What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-02-22 compared with 2020-11-13 · 332 added, 218 removed, 92 unchanged (86% of the section changed)

2 unchanged sentences

and its wholly owned subsidiary MRC TRS, Inc.

(the "Company," "we," or "us") contained herein, other than historical

facts, may constitute "forward-looking statements." These statements may relate to, among other things, future events or our future performance or financial condition.

In some cases, you can identify forward-looking statements by terminology such

as "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative of such terms or comparable terminology.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of

(the "Company," "we," or "us") contained herein, other than historical facts, may

constitute "forward-looking statements." These statements may relate to, among other things, future events or our future performance or financial condition.

In some cases, you can identify forward-looking statements by terminology such as "may,"

"might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend," "expect," "should," "would," "if," "seek," "possible," "potential," "likely" or the negative of such terms or comparable terminology.

forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of

activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies' ability to continue to operate, which could lead to the loss of some or all of our

5 unchanged sentences

"Risk Factors" in our Annual Report on Form 10-K.

We may experience fluctuations in our operating results due to a number of factors, including the effect of the withdraw of our BDC election, the return on our

equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which

we encounter competition in our markets and general economic conditions.

We may experience fluctuations in our operating results due to a number of factors, including the effect of the withdraw of our BDC election, the return on our equity investments,

the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter

competition in our markets and general economic conditions.

As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

We are an externally managed non-diversified closed-end management investment company that has elected to be treated as a BDC under the 1940 Act.

Our objective is to generate both

current income and capital appreciation through real estate-related investments.

We have elected to be treated as a REIT under the Code and as a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders,

provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions.

To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our

taxable income, we will be subject to an excise tax on our undistributed taxable income.

Our wholly owned subsidiary, MRC TRS, Inc., is subject to corporate federal and state income tax on its taxable income at regular statutory rates.

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

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 distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions.

To the extent that we satisfy

the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income.

Our wholly owned subsidiary, MRC TRS, Inc., is subject to corporate federal and state

income tax on its taxable income at regular statutory rates.

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

Authorization to Withdraw BDC Election

On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s Board of Directors to withdraw the Company’s

election to be regulated as a business development company under the Investment Company Act of 1940, effective when the Company files the appropriate form with the SEC.

The Company expects to submit the withdrawal to be effective with the SEC by the

end of December 2020.

Withdrawal of our election to be regulated as a BDC will not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will

continue to file periodic reports on Form 10-K, Form 10-Q, and Form 8-K, and file proxy statements and other reports required under the Exchange Act.

Following withdrawal of our election to be regulated as a BDC, the application and presentation of

our financial statements under accounting principles generally accepted in the United States of America (“GAAP”) could change.

The Company has undertaken several steps to meet the requirements for withdrawal of its election to be regulated as a BDC, including (i) preparing a plan of operations in contemplation of such a change to the status of

the Company, (ii) evaluating potential investments in real estate assets that will allow the Company to transition to direct real estate asset investments, (iii) reviewing the potential adjusted investment strategy with potential capital providers,

and (iv) consulting with outside counsel as to the requirements for withdrawing its election as a BDC.

On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s Board of Directors to withdraw the Company’s election to be

regulated as a BDC under the Investment Company Act of 1940.

The Company submitted the withdrawal to be effective with the SEC on December 31, 2020.

Withdrawal of our election to be regulated as a BDC will not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will continue to file

periodic reports on Form 10-K, Form 10-Q, and Form 8-K, and file proxy statements and other reports required under the Exchange Act.

As a result of the withdrawal of our election to be regulated as a BDC, we will no longer be treated as an

investment company for purposes of applying U.S.

GAAP, which will result in a significant change in our future financial statement presentation.

The most notable changes to the format of our financial statements include the removal of the Schedule

of Investments and Financial Highlights and consolidation of our wholly owned operating partnership, the Operating Partnership.

Exclusive of the Operating Partnership, we expect our other equity investments, both public and private, to continue to

be reported at fair value within our financial statements under provisions of GAAP.

We intend to, where appropriate, provide supplemental non-GAAP information in order to enhance our investors’ overall understanding of our financial statements.

The Company undertook several steps to meet the requirements for withdrawal of its election to be regulated as a BDC, including (i) preparing a plan of operations in contemplation of such a change to

the status of the Company, (ii) evaluating potential investments in real estate assets that will allow the Company to transition to direct real estate asset investments, (iii) reviewing the potential adjusted investment strategy with potential

capital providers, and (iv) consulting with outside counsel as to the requirements for withdrawing its election as a BDC.

During this transition period, the Company may liquidate some of its securities portfolio.

By the end of the first year after withdrawal of its election, the Company anticipates that its securities portfolio will

comprise less than 20% of its assets.

By the end of the first year after withdrawal of its election, the Company anticipates that its securities

portfolio will comprise less than 20% of its assets.

Investment Plan

While we remain a BDC, our investments are generally expected to range in size from $10,000 to $3 million.

However, we may make smaller or larger investments from time to time on an

opportunistic basis.

We focus primarily on real estate-related securities.

We purchase most of our securities (i) directly from existing security holders, (ii) through established securities markets, and (iii) in the case of unregistered, privately

offered securities, directly from issuers.

We invest primarily in debt and equity securities issued by U.S.

companies that primarily own commercial real estate that are either illiquid or not listed on any exchange.

While we remain a BDC, we generally seek to invest in interests of real estate-related limited partnerships and REITs.

Under normal market conditions, we invest at least 80.0% of

our total assets in common stocks and other equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities.

A real estate company is one that (i) derives at least 50.0% of its revenue from the ownership,

construction, financing, management or sale of commercial, industrial or residential real estate and land;

Now that we are no longer a BDC, 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 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 do not invest in general partnerships, joint ventures, or other

entities that do not afford limited liability to their security holders.

However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities.

consider purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering,

and (iii) fully invested their capital in real properties or other real estate-related investments.

While we remain a BDC, we may also acquire (i) individual mortgages secured by real property (i.e., we may originate such loans or we may purchase outstanding loans secured by real

estate), (ii) securities of issuers that own mortgages secured by income producing real property, and (iii) using no more than 20.0% of our available capital, securities of issuers that own assets other than real estate.

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 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.

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 Adviser's 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

Adviser estimates to be the actual or potential value of the real estate.

The Company’s investment strategies since its inception have included making loans to or investments in previously syndicated projects that had encountered difficulties with occupancy, financing,

tenant improvements or other cash needs.

Since entering the current recession, certain of our portfolio companies have encountered additional cash shortfalls, and, in some cases, we have provided additional capital to the extent that we now own

the majority of the project (such as Addison Corporate Center).

In such cases, we intend to consolidate the portfolio company into our financial statements, which is a key reason for dropping our BDC status.

The Company intends to continue its historical activities related to tender offers for shares of non-traded REITs in order to boost its short-term cash flow and to support its dividends, subject to

the constraint that such securities will not exceed 20% of our portfolio.

The Company believes this niche strategy will allow it to pay dividends 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.

Investment income

We generate revenues in the form of capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt

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.

2 unchanged sentences

Our primary operating expenses include the payment of:

(i) investment advisory fees to our Adviser;

(ii) our allocable portion of overhead and other expenses incurred by MacKenzie

in performing its obligations under the Administration Agreement;

(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 operating expenses as detailed below.

Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing,

monitoring and servicing our investments.

Our investment advisory fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our

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:

We will bear all other expenses of our operations

and transactions, including:

the cost of calculating our NAV;

1 unchanged sentence

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;

advisory fees;

transfer agent and safekeeping fees;

7 unchanged sentences

fees and expenses associated with independent audits and outside legal costs;

costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act, and applicable federal and state securities laws;

all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses

incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related

expenses of our Chief Compliance Officer, our Chief Financial Officer, Director of Accounting and Financial Reporting, General Counsel, and any administrative support staff.

In addition, we will bear organization and offering expenses in connection with our third public offering up to $1,650,000 plus the savings realized by the Company to the extent

that broker fees incurred are less than 10%.

Any additional amounts with respect to shares being sold pursuant to the third public offering will be paid by our Adviser.

costs associated with our reporting and compliance obligations under the 1934 Act, and applicable federal and state securities laws;

overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the

costs of compensation and related expenses of our Chief Compliance Officer, our Chief Financial Officer, Director of Accounting and Financial Reporting, General Counsel, and any administrative support staff.

Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of September 30, 2020, and June 30, 2020:

September 30, 2020

June 30, 2020

As of December 31, 2020, we primarily owned equity securities in various real estate limited partnerships and REITs.

As a result of the change in the Company’s status and applying the new basis of

accounting, on the effective date of the termination of the Company’s status as a BDC, the Company recorded the fair of the investments as the new carrying value of the investments.

The following table summarizes the composition of our investments

at fair value as of December 31, 2020:

December 31, 2020

Publicly Traded Companies

Non Traded Companies

Non Traded Company (Fair Value Option)

LP Interests (Fair Value Option)

Investment Trust

Net Asset Value

September 30, 2020 vs.

In addition to our investment securities, we currently own and manage one real estate property located in Windsor, CT through our subsidiary, the Operating Partnership.

The property contains 605,392

square feet, of which approximately 185,000 square feet is office space and the remainder is designated as flex office/warehouse space.

As of December 31, 2020, the property is approximately 59% occupied by 6 tenants.

The following table shows the

largest tenants and square footage occupied:

Largest Tenants

Quest Diagnostics

The following table summarizes the composition of our investments at cost and fair value as of June 30, 2020:

June 30, 2020

Our NAV as of September 30, 2020, was $7.85 per share compared to $8.04 per share as of June 30, 2020, a $0.19 per share decrease of approximately 2.31%.

The net decrease during the

three months was due to (i) net unrealized loss on investments of $0.25 per share, and (ii) net investment loss of $0.02 per share.

The decreases were partly offset by an increase resulting from net realized gain from sale of investments of $0.08 per

Publicly Traded Companies

Non Traded Companies

Investment Trust

Results of Operations

1 unchanged sentence

Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level.

However, measures taken to limit the impact of the COVID-19 pandemic, including social distancing and other restrictions on travel, congregation, and business operations have already resulted in significant negative economic impacts, including steep

declines in certain stock market segments and in the traded prices for certain real-estate related assets.

As a result of these impacts, we have experienced a large decrease in fair values of some of our investments as of September 30, 2020.

addition, some of the companies in which we have invested have cancelled their quarterly dividends and distributions for the current and future quarters.

The long-term impact of the COVID-19 pandemic on the United States and world economies remains

uncertain, but may result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted.

MacKenzie and our Adviser have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic.

They implemented business continuity plans and the management team is

in place to respond to changes in the global environment quickly and effectively.

steep declines in certain stock market segments and in the traded prices for certain real-estate related assets.

As a result of these impacts, we have experienced a large decrease in fair values of some of our investments as of December

In addition, some of the companies in which we have invested have cancelled their quarterly dividends and distributions for the current and future quarters.

The long-term impact of the COVID-19 pandemic on the United States and world

economies remains uncertain, but may result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted.

MacKenzie and our Advisers have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic.

They implemented business continuity plans and the management team is in place to

respond to changes in the global environment quickly and effectively.

To protect the health and safety of their team members, they successfully transitioned almost their entire workforce to remote work environments.

They are working

closely with our clients to support them as necessary and as seamlessly as possible.

The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position and operating

This includes the evaluation and implementation of certain efforts to help us mitigate the impact that reduced revenues from distributions and capital events may have on our 2020 financial results.

We are focusing on maintaining a strong

balance sheet and liquidity position and searching for opportunistic investments.

They are working closely with

our clients to support them as necessary and as seamlessly as possible.

The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position and operating results.

This includes the evaluation

and implementation of certain efforts to help us mitigate the impact that reduced revenues from distributions and capital events may have on our 2020 financial results.

We are focusing on maintaining a strong balance sheet and liquidity position

and searching for opportunistic investments.

In anticipation of reduced revenues and uncertain future economic conditions, the board of directors discontinued dividends starting March 2020 and share redemptions

starting May 2020 .

Three Months Ended September 30, 2020, and 2019:

Three Months Ended December 31, 2020, and 2019:

While we withdrew our BDC status effective December 31, 2020, for the entire three months ended December 31, 2020, we operated as a BDC.

Therefore, the following operating activities of the Company

are reported as a BDC rather than an operating REIT.

Investment Income:

Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income.

Total investment

income for the three months ended September 30, 2020, and 2019, was $0.86 million and $1.94 million, respectively.

The decrease of $1.08 million or 55.7%, was primarily due to suspensions of dividends and distributions from our investments as a

result of the COVID-19 pandemic.

During the three months ended September 30, 2020, the Company received $0.51 million of distributions from operations, sales and liquidations as compared to $1.20 million during the three months ended September 30,

During the three months ended September 30, 2020, we received dividends and other investment income of $0.35 million as compared to $0.74 million during the three months ended September 30, 2019.

Total investment income for the three

months ended December 31, 2020, and 2019, was $1.02 million and $2.39 million, respectively.

The decrease of $1.37 million or 57.3%, was primarily due to suspensions of dividends and distributions from our investments as a result of the COVID-19

During the three months ended December 31, 2020, the Company received $0.35 million distributions from operations, sales and liquidations as compared to $1.62 million during the three months ended December 31, 2019.

During the three

months ended December 31, 2020, we received dividends, interest, and other investment income of $0.67 million as compared to $0.77 million during the three months ended December 31, 2019.

Operating Expenses:

The Company’s following base management, portfolio structuring and subordinated incentive fees were based on the investment advisory agreement that was effective through December 31, 2020.

to December 31, 2020, the advisory agreement was amended and was effective January 1, 2021.

Base management fee:

The base management fee for the three months ended September 30, 2020 was $0.66 million as compared to $0.61 million for the three months ended September 30, 2019.

This increase of

$0.05 million, or 8.2% was due to an increase in the Gross Invested Capital by $12.77 million from $116.00 million as of September 30, 2019, to $128.77 million as of September 30, 2020.

The base management fee for the three months ended December 31, 2020 was $0.68 million as compared to $0.63 million for the three months ended December 31, 2019.

This increase of $0.05 million, or

7.9% was due to an increase in the Gross Invested Capital by $12.59 million from $121.41 million as of December 31, 2019, to $134.00 million as of December 31, 2020.

Portfolio structuring fee :

The portfolio structuring fee for the three months ended September 30, 2020, was less than 0.01 million as compared to $0.20 million during the three months ended September 30,

This decrease was because the Company raised lower amount of new capital during the three months ended September 30, 2020.

During the three months ended September 30, 2020, the Company raised new capital of $0.16 million as compared to $6.47

million during the three months ended September 30, 2019 through issuance of new shares excluding the DRIP.

The portfolio structuring fee for the three months ended December 31, 2020, was less than 0.01 million as compared to $0.17 million during the three months ended December 31, 2019.

This decrease was

because the Company raised lower amount of new capital during the three months ended December 31, 2020.

During the three months ended December 31, 2020, the Company raised new capital of $0.06 million as compared to $5.50 million during the three

months ended December 31, 2019 through issuance of new shares excluding the DRIP.

Subordinated incentive fee:

The subordinated incentive fee has two components;

Under the advisory agreement that was effective through December 31, 2020, the subordinated incentive fee had two components;

Capital Gains Fee and Income Fee.

Capital Gains Fee is based on realized gains (including the distributions received from

sales/capital transactions) and the Income Fee is based on net investment income.

There was neither Income Fee nor Capital Gains Fee for the three months ended September 30, 2020 and 2019.

This was because the cumulative net investment income and net realized

gains were below the threshold of 7% of Contributed Capital.

Capital Gains Fee was based on realized

gains (including the distributions received from sales/capital transactions) and the Income Fee was based on net investment income.

There was neither Income Fee nor Capital Gains Fee for the three months ended December 31, 2020 and 2019.

This was because the cumulative net investment income and net realized gains were below the

threshold of 7% of Contributed Capital.

Administrative cost reimbursements and Transfer agent reimbursements:

Costs reimbursed to MacKenzie for the three months ended September 30, 2020, was $0.16 million as compared to $0.17 million for the three months ended September 30, 2019.

The slight decrease was due

to a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to September 30, 2019, as a result of the decrease in the Company’s capital raising activities.

Transfer agent cost reimbursement paid to MacKenzie for three months ended September 30, 2020 was $0.03 million as compared to $0.02 for the three months ended September 30, 2019.

Costs reimbursed to MacKenzie for the three months ended December 31, 2020, was $0.16 million as compared to $0.17 million for the three months ended December 31, 2019.

The slight decrease was due to

a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to December 31, 2019, as a result of the decrease in the Company’s capital raising activities.

Transfer agent cost reimbursement paid to MacKenzie for three months ended December 31, 2020 was $0.03 million as compared to $0.02 for the three months ended December 31, 2019.

The slight increase

2 unchanged sentences

Other operating expenses include amortization of deferred offering costs, professional fees, directors’ fees printing and mailing, and other general and administrative expenses.

Other operating expenses for the three months ended September 30, 2020 and 2019, were $0.30 million and $0.39 million.

The decrease of $0.09 million was mainly due a larger amount of amortization of deferred offering costs for the three months ended

September 30, 2019 as compared to the same period in 2020.

The decrease in amortization of deferred offering costs was due to the deferred offering costs relating to the second public offering fully amortized as of December 31, 2019 as the offering

terminated in October 2019.

According to our accounting policy, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period.

Any deferred offering costs that

have not been amortized upon the expiration or earlier termination of an offering will be accelerated and expensed upon such expiration or termination.

Other operating

expenses for the three months ended December 31, 2020 and 2019, were $0.41 million and $0.54 million.

This decrease of $0.13 million or 24.1% was mainly due to a decrease of $0.25 million in amortization of deferred offering costs during the three

months ended December 31, 2020 offset by an increase of 0.11 million in professional fees during the three months ended December 31, 2020.

The decrease in the amortization of deferred offering costs was due to only $0.20 million of deferred

offering cost expensed at the termination of our third public offering as compared to $0.45 million of deferred offering costs expensed in 2019 associated with our second public offering that terminated in October 2019.

According to our accounting

policy, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period.

Any deferred offering costs that have not been amortized upon the expiration or earlier

termination of an offering will be accelerated and expensed upon such expiration or termination.

The increase in our professional fees was due to additional professional services obtained during the three months ended December 31, 2020 as a result

of the Company BDC’s status withdrawal.

Net realized gain/loss on investments:

During the three months ended September 30, 2020, the Company had a net realized gain of $1.02 million as compared to net realized loss of $0.11 million during the three months

ended September 30, 2019.

Total realized gains for the three months ended September 30, 2020, were realized from sales of eleven publicly traded securities, one limited partnership interest and three non-traded REIT securities.

Total realized gains

for the three months ended September 30, 2019, were primarily realized from sales of two non-traded REIT securities.

During the three months ended December 31, 2020, the Company had an immaterial amount of net realized loss as compared to net realized loss of $1.30 million during the three months ended December 31,

Total realized gains for the three months ended December 31, 2019, were realized from sales of one publicly traded REIT, one non-traded REIT and one limited partnership interest.

Net unrealized gain/loss on investments:

During the three months ended September 30, 2020, we recorded net unrealized losses of $3.18 million, which were net of $0.81 million of unrealized gains reclassification

The reclassification adjustment was the accumulated unrealized gains as of June 30, 2020, that were realized during the three months ended September 30, 2020.

Accordingly, the net unrealized losses excluding the reclassification

adjustment for the three months ended September 30, 2020, were $2.37 million, which resulted from fair value depreciations of $1.88 million from non-traded REIT securities and $1.11 million from publicly traded REIT securities partly offset by a fair

value appreciation of $0.62 million from limited partnership interests.

The significant decline in the fair value during the current quarter was mainly due to the COVID-19 pandemic resulting in declines in domestic stock markets and in the traded

prices for other financial assets as discussed above.

During the three months ended September 30, 2019, we recorded net unrealized gains of $1.06 million;

however, this is net of $0.05 million of unrealized losses reclassification

The reclassification adjustment was the accumulated unrealized losses as of June 30, 2019, that were realized during the three months ended September 30, 2019.

Accordingly, the net unrealized gains excluding the reclassification

adjustment for the three months ended September 30, 2019, were $1.01 million, which resulted from fair value appreciation of $1.86 million from limited partnership interests and $0.5 million from publicly traded REIT securities offset by fair value

depreciation of $1.35 million from non-traded REIT securities.

During the three months ended December 31, 2020, we recorded net unrealized losses of $6.96 million and did not have any reclassification adjustments as there were no realized gains during three

months ended December 31, 2020.

The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period.

The net unrealized losses for the three months ended December

31, 2020, resulted from fair value depreciations of $7.94 million from limited partnership interests partly offset by fair value appreciations of $0.52 million from non-traded REIT securities and $0.46 million from publicly traded REIT securities.

The large decrease in partnership interests was mainly due to the decline in the underlying property value of the Operating Partnership before consolidation resulting from unfavorable leasing activities as a result of the COVID-19 pandemic.

During the three months ended December 31, 2019, we recorded net unrealized losses of $2.29 million, which were net of $1.13 million of unrealized gains reclassification adjustment.

Accordingly, the

net unrealized losses excluding the reclassification adjustment for the three months ended December 31, 2019, were $1.16 million, which resulted from fair value depreciation of $0.75 million from publicly traded REIT securities and $0.65 million

from non-traded REIT securities offset by fair value appreciation of $0.26 million from limited partnership interests.

Income tax provision (benefit):

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax years ended December 31, 2019.

Therefore, it did not incur any tax expense or

excise tax on its income from operations during the quarterly periods within the tax year 2019.

Similarly, for the tax year 2020, we believe the Parent Company will pay the requisite amounts of dividends during the year such that it will not owe any

income taxes.

Therefore, the Parent Company did not record any income tax provisions during any fiscal period within the tax year 2019.

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2019.

Therefore, it did not incur any tax expense or excise tax on its income

from operations during the quarterly periods within the tax year 2019.

Similarly, for the tax year 2020, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe

any income taxes.

Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2020.

TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on its taxable income at regular statutory rates.

However, as of September 30, 2020, they did not have

any taxable income for tax year 2019 or 2020.

However, as of December 31, 2020, they did not have any taxable income

for tax years 2019 or 2020.

Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2019 and 2020.

The Operating Partnership is a limited partnership and its wholly owned subsidiary, the Property Owner, is a limited liability company.

Accordingly, all income tax liabilities of these two entities flow through to

their partners, which is the Company.

Therefore, no income tax provisions are recorded for these two entities.

Six Months Ended December 31, 2020, and 2019:

While we withdrew our BDC status effective December 31, 2020, for the entire six months ended December 31, 2020, we operated as a BDC.

Therefore, the following operating activities of the Company are

reported as a BDC rather than an operating REIT.

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 six

months ended December 31, 2020 and 2019, was $1.88 million and $4.33 million, respectively.

The decrease of $2.45 million or 56.6%, was primarily due to suspensions of dividends and distributions from our investments as a result of the COVID-19

During the six months ended December 31, 2020, the Company received $0.86 million of distributions from operations, sales and liquidations as compared to $2.82 million during the same period in 2019.

Similarly, during the six months ended

December 31, 2020, we received dividend, interest and other investment income of $1.02 million as compared to $1.51 million during the same period in 2019.

Operating Expenses:

The Company’s following base management, portfolio structuring and subordinated incentive fees were based on the investment advisory agreement that was amended on October 2019 and was effective

through December 31, 2020.

Subsequently, the advisory agreement was amended and was effective January 1, 2021.

Base management fee:

The base management fee for the six months ended December 31, 2020 was $1.34 million as compared to $1.24 million for the six months ended December 31, 2019.

This increase of $0.10 million, or 8.1%

was due to an increase in the Gross Invested Capital by $12.59 million from $121.41 million as of December 31, 2019, to $134.00 million as of December 31, 2020.

Portfolio structuring fee :

The portfolio structuring fee for the six months ended December 31, 2020, was less than $0.01 million as compared to $0.36 million during the same period in 2019.

This decrease was because the Company

raised lower amount of new capital during the six months ended December 31, 2020.

During the six months ended December 31, 2020, the Company raised new capital of $0.22 million as compared to $11.97 million during the same period in 2019 through

issuance of new shares excluding the DRIP.

Subordinated incentive fee:

Under the advisory agreement that was effective through December 31, 2020, the subordinated incentive fee had two components;

Capital Gains Fee and Income Fee.

Capital Gains Fee was based on realized

gains (including the distributions received from sales/capital transactions) and the Income Fee was based on net investment income.

There was neither Income Fee nor Capital Gains Fee for the six months ended December 31, 2020 and 2019.

This was because the cumulative net investment income and net realized gains were below the

threshold of 7% of Contributed Capital.

Administrative cost reimbursements and Transfer agent reimbursements:

Costs reimbursed to MacKenzie for the six months ended December 31, 2020, was $0.31 million as compared to $0.34 million for the six months ended December 31, 2019.

The slight decrease was due to a

decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to December 31, 2019, as a result of the decrease in the Company’s capital raising activities.

Transfer agent cost reimbursement paid to MacKenzie for six months ended December 31, 2020 was $0.06 million as compared to $0.04 for the six months ended December 31, 2019.

The slight increase was

due to additional software maintenance and implementation costs incurred by MacKenzie.

Other operating expenses:

Other operating expenses include amortization of deferred offering costs, professional fees, directors’ fees printing and mailing, and other general and administrative expenses.

Other operating

expenses for the six months ended December 31, 2020 and 2019, were $0.72 million and $0.92 million.

The decrease of $0.20 million or 21.7% was mainly due to a decrease of $0.30 million in amortization of deferred offering costs during the six

months ended December 31, 2020 partly offset by an increase of 0.09 million in professional fees during the six months ended December 31, 2020.

The decrease in the amortization of deferred offering costs was due to only $0.20 million of deferred

According to our accounting

policy, offering costs are capitalized as deferred offering costs as incurred by the Company and subsequently amortized to expense over a twelve-month period.

Any deferred offering costs that have not been amortized upon the expiration or earlier

termination of an offering will be accelerated and expensed upon such expiration or termination.

The increase in our professional fees was due to additional professional services obtained during the three months ended December 31, 2020 as a result

of the Company withdrawing its BDC status.

Net realized gain on investments:

During the six months ended December 31, 2020, the Company had a realized gain of $1.02 million as compared to $1.41 million during the six months ended December 31, 2019.

Total realized gains for the

six months ended December 31, 2020, were primarily realized from sales of thirteen publicly traded REIT securities with a total gain of $0.99 million and three non-traded REIT securities with a total gain of $0.3 million.

Total realized gains for

the six months ended December 31, 2019, were primarily realized from sales of three non-traded REIT securities with a total gain of $0.20 million, one limited partnership interests with a total gain of $0.58 million and one publicly traded REIT

security with a gain of 0.63 million.

Net unrealized gain/loss on investments:

During the six months ended December 31, 2020, we recorded net unrealized losses of $10.14 million, which were net of $0.81 million of unrealized gains reclassification adjustments.

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 six

months ended December 31, 2020, were $9.33 million, which resulted from fair value depreciation of $7.32 million from limited partnership interests, $1.36 million from non-traded REIT securities, and $0.65 million from publicly traded REIT

The large decrease in fair value of partnership interests was mainly due to the decline in the underlying property value of the Operating Partnership before consolidation resulting from unfavorable leasing activities as a result of the

COVID-19 pandemic.

During the six months ended December 31, 2019, we recorded net unrealized losses of $1.23 million, which were net of $0.33 million of unrealized gains 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 six months ended December

31, 2019, were $0.90 million, which resulted from fair value depreciation of $2.0 million from non-traded REIT securities and $0.78 million from publicly traded REIT securities offset by fair value appreciation of $1.88 million from limited

partnership interests.

Income tax provision (benefit):

Income tax provision for six months ended December 31, 2020 and 2019 are discussed above under the three months ended section.

Liquidity and Capital Resources

Capital Resources

We offered to sell up to $150 million of shares under our second public offering which ended on October 28, 2019.

In September 2019, we filed our third registration statement with

the SEC for the public offering of 15 million shares with total potential gross proceeds of $153.75 million.

The third registration statement was declared effective by the SEC on October 31, 2019 and the public offering commenced shortly thereafter.

As of September 30, 2020, the Company has raised total gross proceeds of $119.04 million from the issuance of shares under three public offerings, $42.46 million from the IPO, which concluded in October 2016, $67.99 million from the second public

offering, which concluded in October 2019, and $8.59 million from our third public offering.

We offered to sell up to 5 million shares under our first public offering and up to 15 million shares each under our second and third public offering.

As of December 31, 2020, the Company has raised

total gross proceeds of $119.10 million from the issuance of shares 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 $11.16 million from the issuance of shares under the DRIP.

Of the total capital raised from the public offerings as of September

30, 2020, we have used $9.46 million to repurchase shares under the Company’s share repurchase program.

Of the total capital raised from the public offerings as of

December 31, 2020, we have used $9.46 million to repurchase shares under the Company’s share repurchase program.

We are planning to issue preferred equity in the near future, but do not currently have any.

We plan to fund future investments with the net

proceeds raised from our third offering and any future offerings of securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S.

government securities and other high-quality debt investments that

mature in one year or less.

We plan to fund future investments with

the net proceeds raised from our third offering and any future offerings of securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S.

government securities and other high-quality debt

investments that mature in one year or less.

We may also fund a portion of our investments through borrowings from banks and issuances of senior securities.

While we remain as a BDC, we do not have any plans to borrow money on a long-term basis or issue debt

securities at the Company level;

however, after our BDC status is withdrawn, we may borrow money within the underlying companies in which we have majority ownership.

In addition, from time to time we may draw on the margin line of credit on a

temporary basis to bridge our investment purchases and sales or capital raising.

As of September 30, 2020, we were selling our shares on a continuous basis at a price of $10.25 which may be below NAV per share from time to time, as approved by our

stockholders.

The third public offering ended on October 31, 2020.

While we were a BDC, we did not borrow money on a long-term basis or issue debt securities

at the Company level;

however, now that our BDC status is withdrawn, we may borrow money within the underlying companies in which we have majority ownership.

In addition, from time to time we may draw on the margin line of credit on a temporary

basis to bridge our investment purchases and sales or capital raising.

We intend to utilize leverage to enhance the total returns of our portfolio, and we expect to have greater flexibility in raising debt capital, following the withdrawal of our BDC election.

Historically, we have only been able to access leverage at attractive costs through a credit facility.

We also expect to 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.

amount of such borrowing is limited by the 1940 Act.

Our primary uses of funds are investing in portfolio companies, paying cash dividends to holders of our common stock (from investment income and realized capital gains), making payments to any lenders

or senior security holders, paying operating expenses.

If all shares registered in our current public offering are sold, we will receive investable cash totaling approximately $133.76 million, of which approximately $7.52 million has been received

as of September 30, 2020.

The Company finished the quarter ended September 30, 2020 with substantial liquidity, including $10.86 million in cash and cash equivalents, and only $0.74 million of liabilities.

However, the Company has historically relied upon distributions and capital gains from its investments to fund dividends.

amount of such borrowing will no longer be limited by the 1940 Act.

We used the funds raised from our public offerings to invest in portfolio companies, paying cash dividends to holders of our common stock (from investment income and realized capital gains), and

paying operating expenses.

The Company finished the quarter ended December 31, 2020 with substantial liquidity, including $12.54 million in cash and cash equivalents, and only $1.74 million of short-term liabilities.

the Company has historically relied upon distributions and capital gains from its investments to fund dividends.

During and following the outbreak of COVID-19, we do not believe we can rely on our traditional sources of cash flow.

in anticipation of uncertain future economic conditions, our board of directors discontinued dividends starting March 2020 and share redemptions starting May 2020.

The Company intends to continue to qualify as a REIT and to meet the associated

testing requirements, including paying out at least 90% of its taxable income.

Three months ended September 30, 2020:

For the three months ended September 30, 2020, we experienced a net increase in cash of $1.91 million.

During this period, we generated cash of $1.83 million from our operating

activities and $0.08 million from our financing activities.

The net cash inflow of $1.83 million from operating activities resulted from $4.28 million from distributions received from our investments that are considered return of capital and

$5.26 million from sales and liquidations of investments offset by $7.41 million of cash used in purchasing investments and $0.30 million used in operating expenses, net of investment income.

The net cash inflow of $0.08 million from financing activities resulted from the sale of shares under our third public offering with gross proceeds of $0.09 million (net of $0.08

million of decrease in capital pending acceptance) offset by cash outflows of $0.01 million from payments of selling commissions and fees.

Three months ended September 30, 2019:

For the three months ended September 30, 2019, we experienced a net increase in cash of $8.37 million.

During this period, we generated cash of $3.40 million from our operating

activities and $4.97 from our financing activities.

The net cash inflow of $3.40 million from operating activities resulted from $8.34 million of distributions received from investments that are considered return of capital, $1.95

million from sales of investments and $0.33 million from investment income, net of operating expenses, offset by cash outflow of $8.34 million from purchases of investments.

The net cash inflow of $4.97 million from financing activities resulted from the sale of shares under our second public offering with gross proceeds of $7.35 million (adjusted for

Therefore, in

anticipation of uncertain future economic conditions, our board of directors discontinued dividends starting March 2020 and share redemptions starting May 2020.

The Company intends to continue to qualify as a REIT and to meet the associated testing

requirements, including paying out at least 90% of its taxable income.

Six months ended December 31, 2020:

For the six months ended December 31, 2020, we experienced a net increase in cash of $5.20 million.

During this period, we generated cash of $3.14 million from our operating activities, $1.93 from

investing activities and $0.13 million from our financing activities.

The net cash inflow of $5.07 million from operating activities resulted from $10.94 million from distributions received from our investments that are considered return of capital and $5.26 million

from sales and liquidations of investments offset by $12.69 million of cash used in purchasing investments and $0.37 million used in operating expenses, net of investment income.

The net cash inflow of $1.93 million from investing activities resulted from the consolidation of the Operating Partnership as of December 31, 2020.

The net cash inflow of $0.13 million from financing activities resulted from the sale of shares under our third public offering with gross proceeds of $0.14 million (net of $0.09 million of decrease

in capital pending acceptance) offset by cash outflows of $0.01 million from payments of selling commissions and fees.

Six months ended December 31, 2019:

For the six months ended December 31, 2019, we experienced a net increase in cash of $1.73 million.

During this period, we used $5.69 million for our operating activities and generated cash of $7.42

million from our financing activities and.

The net cash outflow of $5.69 million from operating activities resulted from $25.99 million of cash used in purchasing investments that was offset by cash inflows of $6.33 million from sales and

liquidations of investments, $12.81 million from distributions received from our investments that are considered return of capital and $1.16 million from investment income, net of operating expenses.

The net cash inflow of $7.42 million from financing activities resulted from the sale of shares under our second and third public offering with gross proceeds of $12.33 million (adjusted for $0.36

million of increase in capital pending acceptance) offset by cash outflows of $2.23 million from payments of cash dividends, $1.56 million from share redemptions, and $1.12 million from payments of selling commissions and fees.

1 unchanged sentence

We have entered into two contracts under which we have material future commitments:

(i) the Amended and Restated Investment Advisory Agreement, under which the Adviser serves as our

investment adviser, and (ii) the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations.

Each of these agreements is

terminable by either party upon proper notice.

Payments under the Amended and Restated Investment Advisory Agreement in future periods (after the up-front payment of the portfolio structuring fee during the public offering) will be (i) a percentage

of the value of our Gross Invested Capital;

and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation).

Payments under the Administration Agreement will occur on an ongoing basis as

expenses are incurred on our behalf by MacKenzie.

(i) the Advisory Agreement, under which the Real Estate Adviser serves as our adviser, and (ii) the Administration

Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations.

Each of these agreements is terminable by either party upon proper notice.

Payments under the Advisory 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,

revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

We do not have any current plans to borrow money or issue preferred securities.

In the event that we do so borrow, we would expect to be subject to various customary covenants and

restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur

liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or

expenses, results of operations, liquidity, capital expenditures, or capital resources.

We do not have any current plans to borrow money.

In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants

which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make

certain investments and/or distributions or engage in transactions with affiliates.

Critical Accounting Policies

The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates

and assumptions.

The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions.

Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management's most difficult, complex or subjective judgments.

There have been no

changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2020, included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2020.

Due to the termination of the

Company’s status as a BDC, the Company adopted various new accounting policies as of December 31, 2020.

Those new accounting policies are disclosed in Note 2 of the financial statements included in this Form 10Q.

Other than those new policies,

there have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2020, included in the Company's annual report on Form 10-K for the fiscal year ended June 30,

Dividends to Stockholders

4 unchanged sentences

Any dividends to our stockholders will be declared out of assets legally available for distribution.

In no event are we permitted to borrow

money to make dividends if the amount of such dividend would exceed our annual accrued and received revenues, less operating costs.

In no event are we permitted to

borrow money to make dividends if the amount of such dividend would exceed our annual accrued and received revenues, less operating costs.

Dividends in kind are not permitted, except as provided in our Charter.

We have elected to be treated as a REIT under the Code.

As a REIT, we are required to distribute at least 90% of our REIT taxable income to the stockholders and meet certain other

Our current intention is to make any dividends in additional shares under our DRIP out of assets legally available therefore, unless a stockholder elects to receive dividends in cash, or their participation in our DRIP is restricted by a

state securities regulator.

As a REIT, we are required to distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions.

current intention is to make any dividends in additional shares under our DRIP out of assets legally available therefore, unless a stockholder elects to receive dividends in cash, or their participation in our DRIP is restricted by a state

securities regulator.

If one holds shares in the name of a broker or financial intermediary, they should contact the broker or financial intermediary regarding their election to receive dividends in cash.

4 unchanged sentences

stockholders, effective immediately.

As a result, the Company did not pay or accrue any dividend for the quarter ended September 30, 2020.

As a result, the Company did not pay or accrue any dividend for the quarter ended December 31, 2020.

However, if there is any REIT taxable income to be distributed for tax year ended December 31, 2020, we intend

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis