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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2021-02-22 · 254 added, 209 removed, 215 unchanged (68% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements by MacKenzie Realty Capital, Inc.

and its wholly owned subsidiary MRC TRS, Inc.

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

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

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

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

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

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

investments in such portfolio companies;

a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;

and interest rate volatility could adversely affect our results,

particularly if we elect to use leverage as a part of our investment strategy.

For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading

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

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

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

competition in our markets and general economic conditions.

Statements by MacKenzie Realty Capital, Inc., its wholly owned subsidiary MRC TRS, Inc.

and, its majority owned subsidiaries;

MacKenzie Realty Operating Partnership, LP,

Madison-PVT Partners LLC and PVT-Madison Partners LLC (the “Company,” “we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or

our future performance or financial condition.

In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,”

“should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology.

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual

results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic

downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

a contraction of available credit and/or an inability to access the equity

markets could impair our lending and investment activities;

and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy.

For a discussion of factors that could

cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” in our Annual Report on Form 10-K.

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

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

encounter competition in our markets and general economic conditions.

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

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.

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.

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

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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

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

As a result of the withdrawal of our election to be regulated as a BDC, we are 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.

GAAP, which results 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 majority owned subsidiaries.

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.

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

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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;

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 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.

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)

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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 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.

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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 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,

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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.

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 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.

such fees are generated in connection with our investments and recognized as earned.

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.

Any such fees are generated in connection with our investments and recognized as earned.

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;

(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

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

monitoring and servicing our investments.

Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses.

We will bear all other expenses of our operations

and transactions, including:

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 NAV;

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Portfolio Investment Composition

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

As of March 31, 2021, 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

The following table summarizes the composition of our equity

method investments with fair value option election as well as other equity investments at fair value as of March 31, 2021:

March 31, 2021

Publicly Traded Companies

Non Traded Companies

Non Traded Company (Fair Value Option)

LP Interests (Fair Value Option)

Non Traded Company (Equity method investment with fair value option election)

LP Interests (Equity method investment with fair value option election)

Investment Trust

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:

In addition to our investment securities, we currently own and manage one commercial real estate property (Addison Corporate Center) located in Windsor, CT and two residential apartments:

Commodore Apartments and Pon De Leo Apartments, located in Oakland, CA.

The Addison Corporate Center is owned through our subsidiary, the Operating Partnership, the Commodore Apartments is owned through our subsidiary Madison-PVT Partners LLC

(“Madison”), and the Pon De Leo Apartments is owned through our subsidiary PVT-Madison Partners LLC (“PVT”).

The Addison Corporate center 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.

31, 2021, 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 Commodore Apartments is a mid-rise apartments built in 1912 and has 48 units.

As of March 31, 2020, the apartment is approximately 95.8% occupied.

The Pon De Leo Apartments is also a mid-rise

apartments built in 1929 and has 39 units.

As of March 31, 2020, the apartment is approximately 94.9% occupied.

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

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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

As a result of these impacts, we have experienced a large decrease in fair values of some of our investments as of March 31,

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

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starting May 2020 .

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.

Due to the termination of the Company’s BDC status effective December 31, 2020, during the current fiscal year, the Company operated as a BDC for the period of July 1 through December 31, 2020 and as an operating

REIT for the period of January 1, 2021 through March 31, 2021.

Therefore, the current fiscal year-to-date operating activities have been reported in two different periods;

three months ended March 31, 2021 and six months ended December 31, 2020 and

those periods have been compared to the same prior year periods.

Three Months Ended March 31, 2021 and 2020

Rental and reimbursements revenues:

Rental and reimbursement revenues are generated from the Company’s one commercial real estate property and two residential apartments.

During the three months ended March 31, 2021, the Company

generated $1.76 million in rental and reimbursements revenues, of which $1.62 million was generated from the Addison Corporate Center tenants and $0.15 million from the residential Apartments.

The Company acquired the two residential apartments on

March 5, 2021;

thus, they only generated one month of rental revenues.

There were no rental revenues during the three months ended March 30, 2020 as the Company did not own any real estate properties.

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

Total investment income for the

three months ended March 31, 2021 and 2020 was $1.04 million and $3.09 million respectively.

The decrease of $2.06 million or 66.55%, 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.

During the three months ended March 31, 2021, the Company received $0.54 million of distributions from operations, sales and liquidations as compared to $2.64 million during the three months ended March 31, 2020.

During the three months

ended March 31, 2021, we received dividends, interest, and other investment income of $0.49 million as compared to $0.45 million during the three months ended March 31, 2020.

The decrease in investment income is also due to decrease in our

investment portfolio since March 31, 2020.

As of March 31, 2021 the Company has investments with total cost basis of $75.51 million as compared to $99.43 million as of March 31, 2020.

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 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 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:

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

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

Asset management or base management fee:

The asset management fees under the new advisory agreement for the three months ended March 31, 2021 were $0.68 million.

The base management fee under the previous advisory agreement for the

three months ended March 31, 2020 was $0.65 million.

The asset management fees are essentially on the same terms as the base management fees it was paying the Investment Adviser prior to 2021, namely based upon a percentage of Invested Capital.

This increase of $0.03 million, or 4.07% was due to a slight increase in the Invested Capital by $7.05 million from $127.07 million as of March 31, 2020, to $134.12 million as of March 31, 2021.

Incentive management fee or subordinated incentive fee:

Under the new Advisory Management Agreement, the Company pays 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.

Under the previous 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 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.

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.

The Company did not incur any incentive management fee for the three months ended March 31, 2021.

Similarly, the Company did not incur any subordinated incentive fee (Capital Gains Fee or Income Fee) during the three months ended March 31, 2020.This was because the cumulative net investment income and net realized gains were below the threshold

of 7% of Contributed Capital.

Administrative cost reimbursements and Transfer agent reimbursements:

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

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

Costs reimbursed to MacKenzie for the three months ended March 31, 2021, was $0.16 million as compared to $0.17 million for the three months ended March 31, 2020.

The slight decrease was due to a

decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to March 31, 2020, as a result of the decrease in the Company’s capital raising activities.

Transfer agent cost reimbursement paid to MacKenzie for three months ended March 31, 2021 was $0.03 million as compared to $0.02 for the three months ended March 31, 2020.

The slight increase was

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

Property operating and maintenance expenses:

Operating and maintenance expenses mainly consists 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 the Company’s commercial and residential real estate assets.

During the three months ended March 31, 2021, the Company incurred operating and maintenance expenses of $1.15 million, of which $1.09

million mainly incurred in the operation of Adison Corporate Center.

Operating and maintenance expenses incurred in the operation of two residential apartments were $0.06 million since the properties was acquired and in operating for only one

The Company did not have such expenses during the three months ended March 31, 2020 as it did not own and operate any real estate assets as of March 31, 2020.

Depreciation and Amortization:

During the three months ended March 31, 2021, the Company recorded depreciation and amortization of $0.98 million, of which $0.80 million was the depreciation and amortization of real estate and

intangible assets it owned through the Operating Partnership.

$0.18 million of the total related to the depreciation and amortization of real estate assets and intangibles owned through Madison and PVT.

The Company did not have such expenses during

the three months ended March 31, 2020 as it did not own and operate any real estate assets as of March 31, 2020.

Interest Expense:

Interest expense for the three months ended March 31, 2021 was $0.27 million, of which $0.23 million the interest expense incurred on the notes payable associated with the Addison Corporate

Center and $0.04 million was the interest expense on the two mortgage notes payable associated with the two residential apartments.

The Company did not incur any interest expense during the three months ended March 31, 2020 as it did not have any

notes payable outstanding as of March 31, 2020.

Other operating expenses:

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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.

expenses for the three months ended March 31, 2021 and 2020, were comparable at $0.16 million and $0.18 million, respectively.

Net realized gain/loss on investments:

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.

During the three months ended March 31, 2021, the Company had a realized gain of $0.72 million as compared to $0.17 million during the three months ended March 31, 2020.

Total realized gains for

the three months ended March 31, 2021, were realized from sales of seventeen publicly traded REIT securities with total realized gains of $0.90 million offset by a realized loss of $0.18 million from one limited partnership interest.

Total realized

loss for the three months ended March 31, 2020, was realized from the final liquidation of two limited partnership interests.

Net unrealized gain/loss on investments:

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.

During the three months ended March 31, 2021, we recorded net unrealized gains of $1.16 million and did not have any reclassification adjustments as the accumulated unrealized gains and losses as

of December 31, 2020 on all investments were recorded as carrying value adjustments due to the termination of the Company’s BDC status.

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 gains for the three months ended March 31, 2021, resulted from fair value appreciations of $0.84 million from limited partnership interests and $0.32 million from

non-traded REIT securities.

During the three months ended March 31, 2020, we recorded net unrealized losses of $9.86 million, which were net of $1.08 million of unrealized gains reclassification adjustment.

reclassification adjustment was the accumulated unrealized gains as of December 31, 2019, that were realized during the three months ended March 31, 2020.

Accordingly, the net unrealized losses excluding the reclassification adjustment for the

three months ended March 31, 2020, were $8.78 million, which resulted from fair value depreciations of $4.51 million from non-traded REIT securities, $2.89 million from limited partnership interests and $1.38 million from publicly traded REIT

The significant decline in the fair value during the current quarter was mainly due to the COVID-19 pandemic resulting in steep declines in domestic stock markets and in the traded prices for other financial assets as discussed above.

Income tax provision (benefit):

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, 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 December 31, 2020, they did not have any taxable income

However, as of March 31, 2021, they did not have any taxable income

for tax years 2020 or 2021.

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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.

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.

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

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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.

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:

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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.

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.

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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.

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.

The slight increase

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

Other operating expenses:

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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.

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:

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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.

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.

Liquidity and Capital Resources

Capital Resources

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.

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 offerings.

As of March 31, 2021, 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

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.

Of the total capital raised from the public

offerings as of March 31, 2021, we have used $9.46 million to repurchase shares under the Company’s share repurchase program.

We filed a preliminary offering statement pursuant to Regulation A with the SEC to sell up to $50,000,000 of shares of the

Company’s Series A preferred stock at an initial offering price of $25.00 per share.

The sale of shares pursuant to the offering will begin after the Offering Circular has been qualified by the SEC.

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

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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 will no longer be limited by the 1940 Act.

maximum 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.

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:

The Company finished the quarter ended March 31, 2021 with cash and cash equivalents, restricted cash, and receivables of $5.28 million, and approximately $1.62 million of liabilities.

Additionally, it anticipates receiving approximately $3.50 million from its short-term investments during the quarter ended June 30, 2021.

Because of its strong liquidity and the liquidity preservation measures taken by the board, the Company is

currently capable of meeting all of its obligations and continue its operations for the foreseeable future.

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.

REIT for the period of January 1, 2021 through March 31, 2021.

Therefore, the current fiscal year-to-date cash flow activities have been discussed in two different periods;

three months ended March 31, 2021 and six months ended December 31, 2020.

Three months ended March 31, 2021(As an Operating REIT):

For the three months ended March 31, 2021, we experienced a net decrease in cash of $10.15 million.

During this period, we generated cash of $0.54 million from our operating activities and $15.10

million from our financing activities and used $25.80 million in our investing activities.

The net cash inflow of $0.54 million from operating activities resulted from $2.18 million of rental revenues and $1.48 million of investment income offset by $3.12 million of cash used in

operating expenses.

The net cash outflow of $25.80 million from investing activities resulted from real estate acquisitions through our subsidiaries of $28.62 million and purchases of equity investments of $7.38

million offset by cash inflows of $8.58 million from sale of investments and $1.62 million from distributions received from our investments that are considered return of capital.

The net cash inflow of $15.11 million from financing activities resulted from note payable proceeds of $15.13 million received for financing the real estate acquisitions and $0.20 million of

capital contributions received from the non-controlling interest holders offset by payments on existing note payable of $0.22.

Six months ended December 31, 2020 (As a BDC):

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.

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 $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.

Nine months ended March 31, 2020:

For the nine months ended March 31, 2020, we experienced a net increase in cash of $11.79 million.

During this period, we generated cash of $1.71 million from our operating activities and $10.08

million from our financing activities.

The net cash inflow of $1.71 million from operating activities resulted from $31.37 million from distributions received from our investments that are considered return of capital, $6.45 million

from sales and liquidations of investments and $2.67 million from investment income, net of operating expenses offset by $38.78 million of cash used in purchasing investments.

The net cash inflow of $10.08 million from financing activities resulted from the sale of shares under our second and third public offering with gross proceeds of $18.54 million (adjusted for

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

(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.

(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.

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.

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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.

We do not have any current plans to borrow money at the Company level.

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

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.

Due to the termination of the

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

Due to the termination

of the Company’s status as a BDC, the Company adopted various new accounting policies as of March 31, 2021.

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

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We pay quarterly dividends to stockholders to the extent that we have income from operations available.

Our quarterly dividends, if any, will be determined by our Board of Directors after a review and

distributed pro-rata to holders of our shares;

Our quarterly dividends, if any, will be determined by our Board of Directors after a

review and distributed pro-rata to holders of our shares;

we declare dividends on a monthly basis, but pay each quarter.

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

In no event are we permitted to

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

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.

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dividends are limited by the terms of any of our borrowings.

On March 31, 2020, after assessing the impacts of the Covid-19 pandemic, the Company’s board of directors unanimously approved the suspension of regular quarterly dividends to the Company’s

stockholders, effective immediately.

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

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

to meet the REIT distribution requirements by making the requisite distributions by end of December 31, 2020 or through catch-up distributions in tax year 2021 as permitted by the REIT tax rules.

On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, the Company’s board of directors unanimously approved the suspension of

regular quarterly dividends to the Company’s stockholders.

As a result, the Company did not pay or accrue any dividend for the quarter ended March 31, 2021.

However, on May 10, 2021, the Board of Directors reinstated the quarterly dividend at

the rate of $0.05 per common share, payable to holders of record as of May 15, 2021.

The Board intends to continue such dividend so long as it is supported by the previous quarter’s income, but may increase or decrease the dividend

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