What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-09-28 compared with 2020-09-21 · 574 added, 295 removed, 108 unchanged (89% of the section changed)

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

Statements by MacKenzie Realty Capital, Inc.

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,"

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, stockholders can identify forward-looking statements by terminology such as "may," "might," "believe," "will," "provided," "anticipate," "future," "could," "growth," "plan," "intend,"

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

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

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

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" above.

We may experience fluctuations in our operating results due to a number of factors, including the return on our equity investments, the interest rates payable on our debt investments, the default

rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions.

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.

We are currently treated as a BDC under the 1940 Act, but our Board of Directors has recommended to our shareholders that we

withdraw our election to be regulated as a BDC.

We generally invest in equity or debt securities issued by real estate companies, including REITs and similar REIT-like entities.

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, which means 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.

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

At our board meeting on August 28, 2020, our Board of Directors approved the proposal to withdraw of our BDC election, while continuing our REIT status.

Therefore, on October 23, 2020, our stockholders will be asked to

approve the withdrawal of our BDC election.

If this proposal is approved, the Company will, effective upon receipt by the SEC of the Company’s application for withdrawal, no longer be regulated as a BDC or subject to the regulatory provisions of the

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" above.

We may experience fluctuations in our operating results due to a number of factors, including the effect of the withdrawal 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.

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 Advisers, 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 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 does not affect our registration under Section 12(g) of the Exchange Act, and we continue to file periodic reports on

Form 10-K, Form 10-Q, and Form 8-K, as well as 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 are no longer be treated as an investment company

for purposes of applying the GAAP, which results in a significant change in our future financial statement presentation.

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

Schedule of Investments and Financial Highlights and the consolidation of majority owned subsidiaries onto our financial statements.

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 consolidated 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 consolidated 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.

Investment Plan

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 investment securities of real estate companies.

A real estate company is one that (i) derives at least 50% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate

or (ii) has at least 50% of its assets invested in such real estate.

We will not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders.

However, limited liability

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

When purchasing securities, we generally favor purchasing securities issued by entities that have (i) completed the

initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real

estate related investments.

Our investment objective is to generate current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments.

Our independent directors review our

investment policies periodically, at least annually, to confirm that our policies are in the best interests of our stockholders.

Each such determination and the basis thereof are contained in the minutes of our Board of Directors meetings.

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 recent 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 distributions, 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 distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance

that some portion of any distribution is not a return of capital.

Rental and reimbursement

We generate rental revenue by leasing office space and apartment units to the building’s tenants.

These tenant leases fall under the scope of Topic 842, and are classified as operating leases.

Revenues from such leases are recognized on a straight-line basis over the terms of the lease agreements.

Investment income

We generate revenues in the form of 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.

may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees.

Any such fees are generated in connection

with our investments and recognized as earned.

We generate revenues in the form 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

Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees.

Any such fees are

generated in connection with our investments and recognized as earned.

Our primary operating expenses include the payment of:

(i) base management fees and investment advisory fees (which include the Portfolio Structuring Fee) to the 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 Adviser for its work in identifying, evaluating,

negotiating, closing, monitoring and servicing our investments the Investment Advisory Agreement .

Our expenses must be billed to and paid by us, except that a sponsor may be reimbursed for actual cost of goods

and services used by us and certain necessary administrative expenses.

We bear all other expenses of our operations and transactions, including:

the cost of calculating our NAV, including the cost of any third-party valuation services;

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:

the cost of operating and maintaining real estate properties

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

the cost of effecting sales and repurchases of our shares and other securities;

interest payable on debt, if any, to finance our investments;

fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees;

advisory fees;

transfer agent and safekeeping fees;

8 unchanged sentences

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 are based upon our allocable portion of overhead and other expenses incurred by

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

our chief compliance officer and our chief financial officer and any administrative support staff.

In addition, we will bear organization and offering expenses in connection with our current public offering up to $1,650,000.

Any additional amounts with respect to shares being sold pursuant to the third public

offering will be paid by our Adviser except to the extent the full 10.0% in broker fees are not incurred.

In such case, the difference will be available to be paid or reimbursed by the Company to brokers for marketing expenses or other non‑cash

compensation.

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

expenses of our chief compliance officer and our chief financial officer and any administrative support staff.

Critical Accounting Policies

In addition to the discussion below, our critical accounting policies are discussed in Note 2 of our consolidated financial statements, which are part of this Annual Report beginning on page F-1.

Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized

gains (losses) on investments during the reporting period.

Material estimates that are susceptible to change, and actual results could differ from those estimates.

Revenue Recognition

6 unchanged sentences

Investments are disposed of on a first-in, first-out basis.

Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized

gains or losses.

Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded

unrealized gains or losses.

Rental revenue, net of concessions, which is derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease agreement, are recognized on a straight-line

basis over the term of the lease, when collectability is determined to be probable.

Minimum rent, including rental abatements, lease incentives, and contractual fixed increases attributable to operating leases are recognized on a straight-line basis over the term of the related leases when

collectability is probable.

Amounts expected to be received in later years are recorded as deferred rent receivable.

If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are

owned by the tenant or the Company.

When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are

substantially completed.

When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease

incentive and amortized as a reduction of rental revenue over the lease term.

Tenant improvement ownership is determined based on various factors including, but not limited to:

whether the lease stipulates how a tenant improvement allowance may be spent;

whether the lessee or lessor supervises the construction and bears the risk of cost overruns;

whether the amount of a tenant improvement allowance is in excess of market rates;

whether the tenant or landlord retains legal title to the improvements at the end of the lease term;

whether the tenant improvements are unique to the tenant or general purpose in nature;

whether the tenant improvements are expected to have any residual value at the end of the lease.

In accordance with Topic 842, the Company determines whether collectability of lease payments in an operating lease is probable.

If the Company determines the lease payments are not probable of collection, the

Company fully reserves for rent and reimbursement receivables, including deferred rent receivable, and recognizes rental income on cash basis.

Variable Interest Entities

The Company evaluates the need to consolidate its investments in securities in accordance with Accounting Standards Codification Topic 810, Consolidation .

In determining whether the Company has a controlling interest in a variable interest entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and

contractual and substantive participating rights of the partners/members, as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.

Real Estate Assets, Capital Additions, Depreciation and Amortization

The Company capitalizes costs, including certain indirect costs, incurred for capital additions, including redevelopment, development, and construction projects.

The Company also allocates

certain department costs, including payroll, at the corporate levels as “indirect costs” of capital additions, if such costs clearly relate to capital additions.

The Company also capitalizes interest, property taxes and insurance during periods in

which redevelopment, development, and construction projects are in progress.

Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use.

Repair and maintenance and

tenant turnover costs are expensed as incurred.

Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset.

Depreciation and amortization expense are computed on the straight-line

method over the asset’s estimated useful life.

The Company considers the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful lives of assets by class to be generally as follows:

16 – 45 years

Building improvements

Land improvements

Furniture, fixtures and equipment

In-place leases

Real Estate Purchase Price Allocations

In accordance with the guidance for business combinations, upon the acquisition of real estate properties, the Company evaluates whether the transaction is a business combination or an asset

If the transaction does not meet the definition of a business combination, the Company records the assets acquired, the liabilities assumed, and any non-controlling interest as of the acquisition date, measured at their relative fair

Acquisition-related costs are capitalized in the period incurred and are added to the components of the real estate assets acquired.

The Company assesses the acquisition-date fair values of all tangible assets, identifiable intangible

assets, and assumed liabilities using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information.

future cash flows are based on several factors including historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of tangible assets of an acquired property considers the value of the property

as if it was vacant.

Intangible assets include the value of in-place leases, which represents the estimated fair value of the net cash flows of leases in place at the time of acquisition, as compared to the net cash flows that would have occurred

had the property been vacant at the time of acquisition and subject to lease-up.

The Company amortizes the value of in-place leases to expense over the remaining non-cancelable term of the respective leases, which is on average five years.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property operating expenses, carrying costs during lease-up

periods, discount rates, market absorption periods, prevailing interest rates, and the number of years the property will be held for investment.

The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible

assets, identifiable intangible assets, and assumed liabilities, which could impact the amount of the Company’s net income (loss).

Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant

based upon the assumptions made in calculating these estimates.

Impairment of Real Estate Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying value of the Company’s real estate and related intangible assets may not be recoverable.

When indicators of potential impairment emerge, the Company assesses whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition.

Based on this assessment, if the Company

does not believe that it will recover the carrying value of the real estate and related intangible assets, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and

related intangible assets.

No impairment charges were recorded for the six months ended June 30, 2021 and December 31, 2020.

Fair Value Measurements

2 unchanged sentences

including the type of investment and the characteristics specific to the investment.

Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of

market price observables and a lesser degree of judgment used in measuring fair value.

Investments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree

of market price observables and a lesser degree of judgment used in measuring fair value.

Investments measured and reported at fair value are classified and disclosed in one of the following categories:

1 unchanged sentence

The type of investments included in Level I are publicly traded equity securities.

The Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Company does not adjust the quoted price for these investments even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

Level II – Price inputs are quoted prices for similar financial instruments in active markets;

7 unchanged sentences

The inputs into the determination of fair value require significant judgment by management.

to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had an active market for these investments existed.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

9 unchanged sentences

We may value securities that do not trade on a national exchange by using published secondary market trading information.

When doing so,

we first confirm that GAAP recognizes the trading price as the fair value of the security.

so, we first confirm that GAAP recognizes the trading price as the fair value of the security.

Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the

22 unchanged sentences

Portfolio Investment Composition

The following table summarizes the composition of our investments at cost and fair value as of June 30, 2020 and 2019:

Beginning with the withdrawal of our election to be treated as a BDC on December 31, 2020, we began transforming our portfolio of investments in an orderly fashion into one comprised of controlled real estate

investments (either wholly owned or controlled through voting securities).

As of June 30, 2021, we still owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below.

owned various investments in entities that own real estate which gave us enough control such that the investments are not securities for 1940 Act purposes, but not enough to consolidate the financials of such entities with our own;

listed below as “Unconsolidated investments (non-securities), at fair value.” 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 value 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 June 30, 2021:

Investments, at fair value

June 30, 2021

3100 Airport Way South LP

5210 Fountaingate

Benefit Street Partners Realty Trust, Inc.

Capitol Hill Partners, LLC

CBL & Associates Properties, Inc.

- Preferred D

CIM Real Estate Finance Trust, Inc.

Citrus Park Hotel Holdings, LLC

CNL Healthcare Properties, Inc.

Coastal Realty Business Trust, REEP, Inc.

Corporate Property Associates 18 Global A Inc.

FSP 303 East Wacker Drive Corp.

Liquidating Trust

FSP Energy Tower I Corp.

Liquidating Trust

FSP Grand Boulevard Corp.

Liquidating Trust (Residual)

FSP Satellite Place Corp.

Griffin-American Healthcare REIT III, Inc.

Griffin Capital Essential Asset REIT, Inc.

Healthcare Trust, Inc.

Highlands REIT Inc.

HGR Liquidating Trust

InvenTrust Properties Corp.

KBS Real Estate Investment Trust II, Inc.

KBS Real Estate Investment Trust III, Inc.

Lakemont Partners, LLC

Moody National REIT II, Inc.

New York City REIT, Inc Cl B

Phillips Edison & Company, Inc.

(Phillips Edison Grocery Center REIT I)

Satellite Investment Holdings, LLC - Class B

Secured Income, LP

Sila Realty Trust, Inc.

SmartStop Self Storage REIT, Inc Class A

SmartStop Self Storage REIT, Inc Class T

Steadfast Apartment REIT

Strategic Realty Trust, Inc.

Summit Healthcare REIT, Inc.

The Parking REIT Inc.

Unconsolidated investments (non-securities), at fair value

Bishop Berkeley, LLC

BP3 Affiliate, LLC

Britannia Preferred Members, LLC -Class 2

Britannia Preferred Members, LLC -Class 1

Dimensions28 LLP

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 are owned through our subsidiary Madison, and the Pon De Leo

Apartments are owned through our subsidiary PVT.

Addison Corporate Center contains 605,502 square feet, of which approximately 185,000 square feet is office space and the remainder is designated as flex office/warehouse space.

As of June 30, 2021, the property is

approximately 60% occupied by 6 tenants.

The following table shows the largest tenants and square footage occupied:

Largest Tenants

Aircraft Design, Manufacturing, and Engineering

Global Engineering and Consulting

Quest Diagnostics

Laboratory Services

The following information pertains to lease expirations at the Addison Corporate Center:

Number of Leases Expiring

Percentage of Gross

Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units.

As of June 30, 2021, Commodore Apartment building is approximately 81.3% occupied.

Pon De Leo Apartments is also a mid-rise

apartment building built in 1929 and has 39 units.

As of June 30, 2021, Pon Do Leo Apartment building is approximately 94.9% occupied.

The following table provides information regarding each of the Oakland properties:

Rent/Occupied

Multi-Family Residential

There are no present plans for the improvement or development of any property;

each property is being held for income production and increased occupancy and/or rental rates.

We have property and liability insurance

policies on all three properties which we believe are adequate.

The annual property taxes for Addison Corporate Center are estimated to be $1,044,933, for the Commodore, $191,000, and for Pon De Leo, $230,000.

The markets in which the Company’s properties (those consolidated and those that are not yet consolidated) operate are highly competitive, and each property faces unique competitive challenges based upon local

economic, political, and legal factors.

Our West coast multi-family properties, the Madison, and the Commodore, are generally restricted from raising rents by local rent control laws.

Two of our unconsolidated investments in apartment properties,

Lakemont Partners and Capitol Hill, are also subject to rent control.

Rent control can result in average rents that are significantly below market, and this provides some buffer against declining rents in a recession.

However, in order to encourage

development, rent control usually does not apply to newer properties.

Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties.

Our consolidated office property, Addison Corporate Center, is a class B suburban office property located in Windsor, Connecticut.

Addison must compete with every other office property in the market, as well as facing the uncertainty of workers

returning to the office after COVID-19.

Our unconsolidated investment in an office property, Britannia Business Center, faces the same competitive factors in its sub-market, the San Francisco suburban East Bay.

Our unconsolidated investment in a hotel property, Citrus Park Hotel, is a Courtyard by Marriott located in the Tampa/St.

Petersburg market that competes for business and leisure travel.

Citrus Park suffered a

significant decline during 2020 as a result of a drastic reduction in business and leisure travel but is expected to recover as travel returns to normal.

Investments as of June 30, 2020

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

June 30, 2020

2 unchanged sentences

Investment Trust

Determination of NAV

We determine the NAV of our investment portfolio at the end of each quarter by subtracting our total liabilities from the fair value of our gross assets.

We value our assets and determine our NAV consistent with GAAP

and the 1940 Act, and report our NAV in our periodic reports filed with the SEC under the 1934 Act.

Our valuation procedures are summarized above under the “Critical Accounting Policies” section.

Our NAV as of June 30, 2020, was $8.04 per share compared to $9.44 per share at June 30, 2019, a $1.40 per share decrease of approximately 14.8%.

decrease was due to (i) net unrealized loss of $1.39 per share, and (ii) a dividend to stockholders of $0.45 per share (on a weighted average basis).

The decreases were partly offset by increases resulting from (i) net investment income of $0.28 per

share, (ii) net realized gain on sale of investments of $0.15 per share, and (iii) redemption of shares below NAV resulting in gain of $0.01 per share.

Results of Operations

COVID-19 pandemic

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

However, measures taken to limit the

impact of the COVID-19 pandemic, including social distancing and other restrictions on travel, congregation, and business operations have already resulted in significant negative economic impacts, including steep declines in certain stock market

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

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

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 June 30,

In addition, some of the companies in which we

have invested have cancelled their quarterly dividends and distributions for the current and future quarters.

While these cancellations did not have a significant impact on the Company’s total investment income for the quarter ended June 30, 2020,

the Company anticipates these cancellations will have a larger impact in future quarters.

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

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

1 unchanged sentence

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

They are working closely with our

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

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

This includes the evaluation and

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

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

searching for opportunistic investments.

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

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 2021 financial results.

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 had discontinued distributions

starting March 2020 and share redemptions starting May 2020.

However, after reassessing the Company’s cash flow, the board of directors resumed the share redemptions in March of 2021 and reinstated the quarterly distributions in May 2021.

Board intends to continue quarterly distributions so long as it is supported by the previous quarter’s income, but may increase or decrease the distribution accordingly.

Due to the termination of the Company’s BDC status effective December 31, 2020, during the fiscal year ended June 30, 2021 (“Fiscal 2021”), 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 June 30, 2021.

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

six months ended June 30, 2021 and six months

ended December 31, 2020 and those periods have been compared to the same prior year periods.

Six Months Ended June 30, 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 six months ended June 30, 2021, the Company generated $3.75 million in

rental and reimbursements revenues, of which $3.08 million was generated from the Addison Corporate Center tenants and $0.67 million from the residential Apartments.

The Company acquired the two residential apartments on March 5, 2021;

only generated four months of rental revenues.

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

Investment income:

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

Distributions from sales and capital transactions are

treated as realized gain from capital transactions for the purposes of calculating the subordinated advisory fees.

Dividend and distribution income:

Dividend and distribution income for Fiscal 2020 was $8.38 million compared to $11.51 million for Fiscal 2019.

This decrease of $3.13 million or 27.2% was due to decreases in distribution income from sales and

liquidating transactions and dividend income during Fiscal 2020.

The decreases were partly offset by an increase in distribution income from operations.

During Fiscal 2020, the Company received distribution income from sales and liquidating

transactions of $1.70 million compared to $6.07 million during Fiscal 2019, resulting in a decrease of $4.37 million.

During Fiscal 2020, the Company received total dividends of $2.06 million compared to $2.32 million during Fiscal 2019, resulting in

a decrease of $0.26 million.

During Fiscal 2020, the Company received $4.62 million of distribution income from operations compared to $3.12 million during Fiscal 2019, resulting in an increase of $1.50 million.

Dividend and distribution income for Fiscal 2019 was $11.51 million compared to $6.52 million for Fiscal 2018.

This increase of $4.99 million or 76.5% was attributed two factors;

(i) larger amounts of sales

distributions received during Fiscal 2019 and (ii) an increase in our investment portfolio since June 30, 2018.

During Fiscal 2019, the Company received sales and liquidating distributions of $6.07 million from six investments compared to $2.80

million from seven investments during Fiscal 2018, resulting in additional $3.27 million of sales distribution income in Fiscal 2019.

The remaining increase of $1.72 million was due to a net increase in our overall investment portfolio by $33.72

million (excluding the decrease in debt securities) in cost basis since June 30, 2018.

Interest and other income:

Interest and other income for Fiscal 2020 and 2019 remained comparable at $0.35 million and $0.37 million, respectively.

Interest and other income for Fiscal 2019 and 2018 were $0.37 million compared to $0.46 million, respectively.

This decrease of $0.09 million was mainly due to maturity of a debt security towards the end of Fiscal

The debt security earned interest for most of Fiscal 2018.

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 June

30, 2021 and 2020 was $2.03 million and $4.40 million, respectively.

The decrease of $2.37 million or 53.86%, was primarily due to suspensions of dividends and distributions from our investments as a result of the COVID-19 pandemic.

During the six

months ended June 30, 2021, the Company received $1.10 million of distributions from operations, sales and liquidations as compared to $3.49 million during the six months ended June 30, 2020.

During the six months ended June 30, 2021, we received

dividends, interest, and other investment income of $0.92 million as compared to $0.91 million during the six months ended June 30, 2020.

The decrease in investment income is also due to decrease in our investment portfolio since June 30, 2020.

of June 30, 2021 the Company has investments with total cost basis of $69.60 million as compared to $104.69 million as of June 30, 2020.

Operating expenses:

Base management fee:

The base management fee for Fiscal 2020 was $2.55 million compared to $2.21 million for Fiscal 2019.

The increase of $0.34 million was due to the increase in the Gross Invested Capital during Fiscal 2020.

Invested Capital as of June 30, 2020 was $128.61 million compared to $109.26 million as of June 30, 2019.

The base management fee for Fiscal 2019 was $2.21 million compared to $1.73 million for Fiscal 2018.

The increase was due to the increase in the Gross Invested Capital during Fiscal 2019.

The Gross Invested Capital as

of June 30, 2019 was $109.26 million compared to $84.96 million as of June 30, 2018.

Portfolio structuring fee :

The portfolio structuring fee for Fiscal 2020 was $0.59 million compared to $0.71 million for Fiscal 2019.

The decrease of $0.12 million or 16.9% was due to smaller amount of capital raised during Fiscal 2020.

Fiscal 2020, the Company issued new shares with total gross proceeds of $19.51 million (excluding the DRIP shares) as compared to $23.24 million (excluding the DRIP shares) during Fiscal 2019

The portfolio structuring fee for Fiscal 2019 and 2018 remained comparable at $0.71 million and $0.69 million, respectively.

The fee remained comparable as the gross proceeds from new shares issued (excluding the DRIP

shares) during Fiscal 2019 and 2018 remained comparable at $23.24 million and $23.01 million, respectively.

Subordinated incentive fee:

Subordinated incentive fees are calculated in accordance with the Investment Advisory Agreement.

The subordinated incentive fee has two parts—the Income Fee and the Capital Gains Fee.

The Capital Gains Fee is based on

realized gains including distributions received from sales/capital transactions and the Income Fee is based on net investment income.

There was neither Income Fee nor the Capital Gains Fee for Fiscal 2020, as the net investment income for Fiscal 2020 and the cumulative realized capital gains as of June 30, 2020 were below the threshold of 7% of

Contributed Capital per annum.

There was no Income Fee for Fiscal 2019, as the net investment income for Fiscal 2019 was below the threshold of 7% of Contributed Capital per annum.

The Capital Gains Fee for Fiscal 2019 was $1.79 million as the

cumulative realized capital gains as of June 30, 2019, were over the threshold of 7% of Contributed Capital per annum.

The Income Fee and the Capital Gains Fee for Fiscal 2018 were $0.28 million and $0.81 million, respectively.

As of June 30, 2018, the net investment income from the Effective Date of the amended investment advisory

agreement through June 30, 2018, together with the cumulative net realized gains exceeded the threshold of 7% of the Company’s Contributed Capital per annum resulting in the Income Fee and Capital Gains Fee for that period.

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.

Subsequent to December 31,

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

Asset/base management fee:

The asset management fees under the new advisory agreement for the six months ended June 30, 2021 were $1.35 million.

The base management fee under the previous advisory agreement for the six months ended June 30,

2020 was $1.31 million.

The asset management fees are essentially on the same terms as the base management fees it was paying the Adviser prior to 2021, namely based upon a percentage of Invested Capital, which is equal to the amount calculated by

multiplying the total number of outstanding Shares, Preferred Shares, and Partnership Units issued by the Company by the price paid for each or the value ascribed to each in connection with their issuance.

This increase of $0.04 million, or 3.05%

was due to a slight increase in the invested capital by $5.04 million from $128.61 million as of June 30, 2020, to $133.65 million as of June 30, 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.

The Company did not incur any incentive management fee for the six months ended June 30, 2021.

Similarly, the Company did not incur any subordinated incentive fee (Capital Gains Fee or Income Fee) during the six

months ended June 30, 2020.

This was because the cumulative net investment income and net realized gains were below the threshold of 7% of Contributed Capital.

Administrative cost and transfer agent reimbursements:

Costs reimbursed to Mackenzie for Fiscal 2020 and 2019 were $0.68 million and $0.57 million, respectively.

The increase was primarily due to an increase in the allocable portion of overhead and other expenses incurred

by MacKenzie since June 30, 2019, as a result of increase in the Company’s operating activities.

Costs reimbursed to Mackenzie for Fiscal 2019 and 2018 were $0.57 million and $0.43 million, respectively.

The increase was primarily due to an increase in the allocable portion of overhead and other expenses incurred

by MacKenzie since June 30, 2018, as a result of increase in the Company’s operating activities.

Effective November 1, 2018, transfer agent services are also provided by MacKenzie in-house and the costs incurred by MacKenzie in providing the services are reimbursed by the Company.

No fee (only cost reimbursement)

is being paid by the Company to MacKenzie for this service, but the Company is reimbursing MacKenzie for the cost of certain software purchased to implement the service.

This service was previously provided by a third party and the cost incurred were

expensed under other general and administrative expenses.

Transfer agent cost reimbursement paid to MacKenzie for Fiscal 2020 was $0.08 million.

Transfer agent cost reimbursement paid to MacKenzie for Fiscal 2019 was $0.02 million and transfer agent service fees paid to the

third party for Fiscal 2019 during the period MacKenzie did not provide the service was $0.03 million.

Transfer Agent services fees paid to the third party for Fiscal 2018 was $0.04 million.

Amortization of deferred offering costs:

Amortization of deferred offering costs for Fiscal 2020 and Fiscal 2019 were $0.88 million and $0.56 million, respectively.

The increase of $0.32 million or 57.1% was primarily due to amortization of the remaining

unamortized deferred offering costs relating to the second public offering after the offering concluded in October 2019.

According to our accounting policy, offering costs are capitalized as deferred offering costs as incurred by the Company and

subsequently amortized to expense over a twelve-month period.

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

Amortization of deferred offering costs for Fiscal 2019 and Fiscal 2018 were $0.56 million and $0.37 million, respectively.

The increase of $0.19 or 51.4% was primarily due to increase in the offering costs during

Deferred offering cost incurred during Fiscal 2019 was $0.71 million as compared to $0.42 million during Fiscal 2018.

Costs reimbursed to MacKenzie for the six months ended June 30, 2021, was $0.31 million as compared to $0.34 million for the six months ended June 30, 2020.

The slight decrease was due to a decrease in the allocable

portion of overhead and other expenses incurred by MacKenzie in comparison to June 30, 2020, as a result of the decrease in the Company’s capital raising activities.

Transfer agent cost reimbursement paid to MacKenzie for six months ended June 30, 2021 was $0.06 million as compared to $0.04 million for the six months ended June 30, 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 six months ended June 30, 2021, the Company incurred operating and maintenance expenses of $2.33 million, of which $2.14 million were incurred in

the operation of Adison Corporate Center.

Operating and maintenance expenses incurred in the operation of two residential apartments were $0.19 million since the properties were acquired and in operation for only four months.

The Company did not

have such expenses during the six months ended June 30, 2020 as it did not own and operate any real estate assets as of June 30, 2020.

Depreciation and amortization:

During the six months ended June 30, 2021, the Company recorded depreciation and amortization of $2.19 million, of which $1.60 million was the depreciation and amortization of real estate and intangible assets it

owned through the Operating Partnership.

$0.59 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 six months ended

June 30, 2020 as it did not own and operate any real estate assets as of June 30, 2020.

Interest expense:

Interest expense for the six months ended June 30, 2021 was $0.64 million, of which $0.49 million the interest expense incurred on the notes payable associated with the Addison Corporate Center and $0.15 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 six months ended June 30, 2020 as it did not have any notes payable outstanding as of

June 30, 2020.

Other operating expenses:

Other operating expenses includes professional fees, directors’ fees, legal expenses, audit fees, printing and mailing and other general and administrative expenses.

Other operating expenses for Fiscal 2020 and 2019

were $0.48 million and $0.40 million, respectively.

The increase of $0.08 million or 20.0% was mainly due to increases in the Company’s professional fees.

The Company incurred additional professional fees during Fiscal 2020 in the process of

restructuring and taking control of one of its investments.

Other operating expenses includes professional fees, directors’ fees, legal expenses, audit fees, printing and mailing and other general and administrative expenses.

Other operating expenses for Fiscal 2019 and 2018

remained comparable at $0.40 million and $0.44 million, respectively.

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 June 30, 2021 and 2020, were $0.31 million and $0.44 million, respectively.

The slight decrease was due to decrease in the amortization of deferred offering costs.

Net realized gain on sale of investments:

Total net realized gains for Fiscal 2020 was $1.80 million realized from sales and liquidations of three non-traded REIT securities with realized gains of $0.20 million, three limited partnership interests with net

realized gains of $0.41 million and four publicly traded securities with realized gains of $1.19 million.

Total net realized gains for Fiscal 2019 was $1.20 million realized from sales and liquidation of twelve non-traded REIT securities with net realized gains of $3.24 million.

The realized gains were offset by a

realized loss of $2.03 million from sales of twenty-one publicly traded securities and $0.01 million from the liquidation of four limited partnership interests.

Total net realized gains for Fiscal 2018 was $2.69 million realized from (i) sales and liquidation of eight non-traded REITs with net realized gains of $3.06 million, and (ii) sales and liquidation of four

partnership interests with net realized gains of $0.53 million.

The realized gains were offset by a realized loss of $0.84 million from sales of twenty-one publicly traded securities and $0.06 million from the liquidation of Coastal Realty Business

Trust, Series H2-A.

During the six months ended June 30, 2021, the Company had realized gain of $0.74 million as compared to $0.39 million during the six months ended June 30, 2020.

Total realized gains for the six months ended June 30,

2021, were realized from sales of seventeen publicly traded REIT securities with total realized gains of $0.90 million and four non-traded REIT securities with net realized gain of $0.02 million offset by a realized loss of $0.18 million from two

limited partnership interest.

Total realized gains for the six months ended June 30, 2020, were realized from sales of three publicly traded REIT securities with total realized gains of $0.56 million offset by a realized loss of $0.17 million

from two limited partnership interest.

Net unrealized gain (loss) on investments:

During Fiscal 2020, the Company recorded net unrealized loss of $16.99 million, which were net of the reclassification adjustment of $1.19 million of realized gains.

The reclassification adjustment was the

accumulated unrealized gains as of June 30, 2019, that were realized during Fiscal 2020.

Accordingly, the net unrealized loss excluding the realized gains reclassification adjustment was $15.80 million, which resulted from fair value depreciations

of $11.42 million of non-traded REIT securities, $3.17 million of limited partnership interests and $1.21 million of publicly traded securities.

The significant declines in fair value during Fiscal 2020 were mainly due to the COVID-19 pandemic

resulting in steep declines in certain domestic stock market segments and in the traded prices for other financial assets as discussed above.

During Fiscal 2019, the Company recorded net unrealized loss of $3.96 million, which were net of the reclassification adjustment of $2.40 million of realized gains.

The reclassification adjustment was the accumulated

unrealized gain as of June 30, 2018, that was realized during Fiscal 2019.

Accordingly, the net unrealized loss excluding the realized gains reclassification adjustment were $1.56 million, which resulted from fair value depreciation of $2.05

million of limited partnership interests and $0.03 million of publicly traded securities offset by fair value appreciation of $0.52 million of non-traded REIT securities.

The large fair value depreciation in limited partnership interests mostly

resulted from distributions of sales proceeds by two partnerships (The Weatherly, LTD and The Weatherly Building, LLC) following the sales of underlying properties.

The Company recorded $3.3 million of distribution income from sales transactions,

which is a part of the investment income discussed above, from these two partnerships during Fiscal 2019.

During Fiscal 2018, the Company recorded net unrealized gains of $5.85 million, which were net of the reclassification adjustment of $1.91 million of realized gains.

During the six months ended June 30, 2021, we recorded net unrealized gains of $0.94 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 six months ended June 30, 2021, resulted from fair value appreciations of $1.47 million from non-traded REIT securities partly offset by fair value depreciations of $0.52 million

from limited partnership interests and $0.01 million from publicly traded securities.

During the six months ended June 30, 2020, we recorded net unrealized losses of $15.76 million, which were net of $0.86 million of unrealized gains reclassification adjustment.

The reclassification adjustment was the

accumulated unrealized gain as of June 30, 2017, that was realized during Fiscal 2018.

Accordingly, the net unrealized gains excluding the realized gains reclassification adjustment were $7.76 million, which resulted from fair value appreciation of

$5.19 million of limited partnership interests and $2.59 million of non-traded REIT securities offset by fair value depreciation of $0.02 million of publicly traded securities.

accumulated unrealized gains as of December 31, 2019, that were realized during the six months ended June 30, 2020.

Accordingly, the net unrealized losses excluding the reclassification adjustment for the six months ended June 30, 2020, were $14.90

million, which resulted from fair value depreciation of $9.42 million from non-traded REIT, $5.05 million from limited partnership interests and $0.43 million from publicly traded REIT securities.

The significant decline in the fair value during

this six months period 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 did not record any income tax expenses for Fiscal 2020, 2019, or 2018, as we have elected to be treated as a REIT for tax purposes beginning with the tax year ended December 31, 2014.

As a REIT, the

Parent Company is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2019, 2018, and 2017.

Therefore, the Company did not incur any tax expense or excise tax for

those periods.

In addition, during tax year ended December 31, 2019, we intend to pay dividends sufficient to avoid incurring income taxes.

Therefore, the Company did not record any income tax provisions during the years ended June 30, 2020, 2019,

The income tax provision (benefit) amounts in the consolidated statements of operation for the years ended June 30, 2020, 2019 and 2018, relate to the Company’s built-in gain tax adjustments and TRS’ income tax

provisions as follows:

June 30, 2020

June 30, 2019

June 30, 2018

MacKenzie Realty Capital, Inc - built-in gain tax adjustments

MRC TRS, Inc - income tax expenses

Total Income Tax Provision (Benefit)

The built-in gain tax adjustment amounts are the differences between the actual and the estimated tax liabilities on the built-in gains realized during the year.

Prior to the effective date of its REIT election, the

Parent Company had net unrealized built-in gains of $239,595, for which the Parent Company recorded an estimated tax liability of $95,431 as of December 31, 2013.

Accordingly, in each subsequent period, the Parent Company only recorded the difference

between the actual and estimated tax on the built-in gains it realized during the year as income tax expense or benefit.

All unrealized built-in gains after December 31, 2018 were not taxable as the five-year period following the REIT election date

ended on December 31, 2018.

Therefore, the remaining deferred tax liabilities of $13,348 on the unrealized built-in gains were reversed as of June 30, 2019.

TRS is subject to corporate federal and state income tax on its taxable income at regular statutory rates.

However, for the years ended June 30, 2020 and 2019, TRS did not have any taxable income;

therefore, TRS did

not record any income tax provisions.

For the year ended June 30, 2019, it recorded an income tax provision of $6,723.

The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an

annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions.

To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income,

it is either subject to U.S.

federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.

The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2020.

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

during the quarterly periods within the tax year 2020.

Similarly, for the tax year 2021, 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

Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2021.

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 June 30, 2021, they did not have any taxable income for tax years 2020 or 2021.

Therefore, TRS and

MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2020 and 2021.

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 56.58%, was primarily due to suspensions of dividends and distributions from our investments as a result of the COVID-19 pandemic.

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,

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

8.06% was due to an increase in the 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 million 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 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 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.

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

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.

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, 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 securities.

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.

Fiscal year ended June 30, 2020 (“Fiscal 2020”) compared to June 30, 2019 (“Fiscal 2019”)

Please refer to Item 7 of our Annual Report on Form 10-K for the Fiscal 2020 that was filed on September 21, 2020 for a discussion highlighting the major drivers behind the line item changes in

our results of operations for Fiscal 2020 versus 2019.

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 June 30, 2020, the Company has raised total gross proceeds of $118.88 million from the issuance of shares under three public offerings, $42.46 million from the IPO, which concluded in October 2016, and $67.99 million from the second public

offering and $8.43 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 offerings.

As of June 30, 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 $11.36 million from the issuance of shares under the DRIP.

Of the total capital raised from the public offerings as of June 30, 2020, we have used $9.46 million to

repurchase shares under the Company’s share repurchase program.

We do not have any current plans to issue any preferred equity.

We plan to fund future investments with the net proceeds raised from our third offering and any future offerings of

securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S.

government securities and other high-quality debt investments that mature in one year or less.

We may also fund a portion of our

investments through borrowings from banks and issuances of senior securities.

We currently do not have any plans to borrow money on a long-term basis or issue debt securities;

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

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

As of June 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.

Of the total capital raised from the public offerings as of June 30, 2021, we have

used $9.87 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 “Offering Circular”).

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 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 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.

The maximum amount of such

borrowing is limited by the 1940 Act.

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

security holders, paying operating expenses.

If all shares registered in our current public offering are sold, we will receive investable cash totaling approximately $133.76 million, of which approximately $7.37 million has been received as of June

The Company finished the quarter ended June 30, 2020 with substantial liquidity, including $8.96 million in cash and cash equivalents, and only $0.94 million of liabilities.

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

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

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

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 distributions to holders of our common stock (from investment income and realized

capital gains), and paying operating expenses.

The Company finished the six months ended June 30, 2021 with cash and cash equivalents, restricted cash, and receivables of $9.74 million, and approximately $0.92 million of

current liabilities.

Additionally, subsequent to June 30, 2021, the Company has generated $7.44 million from sales of some of its investments during the quarter ended September 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.

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 June 30, 2021.

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

six months ended June 30,

2021 and six months ended December 31, 2020.

Six months ended June 30, 2021(As an Operating REIT):

For the six months ended June 30, 2021, we experienced a net decrease in cash of $6.40 million.

During this period, we generated cash of $0.97 million from our operating activities, $14.05 million from our financing

activities and used $21.42 million in our investing activities.

The net cash inflow of $0.97 million from operating activities resulted from $3.74 million of rental revenues and $2.03 million of investment income offset by $4.80 million of cash

used in operating expenses.

The net cash outflow of $21.42 million from investing activities resulted from real estate acquisitions through our subsidiaries of $28.62 million and purchases of equity

investments of $9.30 million offset by cash inflows of $10.50 million from sale of investments and $6.0 million from distributions received from our investments that are considered return of capital.

The net cash inflow of $14.05 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 $0.41 million, redemption of common stock of $0.41 million, distributions to stockholders of $0.46 million.

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 million from investing

activities and $0.13 million from our financing activities.

The net cash inflow of $3.14 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.

For Fiscal 2020, we experienced a net increase in cash of $7.68 million.

During this period, we generated cash of $9.41 million from our financing activities and used $1.73 million

in our operating activities.

The net cash outflow of $1.73 million from operating activities was primarily due to the cash outflow of $45.08 million from purchases of investments offset by cash inflows of $8.01 million from sales of investments,

$31.37 million from distributions received from our investments that are considered return of capital and $3.97 million from investment income, net of the Company’s operating expenses.

During this period, we generated cash of $9.41 million from our financing activities and used $1.73 million in our

operating activities.

The net cash outflow of $1.73 million from operating activities was primarily due to the cash outflow of $45.08 million from purchases of investments offset by cash inflows of $8.01 million from

sales of investments, $31.37 million from distributions received from our investments that are considered return of capital and $3.97 million from investment income, net of the Company’s operating expenses.

The net cash inflow of $9.41 million from financing activities resulted from the sale of shares under our second and third public offering with gross proceeds of $18.93 million (adjusted for $0.58 million of decrease

in capital pending acceptance) offset by cash outflows of $4.53 million from payments of cash dividends, $3.19 million from share redemptions, and $1.80 million from payments of selling commissions and fees.

For Fiscal 2019, we experienced a net decrease in cash of $7.16 million.

During this period, we generated $15.06 million of cash from our financing activities and used $22.22 million in operating activities.

The net cash outflow of $22.22 million from operating activities was primarily due to the cash outflow of $107.88 million from purchases of investments offset by cash inflows of $62.87 million from sales of

investments, $19.02 million from distributions received from our investments that are considered return of capital and $3.77 million from investment income, net of the Company’s operating expenses.

The net cash inflow of $15.06 million from financing activities resulted from the sale of the Company’s shares under the second public offering with gross proceeds of $23.27 million (adjusted for the $0.02 million of

change in capital pending acceptance) offset by cash outflows of $2.37 million from share redemptions, $3.79 million from payments of cash dividends and $2.05 million from payment of selling commissions and fees.

in capital pending acceptance) offset by cash outflows of $4.53 million from payments of cash distributions, $3.19 million from share redemptions, and $1.80 million from payments of selling commissions and fees.

For Fiscal 2019, we experienced a net decrease in cash of $7.16 million.

During this period, we generated $15.23 million of cash from our financing activities and used $18.64 million in operating activities.

The net cash outflow of $18.64 million from operating activities was primarily due to the cash outflow of $79.22 million from purchases of investments offset by cash inflows of $39.60 million from sales of investments,

$17.19 million from distributions received from our investments that are considered return of capital and $3.79 million from investment income, net of the Company’s operating expenses.

The net cash inflow of $15.23 million from financing activities resulted from the sale of the Company’s shares under the second public offering with gross proceeds of $21.84 million (adjusted for the $1.16 million of

change in capital pending acceptance) offset by cash outflows of $1.45 million from share redemptions, $2.98 million from payments of cash dividends and $2.18 million from payment of selling commissions and fees.

During this period, we generated $15.06 million of cash from our financing activities and used $22.22 million in operating

The net cash outflow of $22.22 million from operating activities was primarily due to the cash outflow of $107.88 million from purchases of investments offset by cash inflows of $62.87 million

from sales of investments, $19.02 million from distributions received from our investments that are considered return of capital and $3.77 million from investment income, net of the Company’s operating expenses.

The net cash inflow of $15.06 million from financing activities resulted from the sale of the Company’s shares under the second public offering with gross proceeds of $23.27 million (adjusted for

the $0.02 million of change in capital pending acceptance) offset by cash outflows of $2.37 million from share redemptions, $3.79 million from payments of cash distributions and $2.05 million from payment of selling commissions and fees.

Contractual Obligations

We have entered into two contracts under which we have material future commitments, the Advisory Agreement, under which the Adviser serves as our investment adviser, and 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 (after the up-front payment of the portfolio structuring fee during the IPO) are (i) a percentage of the value of our Gross Invested Capital;

and (ii) incentive fees based on our income and our performance above specified

hurdles (except in the year of liquidation).

Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie.

However, if MacKenzie withdraws as our administrator, it is liable for any

expenses we incur as a result of such withdrawal.

We have entered into an agreement with MacKenzie, the Investor Service Agreement, effective November 1, 2018.

Pursuant to the agreement, transfer agent services are provided by MacKenzie in-house and the costs incurred

by MacKenzie in providing the services are reimbursed by the Company.

No fee (only cost reimbursement) is paid by the Company to MacKenzie for this service.

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.

If we do borrow money, we expect to be subject to various customary covenants and restrictions on our operations, such as covenants which

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

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

We 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.

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.

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

While we do not have any plans to borrow money at the Parent Company level, we borrow money within the underlying

companies in which we have majority ownership.

As of June 30, 2021, total loan outstanding at the underlying companies amounted to $38,693,330.

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-K

Item 7. Management’s Discussion and Analysis