the solar power system at First & Main Office Building. The loan will be paid back over a period of 10 years at an annual interest rate of 5%. Monthly payments of principal and interest will be $1,486. As of September 30, 2024 and June 30, 2024, the outstanding balance of the loan amounted to $158,495 and $163,362, respectively, and is disclosed as a part of the notes payable in the consolidated balance sheets.
1300 Main Mortgage Notes Payable

On April 12, 2019, 1300 Main entered into a loan agreement with Suncrest Bank, in the amount of $9,160,000 at a fixed annual interest rate of 4.55% for the first 60 payments. Beginning May 25, 2024, the interest rate will be calculated on the unpaid principal balance at an interest rate based on the Prime Rate as published in the Western Edition Wall Street Journal, plus a margin of 1%. The loan was obtained to consolidate the construction loans obtained during the development and construction of the building. The loan matures on April 25, 2029, and is secured by 1300 Main Office Building. The loan requires monthly payments of principal and interest of $51,610 for 60 consecutive payments followed by 59 monthly payments of principal and interest of $60,674 with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $8,125,372 and $8,168,350, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

Consistent with asset acquisition accounting, the debt assumed from the acquisition of 1300 Main was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $338,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value was fully amortized as of June 30, 2024.

The following table provides the projected principal payments on the loan for the next five years:

Fiscal Year Ending June 30, :
 
Principal
 
2025 (remainder)
 
$
346,731
 
 
 
 
 
 
2026
 
 
377,129
 
 
 
 
 
 
2027
 
 
394,900
 
 
 
 
 
 
2028
 
 
412,646
 
 
 
 
 
 
2029
 
 
6,593,966
 
 
 
 
 
 
Total
 
$
8,125,372
 


Subsequently, on November 4, 2024, 1300 Main entered into a loan agreement with Valley Strong Credit Union, in the amount of $8,000,000 at a fixed annual interest rate of 6.85%. The loan was obtained to refinance the prior $9,160,000 loan from Suncrest Bank which was scheduled to mature on April 25, 2029. The loan matures on November 15, 2029, and is secured by a real property and the assignment of all its rental revenue. The loan requires monthly payments of principal and interest of $52,534 through maturity. The remaining unpaid principal balance is due at maturity. The note is guaranteed by the Parent Company. This mortgage note payable was not included in our consolidated balance sheet as of September 30, 2024.



1300 Main Other Notes Payable:

SBA Loan

On January 13, 2021, 1300 Main borrowed $150,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75% starting on July 11, 2023. Monthly payments will be $731. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $160,118 and $160,111, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.


Woodland Corporate Center Two Mortgage Notes Payable



On October 2, 2019, Woodland Corporate Center Two entered into a loan agreement with Western Alliance Bank, in the amount of $7,500,000 at a fixed annual interest rate of 4.15%. The loan was obtained to finance the acquisition of Woodland Corporate Center Office Building. The loan matures on October 7, 2027 and is secured by Woodland Corporate Center Office Building. The loan requires monthly payments of principal and interest based on a 25-year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $6,575,236 and $6,626,543, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.
Subsequently, on October 4, 2024, Woodland Corporate Center Two entered into a loan agreement with Summit Bank, in the amount of $6,000,000 at a fixed annual interest rate of 6.5%. The loan was obtained to refinance the prior $7,500,000 loan from Western Alliance Bank which matured on October 7, 2024. The loan matures on October 5, 2027, and is secured by the real property and the assignment of all its rental revenue. The Parent Company has guaranteed the loan. The loan requires monthly payments of principal and interest of $40,873 through October 5, 2027. The remaining unpaid principal balance is due at maturity. This mortgage note payable was not included in our consolidated balance sheet as of September 30, 2024.



Main Street West Mortgage Notes Payable



On October 22, 2019, Main Street West entered into a loan agreement with First Northern Bank of Dixon, in the amount of $16,600,000 at a fixed annual interest rate of 4%. The loan matures on November 1, 2024, and is secured by Main Street West Office Building. The loan requires monthly payments of principal and interest based on a 25-year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of September 30, 2024, and June 30, 2024 was $14,781,015 and $14,893,842, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.


Subsequently, on November 1, 2024, the loan matured, and we were unable to agree with the bank on extension terms. As a result, the Company is currently in default under the note terms. The bank ordered appraisal was recently completed and concluded an “as-is” value of $20.5 million and “as if stabilized” value of $21.8 million.  The Bank has also requested a broker’s opinion of value, which is currently in process.  We are actively in negotiations with the bank to extend the maturity date.



Consistent with asset acquisition accounting, the debt assumed from the acquisition of Main Street West was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $717,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value, net of accumulated amortization as of September 30, 2024 and June 30, 2024 amounted to $65,182 and $162,955, respectively, and was netted against the total debt balance in the consolidated balance sheets.



Main Street West Other Notes Payable:



SBA Loan



On April 7, 2021, Main Street West borrowed $150,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75% starting in September 4, 2023. Monthly payments will be $731. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $161,300, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.



220 Campus Lane Mortgage Notes Payable



On September 8, 2023, 220 Campus Lane borrowed $2,145,000 from Northern California Laborers Pension Fund at a fixed annual interest rate of 5%. The loan was obtained to finance the acquisition of 220 Campus Lane Office Building and the underlying parcel of land. The loan matures on September 30, 2028, and is secured by the vacant office building and the underlying parcel of land. The loan requires interest only monthly payments of $8,938 through September 30, 2028. The remaining unpaid principal balance is due at maturity date. Accordingly, the outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $2,145,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.



Consistent with asset acquisition accounting, this debt was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $223,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value, net of accumulated amortization as of September 30, 2024 and June 30, 2024 amounted to $176,046 and $187,196, respectively, and was netted against the total debt balance in the consolidated balance sheets.

Campus Lane Residential Mortgage Notes Payable



On September 8, 2023, Campus Residential borrowed $1,155,000 from Northern California Laborers Pension Fund at a fixed annual interest rate of 5%. The loan was obtained to finance the acquisition of a vacant parcel of land. The loan matures on September 30, 2028, and is secured by the vacant parcel of land. The loan requires interest only monthly payments of $4,813 through September 30, 2028. The remaining unpaid principal balance is due at maturity date. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $1,155,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.



Consistent with asset acquisition accounting, the debt acquired from the acquisition of Campus Lane Residential Land was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $120,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value, net of accumulated amortization as of September 30, 2024 and June 30, 2024, amounted to $94,372 and $100,732, respectively, and was netted against the total debt balance in the consolidated balance sheets.



Green Valley Executive Center Mortgage Notes Payable



On August 16, 2022, the predecessor owner, GVEC entered into a $14,000,000 fixed-rate loan agreement with Columbia State Bank. The initial interest rate is 4.25% until October 1, 2027, increasing to 5.46% thereafter. The loan matures on September 1, 2032 and is secured by the Green Valley Executive Center. The loan requires monthly payments of principal and interest based on a 30-year amortization period with the remaining principal balance due at maturity. The loan was assumed by GVEC on January 1, 2024 from the predecessor owner. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $13,538,284 and $13,599,329, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.



Consistent with asset acquisition accounting, the debt assumed from the acquisition of Green Valley Executive Center was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $993,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value, net of accumulated amortization as of September 30, 2024 and June 30, 2024 amounted to $918,525 and $943,350, respectively, and was netted against the total debt balance in the consolidated balance sheets.



The following table provides the projected principal payments on the loan for the next five years:



Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
180,911
  
 
        
2026
    
263,665
  
 
        
2027
    
275,253
  
 
        
2028
    
250,402
  
 
        
2029
    
253,672
  
 
        
Thereafter
    
12,314,381
  
 
        
Total
  
$
13,538,284
  

One Harbor Center Mortgage Notes Payable

On April 20, 2020, under the predecessor ownership, One Harbor Center, LP borrowed $8,378,825 from Travis Credit Union at a fixed annual interest rate of 4.96%. The loan matures on June 1, 2028, and is secured by a real property and the assignment of all its rental revenue. The loan requires monthly payments of principal and interest of $46,092 through June 1, 2028. The remaining unpaid principal balance is due at maturity date. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $7,812,060 and $7,846,182, respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

Consistent with asset acquisition accounting, the debt assumed from the acquisition of One Harbor Center was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $334,000 of the acquisition cost was allocated to debt mark-to-market. The debt mark-to-market value is amortized over the remaining loan term. The debt mark-to-market value, net of accumulated amortization as of September 30, 2024 and June 30, 2024 amounted to $300,865 and $320,746, respectively, and was netted against the total debt balance in the consolidated balance sheets.
The following table provides the projected principal payments on the loan for the next four years:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
109,123
  
 
        
2026
    
151,701
  
 
        
2027
    
161,643
  
 
        
2028
    
7,389,593
  
 
        
Total
  
$
7,812,060
  

One Harbor Center Other Notes Payable:

SBA Loan

In August 2020, One Harbor Center borrowed $150,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75% starting on February 10, 2023. The outstanding balance of the loan as of September 30, 2024 and June 30, 2024 was $150,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

MRC Aurora Construction Loan

As discussed in Note 1, in order to fund the development of the Aurora Project (known as Aurora at Green Valley), we closed on a construction loan of $17.15 million with Valley Strong Credit Union, headquartered in Bakersfield, CA, on February 21, 2024. Interest rate on the loan will be the current index (Prime) plus a spread of 0.25%. As of September 30, 2024, we have not drawn any amount on the line. Per the loan agreement, MRC Aurora will first use its cash equity of $12.5 million, less any out-of-pocket costs already spent on the project, for the construction before drawing on the line.

MacKenzie Satellite Mortgage Notes Payable

On August 21, 2024, MacKenzie Satellite entered into a loan agreement with Summit Bank, in the amount of $6,000,000 at a fixed annual interest rate of 6.50%. The loan matures on August 21, 2027, and is secured by a real property and the assignment of all its rental revenue. The Parent Company has guaranteed the loan. The loan requires monthly payments of principal and interest of $40,867 through August 21, 2027. The remaining unpaid principal balance is due at maturity date. The outstanding balance of the loan as of September 30, 2024 was $5,984,050, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

The following table provides the projected principal payments on the loan for the next four years:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
65,351
  
 
        
2026
    
103,403
  
 
        
2027
    
110,427
  
 
        
2028
    
5,704,869
  
 
        
Total
  
$
5,984,050
  

27
Green Valley Medical Center Mortgage Notes Payable

On July 15, 2024, Green Valley Medical Center entered into a loan agreement with Valley Strong Credit Union, in the amount of $7,800,000 at a fixed annual interest rate of 7.12%. The loan matures on August 1, 2029, and is secured by the real property and the assignment of all its rental revenue. The Parent Company provided a guaranty of the Note. The loan requires monthly payments of principal and interest of $52,628 through December 1, 2028. The remaining unpaid principal balance is due at maturity date. The outstanding balance of the loan as of September 30, 2024 was $7,800,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets. We consolidated Green Valley Medical Center with our consolidated financial statements during the quarter ended September 30, 2024; accordingly, this mortgage note payable was not included in our consolidated balance sheet as of June 30, 2024.

The following table provides the projected principal payments on the loan for the next five years:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
52,637
  
 
        
2026
    
82,550
  
 
        
2027
    
88,623
  
 
        
2028
    
93,650
  
 
        
2029
    
102,032
  
 
        
Thereafter
    
7,380,508
  
 
        
Total
  
$
7,800,000
  

Green Valley Medical Center Other Notes Payable:

SBA Loan

In March of 2021, Green Valley Medical Center borrowed $150,000 from the SBA, under the Economic Injury Disaster Loan program. Related loan documents call for the loan to be amortized and repaid over 30 years at an annual interest rate of 3.75%. We have been making interest payments, but the Federal Government has not yet commenced amortization of the principal. The outstanding balance of the loan as of September 30, 2024 was $150,000, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets.

28
The table below presents the total loan outstanding at the underlying companies as of September 30, 2024, and the fiscal years those loans mature:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
39,880,419
  
 
        
2026
    
11,725,538
  
 
        
2027
    
1,152,985
  
 
        
2028
    
13,874,433
  
 
        
2029
    
10,924,135
  
 
        
Thereafter
    
53,294,672
  
 
        
Total
  
$
130,852,182
  

Debt Guaranty

The Wiseman partnerships have mortgage loans and solar leases with various banks, all of which were guaranteed by Wiseman and its owner, Doyle Wiseman and his trust, as of May 6, 2022, the date the Operating Partnership acquired the management companies. The mortgage loans of 1300 Main, LP, One Harbor Center, LP, Martin Plaza Associates, LP, and Main Street West, LP are also guaranteed by the partnerships’ general partner as the co-guarantor.

On July 1, 2022, subsequent to the Operating Partnership’s acquisition of the management companies, Wiseman’s owner, Doyle Wiseman and the Operating Partnership entered into an indemnity agreement whereby the Operating Partnership will indemnify Doyle Wiseman for any losses suffered by him through the default of a limited partnership on the mortgage secured by the property owned by the limited partnership, or default on any solar lease obligations. Historically, none of the limited partnerships has had any defaults on any mortgages and Doyle Wiseman has not had to satisfy any mortgage default through a guaranty. Furthermore, each of the limited partnerships is adequately capitalized, has sufficient cash flow from operations to service the mortgage notes and has not required Doyle Wiseman to provide any subordinated financial support to the limited partnerships. Therefore, we have not recorded any liability related to the guaranty on the mortgage loans as of September 30, 2024.

As of September 30, 2024, refinancings have resulted in removal of Wiseman as guarantor at Westside Professional Center and Green Valley Medical Center and subsequent to September 30, 2024 at Woodland Corporate Center Two and 1300 Main.  The Parent Company now guarantees the mortgage note at each of these properties, with the exception of Westside Professional Center which is guaranteed by its sole limited partner.

As discussed above, as of November 1, 2024, Main Street West is in default under its note terms. We are actively negotiating with the bank to extend the maturity date and if negotiations fail, the Company may be required to repay the outstanding balance. However, we have determined that the Company does not need to record any liability under the loan guaranty as of September 30, 2024, since the underlying property’s appraised value substantially exceeds the outstanding debt balance.

The mortgage loan of GVEC is guaranteed by Patterson Real Estate Services LP, an affiliate of the Adviser, and its owner, Berniece A. Patterson and her trust. As part of the GVEC contribution agreement, the Operating Partnership indemnified Berneice Patterson and her trust for any losses suffered by her through the default by GVEC on the mortgage loan. The mortgage loans for MacKenzie Satellite, obtained in August 2024 and the construction loan for MRC Aurora, LLC are also guaranteed by the Parent Company.

29
NOTE 11 – EARNINGS PER SHARE
 
Basic earnings per share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to potentially diluted securities. The following table sets forth the computation of basic and diluted earnings per share for three months ended September 30, 2024 and 2023:
 
  Three Months Ended   Three Months Ended  

September 30, 2024
   September 30, 2023
  
         
Net loss attributable to common stockholders
  
$
(8,142,679
)
   $ (4,597,421 )
                 
Basic and diluted weighted average common shares outstanding
    
13,345,967.15
       13,284,673.13
  
                 
Basic and diluted earnings per share
  
$
(0.61
)
   $ (0.35 )

NOTE 12 – SHARE OFFERINGS AND FEES
 
As discussed in Note 1, on August 26, 2024, in connection with our agreement with Maxim, the Company has issued through a private placement agreement an aggregate amount of 133,000 shares of common stock to Maxim’s affiliate, approximately 1% of the Company’s outstanding stock.

During the three months ended September 30, 2024, no common shares were issued under the DRIP. Additionally, in September 2024, we issued 83.80 common shares at $10.25 per share, to the Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common shares.

During the three months ended September 30, 2024, we issued 2,000.00 Series A preferred shares with total gross proceeds of $50,000 and 14,260.00 Series B preferred shares with total gross proceeds of $356,499 under the Offering Circular and incurred syndication costs of $46,011 in relation to preferred shares offering. For the three months ended September 30, 2024, we issued 2,059.14 Series A preferred shares with total gross proceeds of $46,333 under the DRIP and 84.96 Series B preferred shares with total gross proceeds of $1,912 under the DRIP.

During the three months ended September 30, 2023, we issued 60,063.66 common shares with total gross proceeds of $443,271 under the DRIP. In addition, in July 2023, we issued 2,265 common shares at $10.25 per share, to the Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common shares.

During the three months ended September 30, 2023, we issued 54,394.20 Series A preferred shares with total gross proceeds of $1,359,350 under the Offering Circular and incurred syndication costs of $143,695 in relation to preferred shares offering. For the three months ended September 30, 2023, we issued 1,771.45 Series A preferred shares with total gross proceeds of $39,858 under the DRIP.

NOTE 13 – SHARE REPURCHASE PLAN

On March 4, 2024, the Board of Directors suspended the common stock share repurchase program and DRIP in connection with its pursuit of the listing of its common stock on a securities exchange. During the three months ended September 30, 2024, we did not repurchase any shares.

During the three months ended September 30, 2023, we repurchased our own shares through our Share Repurchase Program and through third-party auctions as noted in the below table:

Period
  
Total Number
of Shares Repurchased
    
Average Repurchase
Price
Per Share
    
Total Repurchase
Consideration
  
During the three months ended September 30, 2023
                  
Common stock                  
 September 1, 2023 through September 30, 2023
    
64,092.00
    
$
7.38
    
$
472,999
  

30
NOTE 14 – STOCKHOLDER DIVIDENDS


The following table reflects the dividends per share that we have declared on our common stock and preferred stock during the three months ended September 30, 2024:



 
  
Dividends
  
 
  
Common Stock
    
Series A Preferred Stock
    
Series B Preferred Stock
  
During the Quarter Ended
  
Per Share
    
Amount
    
Per Share
    
Amount
    
Per Share
    
Amount
  
September 30, 2024
  
$
0.125
    
$
1,679,460
    
$
0.375
    
$
287,036
    
$
0.750
    
$
45,378
 *


* Of the total dividends declared for Series B during the three months ended September 30, 2024, $34,037 was an increase in liquidation preference and $11,341 was the cash dividend.


The above common and preferred dividends declared were recorded as dividends payable in the consolidated balance sheets as of September 30, 2024, and were subsequently paid in October 2024.

On October 7, 2024, we declared the Series A Preferred stock quarterly dividend of $0.375 per share payable at the rate of $0.125 per month for holders of record as of October 31, 2024, November 30, 2024, and December 31, 2024. The Series A preferred stock dividend declared on October 7, 2024, will be paid in January 2025.

On October 7, 2024, we also declared the Series B Preferred stock quarterly 3% dividend of $0.1875 per share payable at the rate of $0.0625 per month for holders of record as of October 31, 2024, November 30, 2024, and December 31, 2024. The Series B preferred stock dividend declared on October 7, 2024, will be paid in January 2025. In addition, the Series B Preferred Stock will accrue dividends at the rate of 9% per annum on the stated value as an increase in liquidation preference.

On October 7, 2024, we also declared the common stock quarterly dividend of $0.125 per share which will be paid in January 2025.



The following table reflects the distributions declared by the Operating Partnership for the Class A and Preferred unit holders during the three months ended September 30, 2024:



 
  
Distributions
  
 
  
Class A Units
    
Series A Preferred Units
    
Series B Preferred Units
  
During the Quarter Ended
  
Per Share
    
Amount
    
Per Share
    
Amount
    
Per Share
    
Amount
  
September 30, 2024
  
$
0.125
    
$
10,269
    
$
0.375
    
$
382,489
    
$
0.750
    
$
32,410
 *

* Of the total distributions declared for Series B during the three months ended September 30, 2024, $24,307 was an increase in liquidation preference and $8,103 was the cash dividend.

During the three months ended September 30, 2024, the Operating Partnership paid Series A preferred distributions of $342,654, of which $23,514 have been reinvested under our DRIP. Preferred (Series A and B), and common distributions declared during the three months ended September 30, 2024 were paid in October 2024.

The following table reflects the dividends per share that we have declared on our common stock and preferred stock during the three months ended September 30, 2023:

   
Dividends
  
   
Common Stock
    
Series A Preferred Stock
  
During the Quarter Ended
  
Per Share
    
Amount
    
Per Share
    
Amount
  
September 30, 2023
  
$
0.125
    
$
1,652,688
    
$
0.375
    
$
268,383
  

The above common and preferred quarterly dividends declared during the quarter were paid in October 2023.
 
During the three months ended September 30, 2023, we paid common dividends of $1,586,864, of which $443,271 have been reinvested under our DRIP. Similarly, during the three months ended September 30, 2023, we paid Series A preferred dividends of $242,173, of which $39,858 have been reinvested under our DRIP.

31
The following table reflects the distributions declared by the Operating Partnership for the Class A and Preferred unit holders during the three months ended September 30, 2023:

   
Distributions
  
   
Class A Units
    
Series A Preferred Units
  
During the Quarter Ended
  
Per Share
    
Amount
    
Per Share
    
Amount
  
September 30, 2023
  
$
0.125
    
$
10,372
    
$
0.375
    
$
177,930
  

The above common and preferred distributions declared during the quarter were paid in October 2023.

During the three months ended September 30, 2023, the Operating Partnership paid Class A distributions of $10,229. Similarly, during the three months ended September 30, 2023, the Operating Partnership paid Series A preferred distributions of $177,589, of which $20,454 have been reinvested under our DRIP.


NOTE 15 – COMMITMENTS

We commenced the Aurora Project construction in September 2024 and currently the building is being framed. As of September 30, 2024, MRC Aurora has entered into several contracts with third parties for the construction of the Aurora Project. These contracts represent MRC Aurora’s commitment to incur future expenditures for the development of the project. The total commitments as of September 30, 2024 and June 30, 2024, amounted to $18.16 million and $19.56 million, respectively.

32
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc., together with its subsidiaries as discussed in Note 1 of the financial statements included in this report (collectively, 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, stockholders 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. An economic downturn could impair our ability to continue to operate, which could lead to the loss of some or all of our investments, 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.

Further, we may experience fluctuations in our operating results due to a number of factors, including the effect of 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

Historically, we were an externally managed non-diversified closed-end management investment company that elected to be treated as a BDC under the 1940 Act, but we withdrew our election to be treated as a BDC on December 31, 2020. Our objective remains 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 generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) 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 REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our wholly owned subsidiary, MacKenzie NY Real Estate 2 Corp. (“MacKenzie NY 2”), Inc. is subject to corporate federal and state income tax on its taxable income at regular statutory rates.

We are managed by the Advisers, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate.

Investment Plan

We generally seek to invest in real estate assets. We intend to invest at least 80% of our total assets in equity or debt in real estate assets. We can invest up to 20% of our total assets in investment securities of real estate companies. A real estate company is one that (i) derives at least 50% 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% of its assets invested in such real estate. We will 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. When purchasing securities, we generally favor 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.

Our investment objective is to generate current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments. Our independent directors review our investment policies periodically, at least annually, to confirm that our policies are in the best interests of our stockholders. Each such determination and the basis thereof are contained in the minutes of our Board of Directors meetings.

33
We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value.

We intend to expand our investment strategy to include acquisition of distressed real properties. Like our other investments, we would expect to hold distressed properties and infuse funds as necessary to extract unrealized value.

We will engage in various investment strategies to achieve our overall investment objectives. The strategy we select depends upon, among other things, market opportunities, the skills and experience of the Advisers’ investment team and our overall portfolio composition. We generally seek to acquire assets that produce ongoing distributable income for investors, yet with a primary focus on purchasing such assets at a discount from what the Advisers estimate to be the actual or potential value of the real estate.

We intend to continue our historical activities related to launching tender offers to purchase shares of non-traded REITs in order to boost our short-term cash flow and to support our distributions, subject to the constraint that such securities will not exceed 20% of our portfolio. We believe this niche strategy will allow us to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance that some portion of any distribution is not a return of capital.

Rental and Reimbursement

We generate rental revenue by leasing office space and apartment units to a building’s tenants. These tenant leases fall under the scope of Accounting Standards Codification (“ASC”) Topic 842 and are classified as operating leases. Revenues from such leases are recognized on a straight-line basis over the terms of the lease agreements.

Investment Income

We generate revenues in the form of operating income, 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) advisory fees to our Advisers; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement; and (iii) other real estate properties operating expenses, including interest expenses on debt obtained to finance our property acquisitions, as detailed below. Our investment advisory fees compensate our Investment Adviser and Real Estate Adviser for their 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 operating and maintaining real estate properties;

•
the cost of calculating our net asset value, including the cost of any third-party valuation services;

•
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, any stock exchange listing fees in the future;

•
federal, state and local taxes;

•
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 and sub-administration, including printing, mailing, long distance telephone 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 and applicable federal and state securities laws; and

34

 •
all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that are 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 and our chief financial officer and any administrative support staff.

Portfolio Investment Composition

As of September 30, 2024, we owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below. We also owned various investments in entities that own real estate which gave us enough control such that the investments are not securities for 1940 Act purposes, but not enough to consolidate the financial statements of such entities with our own; these are listed below as “Unconsolidated investments (non-securities), at fair value.” The following table summarizes the composition of our investments at fair value as of September 30, 2024, and June 30, 2024:

   
Fair Value
  
Investments, at fair value
  
September 30, 2024
    
June 30, 2024
  
5210 Fountaingate, LP
  
$
4,950
    
$
4,950
  
Blackstone Real Estate Income Trust, Inc. - Class S
    
-
      
330,828
  
Highlands REIT, Inc.
    
74,735
      
69,322
  
Lakemont Partners, LLC
    
768,052
      
791,990
  
Moody National REIT II, Inc.
    
16,373
      
18,759
  
National Healthcare Properties, Inc.
    
833,850
      
856,285
  
SmartStop Self Storage REIT, Inc. - Class A
    
40,948
      
41,149
  
Starwood Real Estate Income Trust, Inc. - Class S
    
24,410
      
24,821
  
Total
  
$
1,763,318
    
$
2,138,104
  

   
Fair Value
  
Unconsolidated investments (non-security), at fair value
  
September 30, 2024
    
June 30, 2024
  
Green Valley Medical Center, LP
  
$
-
    
$
2,005,102
  
Martin Plaza Associates, LP
    
474,539
      
465,053
  
Westside Professional Center I, LP
    
1,309,931
      
1,436,171
  
Total
  
$
1,784,470
    
$
3,906,326
  

Properties

In addition to our investment securities, we currently own and manage nine commercial real estate properties: Satellite Place Office Building located in Duluth, GA, 1300 Main Office Building, First & Main Office Building and Main Street West Office Building located in Napa, CA, Woodland Corporate Center located in Woodland, CA, 220 Campus Lane Office Building, Green Valley Medical Center and Green Valley Executive Center located in Fairfield, CA and One Harbor Center located in Suisun, CA and four residential apartments: Commodore Apartments and The Park (f/k/a as Pon De Leo Apartments), located in Oakland, CA, Hollywood Apartments located in Los Angeles, CA, and the Shoreline Apartments in Concord, CA. 1300 Main Office Building, First & Main Office Building, Main Street West Office Building, Woodland Corporate Center, Hollywood Apartments, and Green Valley Medical Center are owned through our subsidiary, the Operating Partnership; the Commodore Apartments are owned through our subsidiary Madison; The Park View (f/k/a as Pon De Leo Apartments) is owned through our subsidiary PVT; and the Shoreline Apartments are owned through our subsidiary BAA-Shoreline. In August 2024, we have listed Hollywood Apartments for sale.

35
We own our properties through our subsidiaries, which are listed in the table below.

Property:
Property Owners
Commodore Apartments
Madison-PVT Partners LLC
The Park View (fka as Pon De Leo Apartments)
PVT-Madison Partners LLC
Hollywood Apartments
PT Hillview GP, LLC
Shoreline Apartments
MacKenzie BAA IG Shoreline LLC
Satellite Place Office Building
MacKenzie Satellite Place Corp.
First & Main Office Building
First & Main, LP
1300 Main Office Building
1300 Main, LP
Woodland Corporate Center
Woodland Corporate Center Two, LP
Main Street West Office Building
Main Street West, LP
220 Campus Lane Office Building
220 Campus Lane, LLC
Green Valley Executive Center
GV Executive Center, LLC
One Harbor Center
One Harbor Center, LP
Green Valley Medical Center
Green Valley Medical Center, LP

1300 Main Office Building contains 20,145 square feet, of which approximately 13,900 square feet is office space and the remainder is designated as retail space. As of September 30, 2024, the property is 95% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
Wilson Daniels
Wine Wholesaler
  
6,712
    
$
398,292
  
06/15/2031
1, 5 years
Norcal Gold
Real Estate
  
2,896
    
$
178,656
  
03/31/2026
No
Bao Ling Li
Restaurant
  
3,212
    
$
170,960
  
11/30/2030
No
Whole Health
Medical
  
2,186
    
$
137,219
  
07/31/2025
No

The following information pertains to lease expirations at 1300 Main Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2025
  
1
    
2,186
    
$
137,219
    
13%
2026
  
1
    
2,896
    
$
178,656
    
16%
2029
  
1
    
1,059
    
$
68,194
    
6%
Thereafter
  
4
    
12,916
    
$
705,820
    
65%

First and Main Office Building contains 27,396 square feet, of which approximately 19,000 square feet is office space and the remainder is designated as retail space. As of September 30, 2024, the property is 100% occupied by 9 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
GVM Law
Legal Services
  
9,470
    
$
508,362
  
09/20/2026
2, 5 years
Brotlemarkle
Accounting Services
  
4,366
    
$
244,454
  
07/31/2030
2, 5 years
Napa Palisades
Restaurant
  
3,462
    
$
193,868
  
08/31/2040
No
Moss Adams
Accounting Services
  
3,428
    
$
169,480
  
06/30/2025
No

36
The following information pertains to lease expirations at First & Main Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2025
  
2
    
5,648
    
$
315,999
    
21%
2026
  
1
    
9,470
    
$
508,362
    
34%
2027
  
1
    
1,135
    
$
73,181
    
5%
Thereafter
  
5
    
11,122
    
$
616,314
    
40%

Main Street West Office Building contains 38,156 square feet, of which approximately 32,700 square feet is office space and the remainder is designated as retail space. As of September 30, 2024, the property is 89% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
 Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
AUL Corporation
Insurance
  
13,806
    
$
822,692
  
02/03/2025
No
State of California
Health Care
  
4,697
    
$
259,721
  
04/30/2028
No
Strategies To Empower People
Health Care
  
4,875
    
$
221,568
  
12/31/2027
No
Azzurro Pizzeria
Restaurant
  
2,735
    
$
144,000
  
07/31/2029
1, 5 years

The following information pertains to lease expirations at Main Street West Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2024
  
2
    
3,678
    
$
171,080
    
9%
2025
  
1
    
13,806
    
$
822,692
    
44%
2027
  
2
    
7,010
    
$
344,039
    
19%
Thereafter
  
3
    
9,373
    
$
512,669
    
28%

Satellite Place Office Building contains 134,785 square feet, all of which is office space. As of September 30, 2024, the property is approximately 71% occupied by 4 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease Expiration
Renewal
options
OS National, LLC
Title Services
  
71,085
    
$
1,398,953
  
12/31/2029
2, 5 years
Polytron
Title Services
  
10,737
    
$
212,512
  
04/30/2031
2, 5 years
Ampirical
Engineering Consulting
  
9,790
    
$
203,893
  
09/30/2030
2, 5 years
Sun Taiyang
Consumer Products
  
4,383
    
$
95,754
  
11/30/2029
1, 5 years

The following information pertains to lease expirations at Satellite Place Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2029
  
2
    
75,468
    
$
1,494,707
    
78%
 
2030
  
1
    
9,790
    
$
203,893
    
11%
 
2031
  
1
    
10,737
    
$
212,512
    
11%
 

37
Woodland Corporate Center Office Building contains 37,034 square feet, of which 7,797 square feet are laboratories and the rest is office space. All of the laboratory space is occupied by Agtech Innovation. As of September 30, 2024, the property is 100% occupied by 14 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
Agtech Innovation
Research and Development
  
12,940
    
$
341,680
  
08/31/2032
No
Children’s Home
  Society
 
Non-Profit Education
  
4,042
    
$
149,432
  
 
06/30/2028
 
No
Johnston, Martin
  & Montgomery
 
Accounting
  
3,388
    
$
133,668
  
 
11/02/2024
 
2, 5 years
Burger Rehab
Physical Therapy
  
4,013
    
$
121,011
  
09/22/2028
No

The following information pertains to lease expirations at Woodland Corporate Center Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2024
  
2
    
4,459
    
$
171,756
    
15%
2025
  
4
    
5,539
    
$
179,202
    
15%
2027
  
2
    
2,160
    
$
83,391
    
7%
2028
  
3
    
9,777
    
$
325,581
    
28%
Thereafter
  
3
    
15,099
    
$
416,296
    
35%

Green Valley Executive Center Office Building contains 46,101 square feet, of which approximately 41,600 square feet is office space and the remainder is designated as retail space. As of September 30, 2024, the property is 100% occupied by 17 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
Community Housing
Opportunities
Real Estate
  
8,510
    
$
349,819
  
08/31/2026
No
Arkshire Financial, LLC
Insurance
  
7,016
    
$
308,400
  
02/28/2027
No
Sticky Rice
Restaurant
  
4,511
    
$
184,853
  
08/17/2034
No
Larsen & Toubro Limited, Inc.
Multinational Conglomerate
  
3,312
    
$
178,896
  
02/13/2025
2, 5 years

The following information pertains to lease expirations at Green Valley Executive Center Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2025
  
4
    
7,455
    
$
358,074
    
18%

2026
  
3
    
13,567
    
$
567,951
    
28%
2027
  
3
    
9,147
    
$
414,464
    
20%
Thereafter
  
7
    
15,932
    
$
701,403
    
34%

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One Harbor Center Office Building contains 49,569 square feet, all of which is office space. As of September 30, 2024, the property is 93% occupied by 13 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease
Expiration
Renewal
options
Shimmick Construction Company, Inc.
Construction
  
10,221
    
$
340,380
  
05/15/2027
No
Richmond American Homes
Home Builder
  
7,993
    
$
256,860
  
12/31/2024
No
Equiventure
Health Care
  
6,446
    
$
212,724
  
11/16/2033
4, 5 years
Wiseman Company Mgt.
Real Estate
  
4,883
    
$
167,064
  
05/31/2026
No

The following information pertains to lease expirations at One Harbor Center Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2024
  
1
    
7,993
    
$
256,860
    
16%

2025
  
5
    
9,220
    
$
346,868
    
22%
2026
  
5
    
12,085
    
$
429,940
    
27%
Thereafter
  
2
    
16,667
    
$
553,104
    
35%

Green Valley Medical Center Office Building contains 31,590 square feet of which approximately 19,000 square feet is office space, approximately 8,300 square feet is health care space, and the remainder is designated as retail space. As of September 30, 2024, the property is 91% occupied by 13 tenants. The following table shows the largest tenants and square footage occupied:

Largest Tenants
Business
Business
  
Square Ft. Occupied
    
Annual Base Rent
  
Lease Expiration
Renewal
options
Cal OES
State Emergency Services
  
7,605
    
$
293,160
  
08/31/2031
No
Reliant
Property Management
  
3,341
    
$
147,216
  
11/06/2024
No
eDEA Care
Health Care
  
3,409
    
$
145,971
  
11/18/2024
No
Green Valley Oral Surgery
Health Care
  
2,179
    
$
99,253
  
05/07/2029
2, 10 years

The following information pertains to lease expirations at Green Valley Medical Center Office Building:

Year
  
Number of Leases Expiring
    
Total Area
    
Annual Base Rent
    
Percentage of Gross Rent
  
2024
  
2
    
6,750
    
$
293,187
    
25%

2026
  
1
    
889
    
$
32,076
    
3%
2027
  
1
    
1,332
    
$
66,561
    
6%
Thereafter
  
9
    
19,660
    
$
764,330
    
66%

Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units. As of September 30, 2024, Commodore Apartment building is approximately 91.7% occupied. The Park View is also a mid-rise apartment building built in 1929 and has 39 units. As of September 30, 2024, The Park View building is approximately 97.4% occupied. Hollywood Apartments, located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 54 units. The property contains approximately 37,000 square feet of net rentable apartment area and 8,610 square feet of retail space. All of the retail space is currently occupied by restaurants and nightclubs. The apartment units are 96.3% occupied as of September 30, 2024. Shoreline Apartments is a mid-rise apartment building built in 1967 and renovated in 2015 which has 84 units. As of September 30, 2024, Shoreline Apartments building is approximately 84.5% occupied.

39
The following table provides information regarding each of the residential properties:

Property Name
Sector
Location
  
Square
Feet
    
Units
    
Percentage Leased
    
Annual
Base Rent
    
Monthly Base Rent/Occupied Unit
  
The Park View
Multi-Family Residential
Oakland, CA
  
36,654
    
39
    
97.4%

 
$
1,107,628
    
$
2,429
  
Commodore
Multi-Family Residential
Oakland, CA
  
31,156
    
48
    
91.7%
 
$
836,659
    
$
1,585
  
Hollywood Apartments
Multi-Family Residential
Los Angeles, CA
  
36,991
    
54
    
96.3%
 
$
1,399,214
    
$
2,242
  
Shoreline Apartments
Multi-Family Residential
Concord, CA
  
67,925
    
84
    
84.5%
 
$
1,794,126
    
$
2,106
  

Property Name
Sector
Location
  
Square
Feet
    
Units
    
Percentage
Leased
    
Annual
Base Rent
    
Monthly Base
Rent/Occupied
Unit
  
Hollywood Apartments
Retail
Los Angeles, CA
  
8,610
    
1
    
100.0%

 
$
333,356
    
$
27,780
  

Our 220 Campus Lane Office building was purchased in September 2023. The office building was vacant at the time of our purchase. Currently we are in the process of renovating the building and marketing it for lease. As of September 30, 2024, four tenants are leasing space totaling 11,986 square feet or 27.7% of the building. The annualized base rent for these tenants is $371,640.

In addition to our commercial and residential real estate properties, we also own two parcels of land: a vacant parcel adjacent to our 220 Campus Lane Office Building in Fairfield, California (“Campus Lane Land”), and a vacant parcel located at 5000 Wiseman Way, Fairfield, California (“Aurora Land”). We acquired the Campus Lane Land in September 2023 with the long-term objective of developing it into a multi-family residential community. The entitlement process for the vacant land is currently underway, but the financial resources to realize our goal of commencing construction in late 2025 have not been secured and will be dependent upon the City’s approval process. The development of Aurora Land is discussed below. Both parcels of land are owned by the Operating Partnership through its subsidiaries: Campus Lane Residential, LLC, and MRC Aurora, LLC.

Aurora Land Development (known as Aurora at Green Valley)

We are actively constructing a multi-family residential community on this land which will include 72 units in three buildings, and a club house. The city’s planning commission approved our development project in September 2023, and we obtained all necessary building permits in August 2024 and the building construction phase commenced in September 2024. Construction is progressing on schedule and on budget. In February 2024, we commenced selling preferred units in MRC Aurora with the goal of raising $10 million in preferred capital and closed on a construction loan of $17.15 million. We have raised $3.17 million in preferred capital from outside investors as of the date of this report.

There are no present plans for any major renovation or development of any property except for our 220 Campus Lane Office Building, Aurora at Green Valley and Campus Lane Land, as discussed above. Each property is being held for income production and increased occupancy and/or rental rates. We have property and liability insurance policies on all properties which we believe are adequate.

Current Market and Economic Conditions

The markets in which our properties operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors. Our West coast multi-family residential properties are generally restricted from raising rents significantly by local rent control laws. Rent control can result in average rents that are significantly below market, and this provides some buffer against declining rents in a recession. However, in order to encourage development, rent control usually does not apply to newer properties. Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties.

40
Our consolidated office properties, 1300 Main Office Building, First and Main Office Building, Main Street West Office Building, One Harbor Center, Satellite Place Office Building, Woodland Corporate Center, 220 Campus Lane Office Building, and Green Valley Executive Center are all Class A suburban office properties and are located in Napa, Woodland, Suisun City and Fairfield, California and Duluth, Georgia. All properties must compete with every other office property in the market, as well as facing the uncertainty of workers returning to the office after COVID-19.

Recently, the broader economy began experiencing increased levels of inflation, higher interest rates and tightening monetary and fiscal policies, although inflation has now moderated and interest rates have begun to come back down some. The Federal Reserve increased the federal funds rate multiple times in 2022 and 2023. We currently have fixed and variable interest rates for our loans. The rise in overall interest rates has caused an increase in our variable rate borrowing costs resulting in an increase in interest expense. The higher interest rates imposed by the Federal Reserve to address inflation may also adversely impact real estate asset values. In addition, a prolonged period of high and persistent inflation could cause an increase in our expenses. The current market and economic conditions could have a material impact on our business, cash flow and results of operations. It could also impact our ability to find suitable acquisitions, sell properties, and raise equity and debt capital.

Results of Operations

Three Months Ended September 30, 2024 and 2023. The commercial and residential properties owned by us during the three months ended September2024 and 2023 are as follows:

Three Months Ended September 30, 2024
Three Months Ended September 30, 2023
 
 
Commercial properties
Commercial properties
Satellite Place Office Building
Satellite Place Office Building
First & Main Office Building
First & Main Office Building
1300 Main Office Building
1300 Main Office Building
Main Street West Office Building
Main Street West Office Building
Woodland Corporate Center
Woodland Corporate Center
220 Campus Lane Office Building
220 Campus Lane Office Building
Green Valley Executive Center
  
One Harbor Center
 
Green Valley Medical Center (Acquired in August 2024)
 
 
 
Residential properties
Residential properties
Commodore Apartments
Commodore Apartments
The Park View
The Park View
Hollywood Apartments
Hollywood Apartments
Shoreline Apartments
Shoreline Apartments

Rental and reimbursements revenues:

Rental and reimbursement revenues are generated from our commercial and residential real estate properties. During the three months ended September 30, 2024, we generated $4.95 million in rental and reimbursements revenues, of which $3.47 million was generated from our nine commercial properties and $1.48 million was generated from our four residential properties. During the three months ended September 30, 2023, we generated $3.56 million in rental and reimbursements revenues, of which $2.06 million was generated from our five commercial properties, which excludes 220 Campus Lane Office Building, as it had not yet commenced operations during the three months ended September 30, 2023 and $1.50 million was generated from our four residential properties. The total increase in rental revenues was mainly due to the acquisition of three office buildings (Green Valley Executive Center, One Harbor Center and Green Valley Medical Center) since September 2023.

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, 2024 and 2023 was $0.02 million and $0.32 million, respectively. During the three months ended September 30, 2024 we received minimal distributions from operations, sales, and liquidations as compared to $0.09 million during the three months ended September 30, 2023. The decrease was mainly due to the decrease in distributions received from investments. During the three months ended September 30, 2024, we received dividends, interest, and other investment income of $0.02 million as compared to $0.23 million received during the three months ended September 30, 2023. This decrease was mainly due to decrease in interest income from our cash deposits in money market funds during the three months ended September 30, 2024.

41
Expenses:

Our asset management and incentive management fees are based on the advisory agreements that were effective January 1, 2021.

Asset management fee:

The asset management fees for the three months ended September 30, 2024 and 2023 were $0.85 million and $0.79 million, respectively. The slight increase was due to total increase of $17.70 million in total invested capital from $164.23 million as of September 30, 2023 to $181.93 million as of September 30, 2024.

Incentive management fee:

Under the Advisory Management Agreement, we pay an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. We did not incur any incentive management fee for the three months ended September 30, 2024 and 2023.

Administrative cost and transfer agent reimbursements:

Costs reimbursed to MacKenzie for the three months ended September 30, 2024 were $0.17 million as compared to $0.19 million for the three months ended September 30, 2023. 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, 2023, mainly due to hiring of a third party transfer service agent since September 30, 2023.

Transfer agent cost reimbursements paid to MacKenzie for the three months ended September 30, 2024 and 2023 were $0.00 million and $0.02 million, respectively.

Property operating and maintenance expenses:

Operating and maintenance expenses mainly consist of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of our commercial and residential real estate assets. During the three months ended September 30, 2024, we incurred operating and maintenance expenses of $1.88 million, of which $1.19 million were incurred in the operation of our nine commercial properties and $0.69 million were incurred in the operation of our four residential properties. During the three months ended September 30, 2023, we incurred operating and maintenance expenses of $1.39 million, of which $0.69 million were incurred in the operation of our six commercial properties and $0.7 million from our four residential properties. The increase in the operating expenses was mainly due to the acquisitions of three new office buildings (Green Valley Executive Center, One Harbor Center, and Green Valley Medical Center) since September 30, 2023.

Depreciation and amortization:

During the three months ended September 30, 2024, we recorded depreciation and amortization of $2.28 million, of which $1.79 million was attributable to the depreciation and amortization of real estate and intangible assets of our nine commercial properties and $0.49 million was attributable to our four residential properties. During the three months ended September 30, 2023, we recorded depreciation and amortization of $1.56 million, of which $1.01 million was attributable to the depreciation and amortization of real estate and intangible assets of our six commercial properties and $0.55 million was attributable to our four residential properties. The increase in total depreciation and amortization of $0.72 million during the three months ended September 30, 2024 was due to the acquisitions of three new office buildings (Green Valley Executive Center, One Harbor Center, and Green Valley Medical Center) since September 30, 2023.

Interest expense:

Interest expense for the three months ended September 30, 2024 was $1.89 million, of which $1.14 million was incurred on the mortgage notes payable associated with our nine commercial properties and $0.75 million was incurred on the mortgage notes payable associated with our four residential properties and the debt on Campus Lane Residential. Interest expense for the three months ended September 30, 2023 was $1.32 million, of which $0.62 million was incurred on the mortgage notes payable associated with our five commercial properties, which exclude Satellite Place Office Building since there was no debt on the property during the three months ended September 30, 2023, and $0.7 million was incurred on the mortgage notes payable associated with our four residential properties and the debt on Campus Lane Residential. The total increase of $0.57 million in interest expense during the three months ended September 30, 2024, was primarily due to the additional mortgage notes payable of four office buildings (Satellite Place Office Building, Green Valley Executive Center, One Harbor Center, and Green Valley Medical Center) since September 30, 2023.

42
Other operating expenses:

Other operating expenses include professional fees, directors’ fees, printing and mailing expense, and other general and administrative expenses. Other operating expenses for the three months ended September 30, 2024 and 2023, were $0.92 million and $0.55 million, respectively. The increase in other operating expenses was mainly due to the acquisition of three commercial properties (Green Valley Executive Center, One Harbor Center, and Green Valley Medical Center) since September 30, 2023 resulting in a higher amount of general and administrative operating expenses during the three months ended September 30, 2024.

Net realized gain on sale of investments:

During the three months ended September 30, 2024, we recorded a realized gain of $0.15 million as compared to no realized gain during the three months ended September 30, 2023. Total realized gain for three months ended September 30, 2024 was realized from the sale of two non-traded REIT securities.

Net unrealized gain (loss) on investments:

During the three months ended September 30, 2024, we recorded a net unrealized loss of $0.14 million, which was net of $0.10 million of unrealized gain reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized losses excluding the reclassification adjustment for the three months ended September 30, 2024 were $0.04 million, which resulted from fair value depreciations of $0.12 million from general partnership interests, $0.02 million from limited partnership interests and fair value appreciations of $0.10 million from non-traded REIT securities.

During the three months ended September 30, 2023, we recorded net unrealized losses on investments of $2.27 million, which resulted from fair value depreciation in the amounts of $1.11 million from limited partnership interests, $0.73 million from non-traded REIT securities and $0.43 million from general partnership interests.

Income tax provision (benefit):

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 generally distributes at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and excluding any capital gain) 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 REIT taxable income, it will be subject to U.S. federal corporate income tax on its undistributed taxable income. In addition, it will be subject to a 4% excise tax if the actual amount that it pays to its stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2023. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2023. In addition, for the tax year 2024, we intend to pay the requisite amounts of dividends during the year and meet other REIT requirements such that the Parent Company 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 2024.MacKenzie NY 2 is subject to corporate federal and state income tax on its taxable income at regular statutory rates. As of September 30, 2024, it did not have any taxable income for tax year 2023 and 2024. Therefore, we did not record any tax provisions during any fiscal periods within the tax year 2023 and 2024. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return.

The Operating Partnership is a limited partnership. Hollywood Hillview, MacKenzie Shoreline, Madison, PVT, 220 Campus Lane, Campus Lane Residential, Green Valley Executive Center, One Harbor Center and Green Valley West are limited liability companies. First & Main, 1300 Main, Woodland Corporate Center Two, Main Street West, and Green Valley Medical Center are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities.

43
Liquidity and Capital Resources

Capital Resources:

We offered to sell up to 5 million shares of common stock in our first public offering and up to 15 million shares of common stock in each of our second and third public offerings. We have raised total gross proceeds of $119.10 million from the issuance of common stock under the three public offerings, $42.46 million from our first public offering, which concluded in October 2016, $67.99 million from the second public offering, which concluded in October 2019, and $8.65 million from our third public offering, which concluded in October 2020. In addition, we have raised $15.56 million from the issuance of common shares under the DRIP as of September 30, 2024. Out of the total proceeds from DRIP, we have utilized a total of $14.28 million to repurchase common shares under the Share Repurchase Program. In November 2021, the SEC qualified our Offering Circular pursuant to Regulation A to sell up to $50,000,000 of shares of our Series A preferred stock at an initial offering price of $25.00 per share. On October 14, 2022, we amended our Offering Circular and increased the offering to sell up to $75 million of shares of our Series A preferred stock. On November 1, 2023, we further amended our Offering Circular to sell an aggregate of up to $75 million of shares of either our Series A preferred stock or our Series B preferred stock. This post-effective amendment to the Offering Circular was declared effective on November 14, 2023. We had raised $18.56 million through the sale of our Series A preferred stock and $1.65 million Series B preferred stock pursuant to the Offering Circular as of September 30, 2024. In addition, we have raised $0.30 million from the issuance of Series A and Series B preferred shares under the DRIP.

We plan to fund future investments with the net proceeds raised from our preferred equity 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. However, we have not raised as much from our preferred equity offering as we did when it was first offered, at least in part due to rising interest rates making the preferred return less attractive. Thus, there is no guarantee that we can raise sufficient funds to meet our goals in terms of growth, strategic or necessary loan rebalancings, and additional investments. We also may fund a portion of our investments through borrowings from banks and issuances of senior securities. We also may borrow money within the underlying companies in which we have majority ownership.

We intend to utilize leverage to enhance the total returns of our portfolio. Historically, we were only able to access leverage at attractive costs through a credit facility, but the termination of our BDC status effective December 31, 2020 has provided us with greater flexibility in choosing among different alternatives for raising debt capital going forward.

We also have greater flexibility in issuing securities with common equity participation features (such as warrants and convertible notes) and/or additional classes of stock (such as preferred) in order to facilitate capital formation now that we are no longer subject to the restrictions of the 1940 Act.

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.

We used the funds raised from our public offerings to invest in portfolio companies and to pay operating expenses.

We finished the three months ended September 30, 2024, with cash and cash equivalents, and restricted cash of approximately $11.97 million. Our principal demands for cash are to fund operating and administrative expenses, debt service obligations, and dividends on our common and preferred Series A and B stocks. In addition, we may also use cash to purchase additional properties. We expect to fund our material cash requirements over the next year through a combination of cash on hand, net cash provided by our property operations, new capital raised from our preferred series A and B stocks, and new borrowings at the underlying companies and at the Parent Company level under a new line of credit.

Cash Flows:

Three months ended September 30, 2024:

For the three months ended September 30, 2024, we experienced a net decrease in cash of $1.11 million. During this period, we generated cash of $1.32 million in our operating activities, used cash of $6.00 million in our investing activities and generated cash of $3.57 million in our financing activities.

The net cash inflow of $1.32 million from operating activities resulted from $4.62 million of rental revenues and $0.03 million of investment income offset by cash outflow of $3.33 million used in operating expenses.

44
The net cash outflow of $6.00 million from investing activities resulted from $6.50 million of real estate acquisitions through our subsidiaries, $0.17 million purchases of equity investments, offset by cash inflow of $0.67 million from sale of investments.

The net cash inflow of $3.57 million from financing activities resulted from $5.89 million additional mortgage borrowings, $0.36 million capital contributions by non-controlling interests holders, $0.36 million issuance of Series B preferred stock and $0.05 million issuance of Series A preferred stock, offset by $1.66 million payment of dividends to common stockholders, $0.41 million payment on existing mortgage notes payables, $0.34 million capital distributions to non-controlling interests holders, $0.24 million payment of dividends to Series A preferred stockholders, $0.20 million change in capital pending acceptance, $0.17 million payment of selling commissions and fees, $0.06 million repayment of finance lease liabilities and $0.01 million payment of dividends to Series B preferred stockholders.

Three months ended September 30, 2023:

For the three months ended September 30, 2023, we experienced a net decrease in cash of $3.46 million. During this period, we generated cash of $0.52 million in our operating activities, used cash of $5.43 million in our investing activities and generated cash of $1.45 million in our financing activities and.

The net cash inflow of $0.52 million from operating activities resulted from $3.76 million of rental revenues and $0.32 million of investment income, offset by cash outflows of $3.56 million used in operating expenses.

The net cash outflow of $5.43 million from investing activities resulted from $5.06 million of real estate acquisitions through our subsidiaries and $0.39 million in purchases of equity investments, offset by cash inflows of $0.02 million from distributions received from our investments that are considered return of capital.

The net cash inflow of $1.45 million from financing activities resulted from $2.95 million proceeds from additional mortgage borrowings and $1.36 million proceeds from the issuance of Series A preferred stock, offset by $1.36 million payment of dividends to common stockholders, $0.45 million redemption of common stocks, $0.18 million payment of selling commissions and fees, $0.17 million capital distributions to non-controlling interests holders, $0.01 million repayment of finance lease liabilities, $0.40 million change in capital pending acceptance and $0.29 million payment on existing mortgage notes payable.

Material Cash Obligations

We have entered into two contracts under which we have material future commitments: (i) the Advisory Management Agreement and the Amended and Restated Investment Advisory Agreement, under which the Advisers serves as our advisers, 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 Advisory Management Agreement in future periods will be (i) a percentage of the value of our Invested Capital; (ii) Acquisition Fees, and (iii) incentive fees based on our performance above specified hurdles. 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. For additional information concerning the terms of these agreements and related fees paid, see Note 8 – Related Party Transactions in the consolidated financial statements included in this report.

Borrowings

In August 2024, we have applied for a new line of credit at the Parent Company level. We anticipate utilizing this credit facility on a short-term basis to bridge the gap between our asset acquisition expenditures and the inflow of funds from our planned capital raise. The bank is currently reviewing our application. We 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. We also borrow money within the underlying companies in which we have majority ownership.

45
The below table presents the total loans outstanding at the underlying companies as of September 30, 2024 and the fiscal years those loans mature:

Fiscal Year Ending June 30, :
  
Principal
  
2025 (remainder)
  
$
39,880,419
  
 
        
2026
    
11,725,538
  
 
        
2027
    
1,152,985
  
 
        
2028
    
13,874,433
  
 
        
2029
    
10,924,135
  
 
        
Thereafter
    
53,294,672
  
 
        
Total
  
$
130,852,182
  

Three of our underlying companies: Hollywood Hillview, Woodland Corporate Center Two, and Main Street West’s debts mature during the fiscal year ending June 30, 2025. The $17.5 million note payable on Hollywood Hillview matured in October 2024; however, prior to the maturity date, the loan agreement was amended with the options to extend the current maturity date for three periods from October 6, 2024 to November 6, 2024 with a principal paydown of $515,000, from November 6, 2024 to December 6, 2024 with a principal paydown of $410,000, and from December 6, 2024 to February 6, 2025 with a principal paydown of $410,000, as discussed in Note 10 in the financial statements included in this report. We also listed the underlying property for sale in August 2024. The $7.5 million note payable on Woodland Corporate Center Two also matured in October 2024, and was refinanced through a new loan that closed on October 4, 2024. The $14.89 million note payable on Main Street West matured on November 1, 2024; however, we were unable to agree with the bank on the principal paydown amount to extend the maturity date. As a result, the Company is currently in default under the note terms. We are actively negotiating with the bank to extend the maturity date.

Distributions to Stockholders

We pay quarterly distributions to stockholders to the extent that we have income from operations available. Our quarterly distributions, if any, will be determined by our Board of Directors after a review and distributed pro-rata to holders of our shares; we declare distributions on a monthly basis, but pay each quarter. Any distributions to our stockholders will be declared out of assets legally available for distribution. In no event are we permitted to borrow money to make distributions if the amount of such distributions would exceed our annual accrued and received revenues, less operating costs. Distributions 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 not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) 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 REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.

We have a DRIP that provides for reinvestment of our dividends and other distributions on behalf of stockholders for any individual stockholder who elects to participate in the DRIP, provided that the DRIP is permitted by the state in which the stockholders reside. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. On March 4, 2024, the Board of Directors suspended the common stock share repurchase program and DRIP in connection with trading of its common stock on the OTCQX Best Market. When our common stock became eligible for trading on OTC Markets in April 2024, the share repurchase program automatically terminated, and the Board of Directors will decide whether, and when, to reinstate the DRIP.

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During the three months ended September 30, 2024, the Board approved the following quarterly dividends:

 
  
Dividends
  
 
  
Common Stock
    
Series A Preferred Stock
    
Series B Preferred Stock
  
During the Quarter Ended
  
Per Share
    
Amount
    
Per Share
    
Amount
    
Per Share
    
Amount
  
September 30, 2024
  
$
0.125
    
$
1,679,460
    
$
0.375
    
$
287,036
    
$
0.750
    
$
45,378
*
 
* Of the total dividends declared for Series B during the three months ended September 30, 2024, $34,037 was an increase in liquidation preference and $11,341 was the cash dividend.

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Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our portfolio primarily consists of equity and debt investments in smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments are considered speculative in nature. 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, 2024, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 10% of our total assets as of that date. As discussed in Note 4 – Investments, to our consolidated financial statements, 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 portfolio sometimes also includes shares of publicly traded REITs, which are valued at recently quoted trading prices. Our investment strategy represents a high degree of business and financial risk due primarily to the general illiquidity of our investments. 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.

In addition, we are exposed to interest rate risk with respect to our variable-rate indebtedness, generally an increase in interest rates would directly result in higher interest expense. We seek to manage our exposure to interest rate risk by utilizing a mix of fixed and floating rate financing, and through interest rate hedging agreements to fix or cap our variable rate debt. As of September 30, 2024, the outstanding principal balance of our variable rate indebtedness was $17.5 million, which is the mortgage debt on Hollywood Apartments. The debt is indexed to Secured Overnight Financing Rate (“SOFR”). In order to mitigate the raising interest rate risk, we have executed an interest rate cap. For the year ended September 30, 2024, a 10% increase in SOFR would have resulted in no change in interest expense, net of the impact of our interest rate cap.

Item 4.
CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date 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, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS

None.

Item 1A.
RISK FACTORS

There have been no material changes to our risk factors discussed in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended June 30, 2024.

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

During the three months ended September 30, 2024, we issued 83.80 common shares to the Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common shares on a 1:1 conversion ratio.

During the three months ended September 30, 2024, we issued 2,000.00 of Series A preferred shares with total gross proceeds of $50,000, 14,260.00 of Series B preferred shares with total gross proceeds of $356,499. We also issued 2,059.14 Series A preferred shares with total gross proceeds of $46,333 under the DRIP related to the Series A preferred and 84.96 Series B preferred shares with total gross proceeds of $1,912 under the DRIP related to the Series B preferred. All such issuances were pursuant to our Regulation A Series A and Series B preferred stock offering.

These private placements of our common and preferred shares were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 3(b)(2) and Regulation A thereunder (in the case of our Regulation A offering of preferred shares) or Section 4(a)(2) and Regulation D thereunder (in the case of Operating Partnership unit conversions).

On August 26, 2024, in connection with our agreement with Maxim, the Company has issued in a private placement an aggregate amount of 133,000 shares of common stock to Maxim’s affiliate, approximately 1% of the Company’s outstanding stock. The private placement is exempt from registration under the Section 4(a)(2) of the Securities Act, and Regulation D thereunder. The Company is relying, in part, upon representations of the Maxim that it is an accredited investor as defined in Regulation D under the Securities Act. The common stock does not have any conversion rights.

Issuer Purchases of Equity Securities

None.

Item 3.
DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.
MINE SAFETY DISCLOSURES

Not applicable.

Item 5.
OTHER INFORMATION

During the quarterly period September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K under the Act).

49
Item 6.
EXHIBITS

Exhibit
Description
   
Section 302 Certification of Robert Dixon (President and Chief Executive Officer)
   
Section 302 Certification of Angche Sherpa (Treasurer and Chief Financial Officer)
   
Section 1350 Certification of Robert Dixon (President and Chief Executive Officer)
   
Section 1350 Certification of Angche Sherpa (Treasurer and Chief Financial Officer)
   
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
   
101.SCH
Inline XBRL Taxonomy Extension Schema Documents.
   
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
   
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
   
104
Cover Page Interactive Data File (formatted as inline XBRL and contained Exhibit 101).

50
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
MACKENZIE REALTY CAPITAL, INC.
     
Date: November 14, 2024
  
By: 
 /s/ Robert Dixon  
   
President and Chief Executive Officer
     
Date: November 14, 2024
  
By:  
 /s/ Angche Sherpa  
   
Treasurer and Chief Financial Officer


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