MacKenzie Realty Capital, Inc. 10-K

Item 9A. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: 1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and the dispositions of our assets; 2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and 3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management's assessment of the effectiveness of our internal control system as of June 30, 2021, was based on the framework for effective internal control over financial reporting described in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, as of June 30, 2021, our system of internal control over financial reporting was effective at the reasonable assurance level. 40 Table of Contents This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-accelerated filers from the auditor attestation requirement of section 404 (b) of the Sarbanes-Oxley Act. Changes in Internal Control over Financial Reporting Due to the Company’s withdrawal of its BDC status and the consolidation of subsidiaries which own real estate assets, the Company has added new controls and procedures relating to variable interest entities analysis, business combination/asset acquisition accounting and asset impairment analysis after the BDC withdrawal effective date of December 31, 2020. There have been no additional changes to the Company’s internal control over financial reporting (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that occurred during the year ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 41 Table of Contents PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Board of Directors and Executive Officers Our business and affairs are managed under the direction of our Board of Directors. Accordingly, our Board provides broad supervision over our affairs, including supervision of the duties performed by the Adviser and MacKenzie. Certain employees of MacKenzie are responsible for our day-to-day operations. The names, ages and addresses of our Directors and specified executive officers, together with their principal occupations and other affiliations during the past five years, are set forth below. Each Director and officer holds office for a one-year term to which he or she is elected and until his successor is duly elected and qualifies, or until he resigns or is removed in the manner provided by law. Our Board consists of a majority of “Independent Directors” under the New York Stock Exchange independence standards. The address for all officers and Directors is 89 Davis Road, Suite 100, Orinda CA 94563. None of our Directors or officers serves as a director for any other company which (i) has a class of securities registered under section 12 of the 1934 Act, (ii) is subject to section 15(d) of the 1934 Act, or (iii) is registered as an investment company under the 1940 Act, and we only have one investment portfolio. There are no understandings or arrangements between the Company and any officer or director pursuant to which they attained their position, there are no family relationships between any officers or directors other than as set forth below. Board of Directors Name and Age Position(s) Held with the Company Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Charles “Chip” Patterson†, 50 Chairman of the Board, Since 2019 Mr. Chip Patterson, an MRC Executive Officer since May of 2012, is managing director, general counsel, and senior vice president of MCMA and the Manager, and a director of their general partner, and a beneficial owner of all three companies, all since 2005. Mr. Patterson graduated magna cum laude from the University of Michigan Law School with a J. D. degree and with high distinction and Phi Beta Kappa from the University of California at Berkeley with a B. A. degree in Political Science. Prior to joining the Manager in July 2003, he was a securities and corporate finance attorney with the national law firm of Davis Wright Tremaine LLP. Prior to law school, Chip Patterson taught physics, chemistry, and math at the high school level for three years. He also has prior experience in sales, retail, and banking, and is a licensed California Real Estate Broker. Tim Dozois, 59 Director Since 2012 Mr. Dozois was Vice President, Secretary and Corporate Counsel for Pendrell Corporation, a NASDAQ listed company specializing in intellectual property solutions, from June of 2010 until early 2018. He is now sole owner of Conseiller LLC. From January 1996 until March of 2010, Mr. Dozois was an equity partner of Davis Wright Tremaine LLP, a Seattle-based national law firm, where he specialized in private securities work and structured financings, with an emphasis on the acquisition, financing and management of real property assets. He has nearly 30 years of experience supporting leading corporations in securities law compliance, mergers, acquisitions, and real estate acquisition, financing, and management. Mr. Dozois received his B. S. in Financial Management from Oregon State University and his J. D. from the University of Oregon School of Law, where he was Order of the Coif. Tom Frame, 79 Director Since 2012 Mr. Frame was a co-founder of TransCentury Property Management and solely founded Paradigm Investment Corporation. TransCentury began in May of 1973 and has syndicated and managed over 10,000 residential units. During the last 35 years, Mr. Frame has been a principal in the acquisition, financing, restoration, and sale of over $500,000,000 in residential and commercial real estate. Paradigm was founded in June 1986 to sponsor and manage private, closed end "mutual funds." The last of the funds successfully liquidated in December of 2000. Mr. Frame received a BA degree from the University of Kansas in Mathematics in June 1964, a Juris Doctor degree from the San Francisco Law School in June 1975, and an MBA with honors from Pepperdine University in April 1986. Mr. Frame is currently managing his own investments which include residential units, commercial property, and a portfolio of securities. † As a principal of both MacKenzie and the Adviser, Mr. Patterson is not an Independent Director. 42 Table of Contents Executive Officers Our current officers are listed in the chart below. The address for all officers is 89 Davis Road, Suite 100, Orinda, CA 94563. Name and Age Position(s) Held with the Company Term of Office and Length of Time Served Principal Occupation(s) During Past 5 Years Robert Dixon, 50 Chief Executive Officer and President Since 2012 Robert E. Dixon has been the senior vice president and co-chief investment officer of MacKenzie and the Adviser since 2005, and a director of their general partner, and a beneficial owner of all three companies since 2005. Robert Dixon served as an officer and director of Sutter Holding Company, Inc. from March 2002 until 2005. Mr. Dixon has been president of Sutter Capital Management since its founding. Mr. Dixon received his Master of Business Administration degree from Cornell University in 1998 and has held the Chartered Financial Analyst® designation since 1996. Mr. Dixon received his bachelor's degree in economics from the University of California at Los Angeles in 1992. Angche Sherpa, 40 Chief Financial Officer Since 2021 Mr. Sherpa was appointed to Chief Financial Officer in July 2021 after the retirement of the predecessor officer Mr. Paul Koslosky. He has been employed by the Company’s administrator, MacKenzie, since 2012. Prior to his appointment, he was Director of Accounting and Financial Reporting of MacKenzie. Mr. Sherpa graduated from San Francisco State University in 2006 with a Bachelor of Science degree in Business Administration (Accounting) with honors. He obtained his CPA license from California Board of Accountancy in January 2011. Prior to joining MacKenzie, he worked as staff auditor from 2007 through 2008 and senior auditor from 2009 through 2012 at a national public accounting firm Moss Adams LLP. During his career at Moss Adams, he led various audit teams involved in auditing financial services companies including private equity, asset management and real estate investment companies. Glen Fuller, 48 Chief Operating Officer Since 2012 Mr. Fuller has been senior vice president and secretary of MacKenzie since 2000 and the Adviser since 2000, and a director of their general partner, and a beneficial owner of all three companies since 2000. Prior to becoming senior vice president of MacKenzie, he was with MacKenzie for two years as a portfolio manager and research analyst. Prior to joining MacKenzie, Mr. Fuller spent two years running the over the counter trading desk for North Coast Securities Corp. (previously Morgan Fuller Capital Group) with responsibility for both the proprietary and retail trading desks. Mr. Fuller was also the registered options principal and registered municipal bond principal for North Coast Securities Corp. , a registered broker-dealer. Mr. Fuller previously held his NASD Series 7, general securities registration. Mr. Fuller has a Bachelor of Arts in Management. 43 Table of Contents Chip Patterson, 50 General Counsel and Secretary Since 2012 Mr. Patterson is a managing director and general counsel of MCMA and our Manager, where he has been employed since 2003. He is a director of their general partner and a beneficial owner of all three companies. Chip Patterson graduated magna cum laude from the University of Michigan Law School with a J. D. degree and with high distinction and Phi Beta Kappa from the University of California at Berkeley with a B. A. degree in Political Science. Prior to joining the Manager in July 2003, he was a securities and corporate finance attorney with the national law firm of Davis Wright Tremaine LLP. Prior to law school, Chip Patterson taught physics, chemistry, and math at the high school level for three years. He also has prior experience in sales, retail, and banking, and is a licensed California Real Estate Broker. Jeri Bluth, 46 Chief Compliance Officer Since 2012 Ms. Bluth has been the Chief Compliance Officer for MacKenzie and the Adviser since 2009. She owns a beneficial interest in each MacKenzie and the Adviser. Mrs. Bluth oversees compliance for all the funds advised by the Adviser, and she oversees the Company's compliance with its Code of Ethics, Bylaws, Charter, and applicable rules and regulations. Mrs. Bluth began her career with MacKenzie Patterson Fuller, Inc. in July of 1996 in the Investor Services Department. During Mrs. Bluth's career with MacKenzie, she graduated from St. Mary's College of California in June 2001, with a Bachelor of Arts degree in Business Management. Christine Simpson, 56 Chief Portfolio Manager Since 2012 Mrs. Simpson has been employed by MacKenzie and its affiliates since 1990, and has been the Adviser's Senior Vice President of Research and Trading since 2005. Mrs. Simpson is responsible for handling the day-to-day operations of The Adviser's research department. During Mrs. Simpson's career with MacKenzie, she graduated: with a Bachelor of Arts degree in Business Management from St. Mary's College of California in October 2004 (with honors), with a Master of Science degree in Financial Analysis and Investment Management in September 2006, and a Master’s in Business Administration in June 2008. Code of Ethics We have adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual's personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. A copy of the Code, as amended from time to time, has been posted to the “Corporate Documents” section of the Company's web site at http://www.mackenziecapital.com/sec-filings. 44 Table of Contents Audit Committee The Board of Directors has established an Audit Committee in accordance with 1934 Act §3(a)(58)(A). The Audit Committee operates under a charter approved by our Board of Directors, which contains the responsibilities of the Audit Committee. The Audit Committee's responsibilities include establishing guidelines and making recommendations to our Board of Directors regarding the valuation of our loans and investments, selecting our independent registered public accounting firm, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our consolidated financial statements, pre‑approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing our annual consolidated financial statements and periodic filings and receiving our audit reports and consolidated financial statements. The audit committee is currently composed of Messrs. Dozois and Frame, both of whom are Independent Directors as described under Item 13 below. Mr. Dozois serves as chairman of the audit committee. The Company has determined that Mr. Dozois is a “financial expert” as defined by SEC rules. Nominating and Corporate Governance Committee The nominating and corporate governance committee operates under a charter approved by our Board of Directors. The members of the nominating and corporate governance committee are Messrs. Dozois and Frame, both of whom are Independent Directors. Mr. Frame serves as chairman of the nominating and corporate governance committee. The nominating and corporate governance committee is responsible for selecting, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on the Board of Directors or a committee thereof, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and our management. The nominating and corporate governance committee currently does not consider nominees recommended by our stockholders. The nominating and corporate governance committee seeks candidates who possess the background, skills and expertise to make a significant contribution to the Board of Directors, our operations, and our stockholders. In considering possible candidates for election as a director, the nominating committee takes into account, in addition to such other factors as it deems relevant, the desirability of selecting directors who: • are of high character and integrity; • are accomplished in their respective fields, with superior credentials and recognition; • have relevant expertise and experience upon which to be able to offer advice and guidance to management; • have sufficient time available to devote to our affairs; • are able to work with the other members of the Board of Directors and contribute to our success; • can represent the long‑term interests of our stockholders as a whole; and • are selected such that the Board of Directors represents a range of backgrounds and experience. The nominating and corporate governance committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the nominating and corporate governance committee considers and discusses diversity, among other factors, with a view toward the needs of the Board of Directors as a whole. The nominating and corporate governance committee generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the Board of Directors, when identifying and recommending director nominees. The nominating and corporate governance committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the nominating and corporate governance committee’s goal of creating a Board of Directors that best serves our needs and the interests of our stockholders. 45 Table of Contents Compensation Committee We do not have a compensation committee because our executive officers do not receive any direct compensation from us. Item 11. EXECUTIVE COMPENSATION We do not have a compensation committee because our executive officers do not receive any direct compensation from us. Compensation of Directors Our Independent Directors receive an annual retainer of $28,000. They also receive $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting in person and $500 for each telephonic meeting, and also receive $500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting. In addition, the chairman of the audit committee receives an annual fee of $1,000 and each chairman of any other committee receives an annual fee of $1,000 for their additional services, if any, in these capacities. No compensation is expected to be paid to directors who are non-independent directors. The following table details the compensation accrued to Directors fees during Fiscal 2021. We maintain no pension, equity participation, or retirement plans for our Directors. However, both Independent Directors have been investing a portion of their compensation into Shares of the Company beginning this fiscal year, and have stated that they intend to continue to do so. Name & Position Fiscal Year 2021 Fees (1) Chip Patterson (Chairman of the Board of Directors) $ - Tim Dozois (Independent Director) 35,000 Tom Frame (Independent Director) 35,000 Total Fees $ 70,000 (1) Consists only of directors' fees and does not include reimbursed expenses. Compensation of Executive Officers None of our officers receives direct compensation from us. We have not compensated our executive officers in any of the last three fiscal years. We do not provide any bonus, stock options, stock appreciation rights, non-equity incentive plans, non-qualified deferred compensation or pension benefits to our executive officers. Further, we have no agreements with any officer pertaining to change in control payments. All of our officers and staff are employed by MacKenzie or the Adviser, which pay all of their cash compensation. Compensation Committee Interlocks and Insider Participation We do not have a separate compensation committee utilized to determine the appropriate compensation payable to our executive officers and Directors. The Audit Committee, however, is responsible for, among other things, annually reviewing and approving the compensation policies for our Directors. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of September 28, 2021, to our knowledge, there were no persons that beneficially owned more than five percent of our voting securities. 46 Table of Contents The following table shows the amount of our common stock beneficially owned and based on a total of 13,342,821.24 shares of our common stock outstanding on September 28, 2021, as of that date, by (1) each of our directors and nominees for director, (2) our executive officers and (3) all directors and executive officers as a group. To our knowledge, no other person owns more than 5% of our common stock. The number of shares beneficially owned by each entity, person, director or executive officer is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire within 60 days of September 28, 2021, through the exercise of any instrument. Unless otherwise indicated, each person has the sole investment and voting power, or shares such powers with his spouse, with respect to the shares set forth in the table. Unless known otherwise by us, the beneficial ownership information is based on each beneficial owner’s most recent Form 3, Form 4, Form 5, Schedule 13D or Schedule 13G, as applicable. With respect to the Executive Officers listed below, they are limited partners of MPF Successors, LP, as well as officers of its general partner, which owns 50,307.27 shares in us, and Mr. Sherpa owns 1,414.11 shares directly. Mr. C. E. Patterson and his spouse are the sole beneficial owners of 9,816.47 shares owned in a personal holdings limited partnership, and the executive officers below are also in control of its general partner. Thus, they are all deemed to have voting and dispositive control over such shares and the number of shares owned below is the number of shares owned by MPF Successors, LP and the personal holding partnership. The address of each beneficial owner is 89 Davis Road, Orinda, CA 94563. Name and address of Beneficial Owner Nature of Beneficial Ownership Number of Shares Owned Percent of Class Independent Directors: Tim Dozois Directly held 5,086.08 * Tom Frame Directly held 5,275.66 * Interested Director: Charles "Chip" Patterson Indirectly held 60,123.74 * Executive Officers Robert Dixon Indirectly held 60,123.74 * Glen Fuller Indirectly held 60,123.74 * Chip Patterson Indirectly held 60,123.74 * Angche Sherpa Directly and Indirectly held 61,537.85 * Directors and Officers as a group (6 person) Indirectly held 71,899.59 * * Represents less than 1% of the number of shares outstanding. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE We are managed by MacKenzie, which is owned by three sub-partnerships that are owned in varying percentages by MacKenzie and the Adviser employees and the extended family of Messrs. C. E. Patterson, Chip Patterson, Glen Fuller and Robert Dixon. The general partner of MacKenzie is MCM-GP, Inc., a California corporation owned by the same individuals. The majority of the beneficial interests of MacKenzie are owned by C. E. Patterson, Berniece A. Patterson, Robert Dixon, Glen Fuller, and Chip Patterson, in addition to other family members. Certain non-family employees of MacKenzie own non-controlling interests in MacKenzie that represent in the aggregate less than 10% of the equity in MacKenzie. MacKenzie manages all of our affairs except for providing investment advice. 47 Table of Contents We are advised by the Adviser, whose investment team members have an average of nearly 20 years of experience investing in real estate-related securities. The Adviser is registered with the SEC and is owned by the same beneficial owners and in the same proportions as MacKenzie. The Adviser is led by its investment team: C. E. Patterson, Founder and Managing Director of the General Partner of MacKenzie and the Adviser; Glen W. Fuller, who serves as Chief Operating Officer and Managing Director of the General Partner of MacKenzie and the Adviser; Chip Patterson, who serves as Managing Director and General Counsel, and Director of the General Partner of MacKenzie and the Adviser; Robert E. Dixon, who serves as Chief Investment Officer and Managing Director of the General Partner of MacKenzie and the Adviser; Angche Sherpa, who serves as Chief Financial Officer and Treasurer of the General Partner of MacKenzie and the Adviser; and Christine E. Simpson, who serves as Chief Portfolio Manager and Senior Vice President of Research for the General Partner of MacKenzie and the Adviser. We have entered into two affiliated contracts—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 Investment Advisory Agreement in future periods (after the up-front payment of the Portfolio Structuring Fee) are (i) a percentage of the value of our Invested Capital; and (ii) incentive fees based on our income and our performance above specified hurdles (except in the year of liquidation). In Fiscal 2021, 2020 and 2019, Management fees accrued to the Adviser under the Advisory Agreement were $2,689,699, $2,549,076 and $3,996,097 respectively. Administration fees accrued and payable under the Administration Agreement for Fiscal 2021, 2020 and 2019, were $620,800 and $680,000, $570,667, respectively. Administration Agreement fees 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. Related Party Transaction Approval The 1940 Act extensively regulates conflicts of interests between BDCs, their directors, investment advisers and their affiliates, which has governed while we were registered as a BDC. For example, the 1940 Act and rules thereunder generally prohibit a BDC's employees, officers, directors, investment adviser and their affiliates from (i) selling securities or property to the BDC, (ii) buying securities or property from the BDC, (iii) borrowing money or property from the BDC, or (iv) entering into joint transactions with the BDC or a company controlled by it. The 1940 Act further prohibits a wider group of persons affiliated with a BDC from entering into such transactions with a BDC unless approved by the BDC's stockholders. In order to ensure that we did not engage in any transactions with any persons affiliated with us that are prohibited by the 1940 Act, we implemented certain written policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the issuer in which we invest, us, companies controlled by us and our executive officers and directors. We do not enter into any agreements unless and until we are satisfied that doing so does not violate our Charter or raise concerns under the 1940 Act or, if such concerns existed, we took appropriate actions to seek board review and exemptive or other relief for such transaction. Our Board of Directors review these procedures on an annual basis. There are no plans to eliminate or amend these procedures, regardless of the fact that we are no longer a BDC. We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as all of our officers, directors and employees. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individual’s personal interests and our interests. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. 48 Table of Contents Director Independence We have determined that both Messrs. Dozois and Frame are Independent Directors. In addition, although our shares are not listed for trading on any national securities exchange, a majority of our directors, and all of the members of the audit committee and the conflicts committee, are “independent” as defined by the New York Stock Exchange. The New York Stock Exchange standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, our board of directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Our board of directors has affirmatively determined that Messrs. Dozois and Frame each satisfies the New York Stock Exchange independence standards. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following table presents fees incurred for professional services rendered by Moss Adams LLP, the Company's independent registered public accounting firm, for Fiscal 2021, Fiscal 2020, and Fiscal 2019: Fee Category Fiscal Year 2021 Fiscal Year 2020 Fiscal Year 2019 Audit Fees $ 128,100 $ 133,750 $ 123,471 Audit-Related Fees - - - Tax Fees - - - All Other Fees 7,500 12,500 15,610 Total Fees $ 135,600 $ 146,250 $ 139,081 Audit Fees were for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Moss Adams in connection with statutory and regulatory filings or engagements and include quarterly reviews and security counts. Audit-Related Fees were for assurance and related services that are reasonably related to the performance of the audit or review of the Company's consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection with acquisitions, consultations concerning financial accounting and reporting standards. Tax Fees were for professional services for federal, state and international tax compliance, tax advice and tax planning and include preparation of federal and state income tax returns, and other tax research, consultation, correspondence and advice. All Other Fees are for services other than the services reported above. These fees were incurred for their review of our registration statements. The Audit Committee has concluded the provision of the non-audit services listed above is compatible with maintaining the independence of Moss Adams LLP. Moss Adams LLP did not bill the Adviser or MacKenzie, for any non-audit services in Fiscal 2021, 2020, and 2019. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. 49 Table of Contents PART IV Item 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Annual Report on Form 10-K: 1. The Consolidated Financial Statements listed in the Index to Consolidated Financial Statements on Page F-1. 2. Consolidated Financial Statement Schedule: Schedule III- Real Estate Operating Properties and Accumulated Depreciation is set forth beginning on page S-1 hereof. 3. The Exhibits listed in the Exhibit Index below. Exhibit No. 1 Description of Document 2. 1 Contribution Agreement by and between MacKenzie Realty Operating Partnership, LP and the Addison Group, dated June 8, 2020 (incorporated by reference to the Registrant's Form 8-K (File No. 814-00961 filed on June 9, 2020) 3.1(i) Articles of Amendment and Restatement (incorporated by reference to Registrant's Post-Effective Amendment No. 3 to Registrant's Registration Statement on Form N-2 (File No. 333-181853), filed on May 14, 2014) 3.1(ii) Series A Preferred Articles Supplementary (incorporated by reference to Registrant's Form 1-A (File No. 000-55006), filed on April 12, 2021) 3.2 Second Amended & Restated Bylaws (incorporated by reference to Registrant's Form 8-K (File No. 000-55006), filed on January 12, 2021) 10. 1(i) Amended and Restated Investment Advisory Agreement with MCM Advisers, LP dated as of October 1, 2017 (incorporated by reference to Registrant's Post-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-212804), filed on November 9, 2017) 10. 1(ii) Amendment to the Amended and Restated Investment Advisory Agreement dated as of October 1, 2018 (incorporated by reference to Registrant’s Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-212804), filed on October 29, 2018) 10. 2 Agreement of Limited Partnership of MacKenzie Realty Operating Partnership, LP, Dated May 20, 2020 10. 3 Operating Agreement of PVT-Madison Partners LLC (incorporated by reference to Registrant’s Form 8K (File No. 000-55006), filed on March 11, 2021 10. 4 Operating Agreement of Madison-PVT Partners LLC (incorporated by reference to Registrant’s Form 8K (File No. 000-55006), filed on March 11, 2021 10. 5 Form of Investment Adviser Introducing Agreement (pre-December 2016) (incorporated by reference to the Registration Statement on Form N-2(File No. 333-212804) filed on August 1, 2016) 50 Table of Contents 10. 6 Amended Administration Agreement with MacKenzie Capital Management, LP 10. 7 Form of Investor Services Agreement with MacKenzie Capital Management, LP dated November 1, 2018 (incorporated by reference to Post-Effective Amendment No. 6 to the Registration Statement on Form N-2 (File No. 333-212804), filed on May 10, 2019) 10. 8 Advisory Management Agreement (incorporated by reference to Registrant's Form 8K (File No. 000-55006), filed on January 27, 2021) 10. 9 Amended And Restated Investment Advisory Agreement (incorporated by reference to Registrant's Form 8K (File No. 000-55006), filed on January 27, 2021) 31. 1 Section 302 Certification of Robert Dixon (President and Chief Executive Officer) 31. 2 Section 302 Certification of Angche Sherpa (Treasurer and Chief Financial Officer) 32. 1 Section 1350 Certification of Robert Dixon (President and Chief Executive Officer) 32. 2 Section 1350 Certification of Angche Sherpa (Treasurer and Chief Financial Officer) 101.INS XBRL INSTANCE DOCUMENT* 101.SCH XBRL TAXONOMY EXTENSION SCHEMA* 101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE* 101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE* 101.LAB XBRL TAXONOMY EXTENSION LABEL LINKBASE* 101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE* All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and therefore have been omitted. Item 16. FORM 10-K SUMMARY None. 51 Table of Contents Index to Audited Consolidated Financial Statements Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheet (Successor Basis) as of June 30, 2021 F-5 Consolidated Statement of Assets and Liabilities (Predecessor Basis) as of June 30, 2020 F-6 Consolidated Schedule of Investments (Predecessor Basis) as of June 30, 2020 F-7 Consolidated Statement of Operations (Successor Basis) for the six months ended June 30, 2021 F-8 Consolidated Statement of Operations (Predecessor Basis) for the six months ended December 31, 2020 F-9 Consolidated Statements of Operations (Predecessor Basis) for the years ended June 30, 2020 and 2019 F-10 Consolidated Statement of Changes in Equity (Successor Basis) for the six months ended June 30, 2021 F-11 Consolidated Statement of Changes in Net Assets (Predecessor Basis) for the six months ended December 31, 2020 F-12 Consolidated Statements of Changes in Net Assets (Predecessor Basis) for the years ended June 30, 2020 and 2019 F-12 Consolidated Statement of Cash Flows (Successor Basis) for the six months ended June 30, 2021 F-13 Consolidated Statement of Cash Flows (Predecessor Basis) for the six months ended December 31, 2020 F-14 Consolidated Statements of Cash Flows (Predecessor Basis) for the years ended June 30, 2020 and 2019 F-15 Notes to Consolidated Financial Statements F-16 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors MacKenzie Realty Capital, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet (successor basis) as of June 30, 2021, and the consolidated statement of assets and liabilities (predecessor basis), including the consolidated schedule of investments (predecessor basis) as of June 30, 2020, of Mackenzie Realty Capital, Inc., (the “Company”), the related consolidated statements of operations (successor basis), changes in equity (successor basis), and cash flows (successor basis) for the six months ended June 30, 2021, the related consolidated statements of operations (predecessor basis), changes in net assets (predecessor basis), and cash flows (predecessor basis) for the six months ended December 31, 2020, and the years ended June 30, 2020 and 2019, and the related notes and financial statement schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2021 and 2020, and the consolidated results of its operations (successor basis) and its cash flows (successor basis) for the six months ended June 30, 2021, the consolidated results of its operations (predecessor basis) and its cash flows (predecessor basis) for the six months ended December 31, 2020, and the years ended June 30, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. F - 1 Table of Contents Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation and Consolidation of Variable Interest Entities As disclosed in Notes 2 and 5 to the consolidated financial statements, the Company invests in various types of variable interest entities (“VIEs”) including limited partnership interests, limited liability companies and corporations. In determining whether the Company has a controlling interest in a variable interest entity and meets the requirement to consolidate the accounts of that entity, the Company 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. We identified the Company’s evaluation of VIEs for consolidation as a critical audit matter. The guidance for applying variable interest determination is complex and focuses on identifying the reporting entity with power to make decisions that most significantly impact the economic performance of the entity being evaluated for consolidation and whether the entity with power has the rights to receive benefits that could be significant. Identifying variable interests generally requires a qualitative assessment that focuses on the purpose and design of an entity and auditing managements determination involves significant auditor judgment due to the nature and extent of audit evidence and effort required to address these matters. The primary procedures we performed to address this critical audit matter included: • Evaluating the reasonableness and appropriateness of management’s evaluation of each VIE and determination of primary beneficiary of the VIE through a decision-making workflow. • Reading pertinent supporting organizational documents and agreements associated with each VIE to agree key terms with those used in management’s evaluation of each VIE. • Consulting with our internal specialists on the conclusions reached for each VIE originated during the year. F - 2 Table of Contents Purchase Price Allocation for Acquisitions As described in Notes 2 and 3 to the consolidated financial statements, the Company acquired certain real estate properties during the year ended June 30, 2021, that were accounted for as asset acquisitions. For each asset acquisition, 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) which utilize appropriate discount and/or capitalization rates and other available market information to allocate the purchase price to land, buildings and identified intangible assets and liabilities. 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, 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 principal consideration for our determination that measurement of the fair value used in the purchase price allocation of real estate acquisitions is a critical audit matter are (i) the significant judgment by management to determine the fair value measurements of tangible, intangible assets and liabilities to allocate the purchase price; (ii) significant auditor judgment, subjectivity and effort in evaluating audit evidence related to the significant assumptions used in the fair value measurement; (iii) the sensitivity of the respective fair values to the significant underlying assumptions. and (iv) use of professionals with specialized skill and knowledge to assist in performing the procedures and evaluating the audit evidence obtained. The primary procedures we performed to address this critical audit matter included: • With the assistance of our fair value specialists, we evaluated the reasonableness of the purchase price allocation reports and valuation methodology and critical inputs such as market lease rates, carrying costs during lease-up periods, capitalization rates, discount rates, market absorption periods and prevailing interest rates. The evaluation included comparison of Company assumptions to independently developed ranges using market data from industry transaction databases and published industry reports. Our overall assessment also included consideration of whether such information was consistent with evidence obtained in other areas of the audit. • We evaluated the mathematical accuracy of the valuation models and performed procedures over the completeness and accuracy of the data provided by management. Fair Value Measurement of Level III Investments As disclosed in Note 2 and 4 to the consolidated financial statements, the real estate securities and non- securities in which the Company invests are, due to the absence of an efficient market, generally illiquid and have been classified as Level III investments. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions that are unobservable and generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment and local market conditions. The inputs into the determination of fair value require significant judgment by management. F - 3 Table of Contents The principal consideration for our determination that measurement of the fair value of Level III investments is a critical audit matter are (i) the significant judgment by management to determine the fair value measurements of Level III investments; (ii) significant auditor judgment, subjectivity and effort in evaluating audit evidence related to the significant assumptions used in the fair value measurement; (iii) the sensitivity of the respective fair values to the significant underlying assumptions and (iv) use of professionals with specialized skill and knowledge to assist in performing the procedures and evaluating the audit evidence obtained. The primary procedures we performed to address this critical audit matter included: • With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology and significant assumptions used in the valuation models such as future cash flows, including the cash flows of underlying real property, risk-adjusted discount rates, nature of the investment and local market conditions. The evaluation included comparison of Company’s assumptions to independently developed ranges using market data from industry transaction databases and published industry reports. Our overall assessment of these assumptions also included consideration of whether such information was consistent with evidence obtained in other areas of the audit. • For investments sold during the year or subsequent to year end, we evaluated management’s ability to reasonably estimate fair value by comparing management’s historical estimates to actual results from those sales. • We evaluated the mathematical accuracy of the valuation models and performed procedures over the completeness and accuracy of the data provided by management. /s/ Moss Adams LLP Campbell, California September 28, 2021 We have served as the Company’s auditor since 2012. F - 4 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Balance Sheet (Successor Basis) June 30, 2021 Consolidated (Unaudited) Assets Real estate assets Land $ 16,293,591 Building, fixtures and improvements 38,348,005 Intangible lease assets 5,588,942 Less: accumulated depreciation and amortization (2,257,903 ) Total real estate assets, net 57,972,635 Cash 4,833,848 Restricted cash 2,919,705 Investments, at fair value 39,909,838 Unconsolidated investments (non-securities), at fair value 30,599,405 Investments income, rent and other receivables 1,985,325 Prepaid expenses and other assets 332,271 Total assets $ 138,553,027 Liabilities Mortgage notes payable $ 38,693,330 Accounts payable and accrued liabilities 918,449 Below-market lease liabilities, net 838,313 Deferred rent and other liabilities 738,178 Due to related entities 1,937 Total liabilities 41,190,207 Equity Common stock, $0.0001 par value, 80,000,000 shares authorized; 13,316,426.79 shares issued and outstanding 1,332 Capital in excess of par value 120,408,505 Accumulated deficit (23,298,857 ) Total stockholders' equity 97,110,980 Non-controlling interests 251,840 Total equity 97,362,820 Total liabilities and equity $ 138,553,027 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 5 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Assets and Liabilities (Predecessor Basis) June 30, 2020 June 30, 2020 Assets Investments, at fair value Non-controlled/non-affiliated investments (cost of $48,895,786) $ 38,081,970 Affiliated investments (cost of $12,426,110) 12,107,884 Controlled investments (cost of $43,370,752) 43,515,291 Total investments, at fair value (cost of $104,692,648) 93,705,145 Cash 8,957,393 Accounts receivable 1,087,432 Other assets 138,773 Deferred offering costs, net 278,021 Total assets $ 104,166,764 Liabilities Accounts payable and accrued liabilities $ 135,040 Capital pending acceptance 87,739 Due to related entities 718,264 Total liabilities 941,043 Net assets Common stock, $0.0001 par value, 80,000,000 shares authorized; 12,836,608.02 shares issued and outstanding) 1,284 Capital in excess of par value 116,455,600 Total distributions in excess of earnings (13,231,163 ) Total net assets 103,225,721 Total liabilities and net assets $ 104,166,764 Net asset value per share $ 8.04 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 6 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Schedule of Investments (Predecessor Basis) June 30, 2020 (Unaudited) Name Asset Type Shares/Units Cost Basis Total Fair Value % of Net Assets American Finance Trust 7.5% PFD (4) Publicly Traded Company 34,000.00 $ 610,229 $ 797,980 0.78 American Finance Trust Inc., Class A (4) Publicly Traded Company 86,500.00 500,619 686,378 0.66 Apartment Investment & Management Company- Class A (4) Publicly Traded Company 26,200.00 999,945 986,168 0.96 Ashford Hospitality Trust, Inc. (4) Publicly Traded Company 360,000.00 244,092 260,136 0.25 Bluerock Residential Growth REIT, Inc. (4) Publicly Traded Company 70,000.00 513,940 565,600 0.55 CBL & Associates Properties, Inc. - Preferred D (4) Publicly Traded Company 188,000.00 1,707,042 169,200 0.16 City Office REIT, Inc. - Preferred A (4) Publicly Traded Company 12,196.00 201,436 288,679 0.28 CorEnergy Infrastructure 7.375% PFD A (4) Publicly Traded Company 36,031.00 621,401 487,139 0.47 Host Hotels & Resorts Inc (4) Publicly Traded Company 24,500.00 237,354 264,355 0.26 Independence Realty Trust, Inc. (4) Publicly Traded Company 33,000.00 295,551 379,170 0.37 NexPoint Residential Trust, Inc. (4) Publicly Traded Company 8,000.00 294,490 282,800 0.27 One Liberty Properties, Inc. (4) Publicly Traded Company 24,500.00 370,318 431,690 0.42 RLJ Lodging Trust (4) Publicly Traded Company 42,000.00 243,541 396,480 0.38 The Macerich Company (4) Publicly Traded Company 59,943.00 1,018,578 537,689 0.52 VEREIT, Inc (4) Publicly Traded Company 58,000.00 294,437 372,940 0.36 WP Carey, Inc. (4) Publicly Traded Company 5,000.00 301,375 338,250 0.33 Total Publicly Traded Companies 8,454,348 7,244,654 7.02 Benefit Street Partners Realty Trust, Inc. (5) Non Traded Company 239,401.33 3,488,167 2,496,956 2.41 Carter Validus Mission Critical REIT II, Inc. Class A (5) Non Traded Company 288,506.00 1,666,123 1,632,944 1.58 CIM Real Estate Finance Trust, Inc. (5) Non Traded Company 522,144.54 3,043,423 2,349,650 2.28 CNL Healthcare Properties, Inc. (5) Non Traded Company 268,532.71 1,562,429 1,176,173 1.14 Cole Credit Property Trust V, Inc. (5) Non Traded Company 55,455.36 693,789 610,009 0.59 Cole Credit Property Trust V, Inc. Class T (5) Non Traded Company 1,466.55 18,438 16,132 0.02 Cole Office & Industrial REIT (CCIT II), Inc. Class A (5) Non Traded Company 17,792.56 114,700 124,370 0.12 Cole Office & Industrial REIT (CCIT II), Inc. Class T (5) Non Traded Company 1,441.84 6,906 10,078 0.01 Corporate Property Associates 18 Global A Inc. (5) Non Traded Company 4,695.14 39,627 30,471 0.03 First Capital Real Estate Trust, Inc. (5)(6) Non Traded Company 3,792.51 15,161 13,388 0.01 FSP 1441 Main Street (5)(6) Non Traded Company 15.73 8,559 39,128 0.04 FSP 303 East Wacker Drive Corp. Liquidating Trust (5)(6) Non Traded Company 3.00 30 679 - * FSP Energy Tower I Corp. Liquidating Trust (2)(5)(6) Non Traded Company 19.35 7,929 9,810 0.01 FSP Grand Boulevard Liquidating Trust (5)(6) Non Traded Company 7.50 8 2,851 - * FSP Satellite Place (2)(5)(6) Non Traded Company 19.60 588,176 532,579 0.52 Griffin Capital Essential Asset REIT, Inc. (5) Non Traded Company 23,044.28 151,802 144,027 0.14 Griffin-American Healthcare REIT III, Inc. (5) Non Traded Company 59,480.45 324,537 312,272 0.30 GTJ REIT, Inc. (5) Non Traded Company 1,000.00 11,530 9,280 0.01 Healthcare Trust, Inc. (5) Non Traded Company 479,718.92 4,806,568 3,271,683 3.17 Highlands REIT Inc. (5)(6) Non Traded Company 23,225,520.45 4,120,660 3,019,318 2.92 HGR Liquidating Trust (5)(6) Non Traded Company 73,170.41 244,648 292,682 0.28 Hospitality Investors Trust, Inc. (5)(6) Non Traded Company 20,493.11 90,607 20,083 0.02 InvenTrust Properties Corp. (5) Non Traded Company 2,235,413.80 2,710,159 2,749,559 2.66 KBS Real Estate Investment Trust II, Inc. (5)(6) Non Traded Company 1,365,338.22 3,754,369 2,266,461 2.20 KBS Real Estate Investment Trust III, Inc. (5) Non Traded Company 65,717.13 550,359 529,680 0.51 New York City REIT, Inc. (5)(6) Non Traded Company 319,024.14 3,800,940 3,110,485 3.01 NorthStar Healthcare Income, Inc. (5)(6) Non Traded Company 23,573.29 87,643 35,596 0.03 Phillips Edison & Company, Inc (5) Non Traded Company 851,563.96 6,286,760 4,589,930 4.45 SmartStop Self Storage REIT, Inc. (5) Non Traded Company 7,304.42 54,166 57,048 0.06 Steadfast Apartment REIT (5) Non Traded Company 73,226.79 815,995 741,055 0.72 Strategic Realty Trust, Inc. (5) Non Traded Company 321,296.92 1,252,790 649,020 0.63 Summit Healthcare REIT, Inc. (2)(5)(6) Non Traded Company 1,409,436.22 1,926,736 1,874,550 1.82 The Parking REIT Inc. (5)(6) Non Traded Company 17,989.90 230,880 90,129 0.09 Total Non Traded Companies (1) 42,474,614 32,808,076 31.78 3100 Airport Way South LP (5) LP Interest 1.00 355,000 320,253 0.31 5210 Fountaingate, LP (2)(5)(6) LP Interest 9.89 500,000 425,796 0.41 Bishop Berkeley, LLC (3)(5) LP Interest 4,050.00 4,050,000 3,854,223 3.73 BP3 Affiliate, LLC (2)(5)(6) LP Interest 1,668.00 1,668,000 1,668,000 1.62 BR Cabrillo LLC (5)(6) LP Interest 346,723.23 104,944 104,017 0.10 BR Everwood Investment Co, LLC (2)(5) LP Interest 3,750,000.00 3,750,000 3,750,000 3.63 BR Sunrise Parc Investment Co, LLC (2)(5) LP Interest 2,720,911.00 2,720,911 2,720,911 2.64 Britannia Preferred Members, LLC -Class 1 (3)(5)(6) LP Interest 103.88 2,597,000 3,505,950 3.40 Britannia Preferred Members, LLC -Class 2 (3)(5)(6) LP Interest 514,858.30 6,826,931 7,089,599 6.87 Capitol Hill Partners, LLC (3)(5)(6) LP Interest 190,000.00 1,900,000 1,468,700 1.42 Citrus Park Hotel Holdings, LLC (3)(5) LP Interest 5,000,000.00 5,000,000 5,000,000 4.84 Dimensions28 LLP (3)(5) LP Interest 10,800.00 10,801,015 10,949,688 10.61 Lakemont Partners, LLC (2)(5) LP Interest 1,000.00 941,180 857,160 0.83 MacKenzie Realty Operating Partnership, LP (3)(5)(6) LP Interest 1,451,642.63 12,145,905 11,613,141 11.25 MPF Pacific Gateway - Class B (2)(5)(6) LP Interest 23.20 6,287 7,164 0.01 Redwood Mortgage Investors VIII (5) LP Interest 56,300.04 29,700 12,949 0.01 Satellite Investment Holdings, LLC - Class B (5)(6) LP Interest 0.31 22 8,960 0.01 Secured Income, LP (2)(5)(6) LP Interest 64,670.00 316,890 261,914 0.25 Total LP Interest 53,713,785 53,618,425 51.94 Coastal Realty Business Trust, REEP, Inc. - A (3)(5)(6) Investment Trust 72,320.00 49,901 33,990 0.03 Total Investment Trust 49,901 33,990 0.03 Total Investments $ 104,692,648 $ 93,705,145 90.77 * amount is below 0.01% (1) Investments primarily in non-traded public REITs or their successors. (2) Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns between 5% and 25% of the portfolio company’s voting securities. As of June 30, 2020, the Company is deemed to be “affiliated” with these portfolio companies despite that fact that the Company does not have the power to exercise control over the management or policies of such portfolio companies. See additional disclosures in Note 6. (3) Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of June 30, 2020, the Company is deemed to be in “control” of these portfolio companies despite that fact that the Company does not have the power to exercise control over the management or policies of such portfolio companies. See additional disclosures in Note 6. (4) Non-qualifying assets under Section 55(a) of the 1940 Act. As of June 30, 2020, the total percentage of non-qualifying assets is 6.95%, and as a business development company non-qualifying assets may not exceed 30% of our total assets. (5) Investments in illiquid securities, or securities that are not traded on a national exchange. As of June 30, 2020, 83.00% of the Company's total assets are in illiquid securities. (6) Investments in non-income producing securities. As of June 30, 2020, 36.00 % of the Company's total assets are in non-income producing securities. The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 7 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Operations (Successor Basis) For the Period from January 1, 2021 through June 30, 2021 Six Months Ended June 30, 2021 Revenue Rental and reimbursements $ 3,745,115 Expenses Property operating and maintenance 2,330,455 Depreciation and amortization 2,193,953 Asset management fees to related party (note 6) 1,354,323 Interest expense 637,691 Administrative cost reimbursements to related party (note 6) 310,400 General and administrative 139,326 Professional fees 136,750 Transfer agent cost reimbursements to related party (note 6) 61,600 Directors' fees 34,000 Total operating expenses 7,198,498 Operating loss (3,453,383 ) Other income Dividend and distribution income from equity securities at fair value 925,948 Net unrealized gain on equity securities at fair value 1,685,130 Net income from equity method investments at fair value 354,921 Net realized gain from investments 737,332 Net income 249,948 Net loss attributable to non-controlling interests 14,209 Net income attributable to common stockholders $ 264,157 Net income per share attributable to common stockholders $ 0.02 Weighted average common shares outstanding 13,332,536 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 8 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Operations (Predecessor Basis) For the Period from July 1, 2020 through December 31, 2020 Six Months Ended December 31, 2020 Investment income Non-controlled/non-affiliated investments: Dividend and operational/sales distributions $ 1,079,159 Interest and other income 899 Affiliated investments: Dividend and operational/sales distributions 208,663 Controlled investments: Dividend and operational/sales distributions 592,823 Total investment income 1,881,544 Operating expenses Base management fee (note 6) 1,335,376 Amortization of deferred offering costs 342,015 Administrative cost reimbursements (note 6) 310,400 Professional fees 235,132 Printing and mailing 70,528 Transfer agent cost reimbursements (note 6) 61,600 Directors' fees 36,000 Portfolio structuring fee (note 6) 6,679 Other general and administrative 31,665 Total operating expenses 2,429,395 Net investment loss (547,851 ) Realized and unrealized gain (loss) on investments Net realized gain (loss) Non-controlled/non-affiliated investments 1,022,383 Affiliated investments: (6,057 ) Total net realized gain 1,016,326 Net unrealized gain (loss) Non-controlled/non-affiliated investments (2,005,301 ) Affiliated investments (40,100 ) Controlled investments (8,090,211 ) Total net unrealized loss (10,135,612 ) Total net realized and unrealized loss on investments (9,119,286 ) Net decrease in net assets resulting from operations $ (9,667,137 ) Net decrease in net assets resulting from operations per share $ (0.74 ) Weighted average common shares outstanding 13,020,208 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 9 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Sta tements of Operations (Predecessor Basis) Year Ended June 30, 2020 2019 Investment income Non-controlled/non-affiliated investments: Dividend and operational/sales distributions $ 5,012,907 $ 8,995,648 Interest and other income 353,636 374,121 Affiliated investments: Dividend and operational/sales distributions 1,011,245 1,549,329 Controlled investments: Dividend and operational/sales distributions 2,352,153 960,192 Total investment income 8,729,941 11,879,290 Operating expenses Base management fee (note 6) 2,549,076 2,206,227 Portfolio structuring fee (note 6) 588,203 707,589 Subordinated incentive fee (reversal) (note 6) - 1,789,870 Administrative cost reimbursements (note 6) 680,000 570,667 Transfer agent cost reimbursements (note 6) 80,000 23,333 Amortization of deferred offering costs 880,138 556,165 Professional fees 263,868 145,112 Directors' fees 68,000 64,500 Printing and mailing 86,507 58,774 Other general and administrative 65,292 126,295 Total operating expenses 5,261,084 6,248,532 Net investment income before taxes 3,468,857 5,630,758 Income tax provision (benefit) - (note 2) - (13,348 ) Net investment income 3,468,857 5,644,106 Realized and unrealized gain (loss) on investments Net realized gain (loss) Non-controlled/non-affiliated investments 1,216,657 1,197,788 Affiliated investments: 583,331 - Controlled investments - 6,262 Total net realized gain 1,799,988 1,204,050 Net unrealized gain (loss) Non-controlled/non-affiliated investments (12,656,209 ) (5,474,933 ) Affiliated investments (1,534,938 ) 621,817 Controlled investments (2,803,250 ) 890,467 Total net unrealized loss (16,994,397 ) (3,962,649 ) Total net realized and unrealized loss on investments (15,194,409 ) (2,758,599 ) Net increase (decrease) in net assets resulting from operations $ (11,725,552 ) $ 2,885,507 Net increase (decrease) in net assets resulting from operations per share $ (0.96 ) $ 0.29 Weighted average common shares outstanding 12,198,040 9,951,816 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 10 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Changes in Equity (Successor Basis) Six Months Ended June 30, 2021 Number of Shares Par Value Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Non-controlling Interests Total Equity Balance, December 31, 2020 13,362,419.23 $ 1,336 $ 120,613,042 $ (22,898,300 ) $ 97,716,078 $ 66,652 $ 97,782,730 Capital contributions by non-controlling interest holders - - - - - 200,000 200,000 Dividends to stockholders - - - (664,714 ) (664,714 ) (603 ) (665,317 ) Net income (loss) - - - 264,157 264,157 (14,209 ) 249,948 Issuance of common stock through - reinvestment of dividends 22,143.48 2 204,275 - 204,277 - 204,277 Repurchase of common stock (68,135.92 ) (6 ) (408,812 ) - (408,818 ) - (408,818 ) Balance, June 30, 2021 13,316,426.79 $ 1,332 $ 120,408,505 $ (23,298,857 ) $ 97,110,980 $ 251,840 $ 97,362,820 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 11 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Changes in Net Assets (Predecessor Basis) Six Months Ended December 31, 2020 Operations Net investment loss $ (547,851 ) Net realized gain 1,016,326 Net unrealized loss (10,135,612 ) Net decrease in net assets resulting from operations (9,667,137 ) Capital share transactions Issuance of common stock 218,439 Issuance of common stock to redeem subsidiary's non-controlling interest 3,957,115 Selling commissions and fees (18,060 ) Non-controlling interest in consolidated subsidary 66,652 Net increase in net assets resulting from capital share transactions 4,224,146 Total decrease in net assets (5,442,991 ) Net assets at beginning of the period 103,225,721 Net assets at end of the period $ 97,782,730 MacKenzie Realty Capital, Inc. Consolidated Statements of Changes in Net Assets (Predecessor Basis) Year Ended June 30, 2020 2019 Operations Net investment income $ 3,468,857 $ 5,644,106 Net realized gain 1,799,988 1,204,050 Net unrealized loss (16,994,397 ) (3,962,649 ) Net increase (decrease) in net assets resulting from operations (11,725,552 ) 2,885,507 Dividends Dividends to stockholders (5,542,591 ) (7,237,635 ) Capital share transactions Issuance of common stock 19,505,452 23,244,171 Issuance of common stock through reinvestment of dividends 2,891,349 3,006,069 Redemption of common stock (3,194,670 ) (2,368,035 ) Selling commissions and fees (1,823,648 ) (2,010,015 ) Net increase in net assets resulting from capital share transactions 17,378,483 21,872,190 Total increase in net assets 110,340 17,520,062 Net assets at beginning of the year 103,115,381 85,595,319 Net assets at end of the year $ 103,225,721 $ 103,115,381 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 12 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Cash Flows (Successor Basis) Six Months Ended June 30, 2021 Cash flows from operating activities: Net income $ 249,948 Adjustments to reconcile net income to net cash from operating activities: Net unrealized gain on equity securities (1,685,130 ) Net income from equity method investments at fair value 745,562 Net realized gain on investments (737,332 ) Depreciation and amortization 2,193,953 Accretion of market lease and other intangibles, net (35,187 ) Changes in assets and liabilities: Investment income, rent and other receivables (252,735 ) Prepaid expenses and other assets 569,221 Accounts payable and accrued liabilities 340,292 Deferred rent and other liabilities 285,850 Due to related entities (703,660 ) Net cash from operating activities 970,782 Cash flows from investing activities: Proceeds from sale of investments 10,506,662 Investments in real estate assets (28,623,637 ) Purchase of investments (9,303,745 ) Return of capital distributions 6,001,052 Net cash from investing activities (21,419,668 ) Cash flows from financing activities: Proceeds from mortgage notes payable 15,125,000 Payments on mortgage notes payable (406,215 ) Dividend to stockholders (461,040 ) Repurchase of common stock (408,818 ) Capital contributions by non-controlling interest holders 200,000 Net cash from financing activities 14,048,927 Net decrease in cash (6,399,959 ) Cash and restricted cash at beginning of the period 14,153,512 Cash and restricted cash at end of the period $ 7,753,553 Cash at end of the period $ 4,833,848 Restricted cash at end of the period 2,919,705 Total cash and restricted cash at end of the period $ 7,753,553 Supplemental disclosure of non-cash financing activities and other cash flow information Issuance of common stock through reinvestment of dividends $ 204,277 Cash paid for interest $ 605,018 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 13 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Cash Flows (Predecessor Basis) Six Months Ended December 31, 2020 Cash flows from operating activities: Net decrease in net assets resulting from operations $ (9,667,137 ) Adjustments to reconcile net decrease in net assets resulting from operations to net cash from operating activities: Proceeds from sale of investments, net 5,204,853 Return of capital 11,486,835 Purchase of investments (12,685,590 ) Net realized gains on investments (1,016,326 ) Net unrealized loss on investments 10,135,612 Amortization of deferred offering costs 342,015 Changes in assets and liabilities: Investment income, rent and other receivable (447,398 ) Due from related entities (150,866 ) Other assets 65,129 Payment of deferred offering costs (36,578 ) Accounts payable and accrued liabilities (48,028 ) Due to related entities (40,083 ) Net cash from operating activities 3,142,438 Cash flows from investing activities: Cash acquired through consolidation of subsidiary 1,932,088 Net cash from investing activities 1,932,088 Cash flows from financing activities: Proceeds from issuance of common stock 218,439 Payment of selling commissions and fees (9,107 ) Change in capital pending acceptance (87,739 ) Net cash from financing activities 121,593 Net increase in cash 5,196,119 Cash and restricted cash at beginning of the period 8,957,393 Cash and restricted cash at end of the period $ 14,153,512 Cash at end of the period $ 12,539,943 Restricted cash at end of the period 1,613,569 Total cash and restricted cash at end of the period $ 14,153,512 Non-cash investing and financing activities: Issuance of the Company's common stocks to redeem subsidiary's non-controlling interests $ 3,957,115 Supplemental Disclosures: Carrying value of a subsidary's consolidated assets, liabilities and net assets: Assets: Real estate assets $ 30,196,471 Cash and restricted cash $ 1,932,088 Rents and other receivable $ 197,760 Other assets $ 837,133 Liabilities: Mortgage note payable $ 23,974,545 Accounts payable and accrued liabilities $ 943,805 Due to affiliates $ 150,866 Net assets $ 8,094,236 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 14 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statement of Cash Flows (Predecessor Basis) Year Ended June 30, 2020 2019 Cash flows from operating activities: Net increase (decrease) in net assets resulting from operations $ (11,725,552 ) $ 2,885,507 Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash from operating activities: Proceeds from sale of investments, net 8,057,094 57,437,720 Return of capital 31,368,113 19,019,276 Purchase of investments (45,079,613 ) (107,876,237 ) Net realized gain on investments (1,799,988 ) (1,204,050 ) Net unrealized (gain) loss on investments 16,994,397 3,962,649 Amortization of deferred offering costs 880,138 556,165 Changes in assets and liabilities: Accounts receivable 2,082,636 2,708,225 Other assets 41,846 180,875 Payment of deferred offering costs (717,839 ) (709,871 ) Accounts payable and accrued liabilities (80,251 ) 198,907 Income tax payable - (37,153 ) Due to related entities (1,747,621 ) 658,857 Deferred tax liability - (3,518 ) Net cash from operating activities (1,726,640 ) (22,222,648 ) Cash flows from financing activities: Proceeds from issuance of common stock 19,505,452 23,244,171 Redemption of common stock (3,194,670 ) (2,368,035 ) Dividends to stockholders (4,528,343 ) (3,793,273 ) Payment of selling commissions and fees (1,796,648 ) (2,045,661 ) Change in capital pending acceptance (580,426 ) 21,865 Net cash from financing activities 9,405,365 15,059,067 Net increase (decrease) in cash 7,678,725 (7,163,581 ) Cash at beginning of the year 1,278,668 8,442,249 Cash at end of the year $ 8,957,393 $ 1,278,668 Non-cash financing activities: Issuance of common stock through reinvestment of dividends $ 2,891,349 $ 3,006,069 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. F - 15 Table of Contents MacKenzie Realty Capital, Inc. Notes to Consolidated Financial Statements June 30, 2021 NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION MacKenzie Realty Capital, Inc. (the “Parent Company” together with its subsidiaries as discussed below, the “Company” ) was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. The Parent Company was formerly a non-diversified, closed-end investment company that elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (“1940 Act”). The Parent Company withdrew its election to be treated as a BDC on December 31, 2020. The Parent Company has elected to be treated as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Parent Company is authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as common stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as preferred stock, with a $0.0001 par value per share. The Parent Company commenced its operations on February 28, 2013, and its fiscal year-end is June 30. The Parent Company filed its initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering (“IPO”) of 5,000,000 shares of its common stock. The IPO commenced in January 2014 and concluded in October 2016. The Parent Company filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of its common stock. The second offering commenced in December 2016 and concluded on October 28, 2019. The Parent Company filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of its common stock that was declared effective by the SEC on October 31, 2019. The third offering commenced shortly thereafter and expired on October 31, 2020. On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s Board of Directors to withdraw the Company’s election to be regulated as a BDC under the Investment Company Act of 1940, effective when the Company files the appropriate form with the SEC. The Company submitted the withdrawal to be effective with the SEC on December 31, 2020. The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary. MacKenzie NY Real Estate 2 Corp., (“MacKenzie NY 2”), a wholly owned subsidiary of TRS, was formed for the purpose of making certain limited investments in New York companies. The financial statements of TRS and MacKenzie NY 2 have been consolidated with the Parent Company. On May 20, 2020, the Parent Company formed an operating partnership, MacKenzie Realty Operating Partnership, LP (the “Operating Partnership”) for the purpose of entering into a Contribution Agreement with a group of entities referred to as the Addison Group, owners of Addison Property Owner, LLC (“Property Owner”). The Parent Company owns 100% of the Class B Limited Partnership units of the Operating Partnership. Property Owner owns a property known as the Addison Corporate Center. On June 8, 2020, Addison Group exchanged its ownership in Property Owner for Class A Limited Partnership units of the Operating Partnership. Subsequent to the acquisition date, the Parent Company redeemed substantially all of the remaining Class A Limited Partnership units by issuing to each such Class A Limited Partner one share of the Company’s common stock for each Class A Unit. As a result, as of December 31, 2020, the Company owns substantially all of the Operating Partnership. Therefore, effective December 31, 2020, the financial statements of the Operating Partnership have been consolidated with the Parent Company. The operating activities of the Operating Partnership for the period of June 8, 2020, through December 31, 2020, have not been consolidated with the activities of the Company since the consolidation was effective December 31, 2020. As of June 30, 2021, there are 12,052.85 Class A units outstanding. F - 16 Table of Contents In March 2021, the Company together with its joint venture partners formed two operating companies: Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential apartment buildings located in Oakland, California. The Company owns 98.45% and 98.75% of equity units of Madison and PVT, respectively. The joint venture partners own the remaining 1.55% and 1.25% equity units of Madison and PVT, respectively, and also hold a carried interest in both companies. The Company is the controlling majority owner of both companies; therefore, effective March 31, 2021, the Company has consolidated the financial statements of these companies. On April 13, 2021, the Company filed a preliminary offering circular pursuant to Regulation A with the SEC to sell up to $50,000,000 of shares of the Company’s Series A preferred stock at an initial offering price of $25.00 per share. The sale of shares pursuant to this offering will begin after the Offering Circular has been qualified by the SEC. The Company is externally managed by MacKenzie Capital Management, LP (“MacKenzie”) under the administration agreement dated and effective as of February 28, 2013 (the “Administration Agreement”). MacKenzie manages all Company affairs except for providing investment advice. MCM Advisers, LP (the “Investment Adviser”) advises the Company in the Company’s assessment, acquisition and divestiture of securities under the advisory agreement amended and restated effective January 1, 2021 (the “Amended and Restated Investment Advisory Agreement”). MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”; together, the “Investment Adviser” and the “Real Estate Adviser” may be referred to as “Adviser” or “Advisers” as appropriate) advises the Company in the Company’s assessment, acquisition and divestiture of real estate assets. The Company pursues a strategy focused on investing primarily in real estate assets, and to a smaller extent (intended to be less than 20% of our portfolio) in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate. These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships and limited liability companies. As of June 30, 2021, the Company has raised approximately $130.46 million from the public offerings, including proceeds from the Company’s dividend reinvestment plan (“DRIP”) of approximately $11.36 million. Of the shares issued by the Company in exchange for the total capital raised as of June 30, 2021, approximately $9.87 million worth of shares have been repurchased under the Company’s share repurchase program. CHANGE IN STATUS Prior to the December 31, 2020 termination of the Company’s status as a BDC, the Company recorded its investment in real estate securities at fair value and recorded the changes in the fair value as an unrealized gain or loss. As a result of the termination of the Company’s status as a BDC, the Company is no longer subject to fair value accounting requirements. Nonetheless, the Company: will continue to recognize and measure its investments in non-publicly traded corporations and certain limited partnerships at fair value; will continue to recognize and measure its investments in publicly traded securities at fair value, using Level 1 fair value inputs with changes in fair value recorded in the statement of operations; and has elected the fair value option (see Note 2) to recognize and measure its investments in certain limited partnerships that otherwise would have been required to be recognized and measured using the equity method of accounting. F - 17 Table of Contents As a result of the change in the Company’s status and applying the new basis of accounting as discussed in Note 2, 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 and recorded a carrying value adjustment as follows: December 31, 2020 Investment Type Original Carrying Value Carrying Value Adjustment Fair Value/ New Carrying Value Publicly Traded Companies $ 10,342,217 $ (2,710,814 ) $ 7,631,403 Non Traded Companies 41,610,397 (10,978,801 ) 30,631,596 LP Interests 37,554,454 657,849 38,212,303 Investment Trust 49,900 (15,910 ) 33,990 Total non-consolidated investments 89,556,968 (13,047,676 ) 76,509,292 The Operating Partnership (Consolidated) 16,103,020 (8,075,436 ) 8,027,584 Total $ 105,659,988 $ (21,123,112 ) $ 84,536,876 The Company also began presenting, on a consolidated basis, the underlying assets and liabilities of the Operating Partnership. The fair value of the Operating Partnership on the effective date of the termination of the Company’s status as a BDC was $8,027,584. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation Policy The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-K and Regulation S-X. The Company follows the accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company’s wholly owned consolidated subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. Prior to the termination of its status as a BDC, the Company was an investment company under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). Under the 1940 Act rules, regulations pursuant to Article 6 of Regulation S-X and ASC 946, the Company is precluded from consolidating portfolio company investments, including those in which the Company has a controlling interest, unless the portfolio company is an investment company. An exception to this general principle occurs if the Company owns a controlled operating company whose purpose is to provide services to the Company such as an investment adviser or transfer agent. None of the Company’s investments qualifies for this exception. Therefore, the Company’s portfolio company investments, including those in which the Company has a controlling interest, are carried on the consolidated statements of assets and liabilities at fair value with changes to fair value recognized as “Net unrealized gain (loss)” on the Consolidated Statements of Operations until the investment is realized, usually upon exit, resulting in any gain or loss on exit being recognized as a realized gain or loss. However, in the event that any controlled subsidiary exceeds the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, the Company will include required financial information for such subsidiary in the notes or as an attachment to its consolidated financial statements. As a result of the termination of the Company’s status as a BDC, the Company is no longer an investment company under ASC 946. The Company discontinued applying the guidance in ASC 946 and began to account for the change in status prospectively by accounting for its investments in accordance with other GAAP topics as of the date of the change in status. F - 18 Table of Contents The Company’s consolidated financial statements for the period subsequent to the termination of its BDC status are prepared on a consolidated basis to include the financial position, results of operations, and cash flows of the Company and its wholly owned and majority-owned subsidiaries, rather than by the investment company fair valuation approach. This change in status and the application of new basis of accounting affect the comparability of the consolidated financial statements for directly presenting corresponding items for 2021 and 2020. As such, for the year ended June 30, 2021, the consolidated statements of operations, changes in net assets (referred as “equity” effective June 30, 2021) and cash flows have been presented in two separate statements: for the six months ended December 31, 2020 as they would be for an investment company (on a “predecessor basis”) and for the six months ended June 30, 2021 as it would be for a REIT (on a “successor basis”). For the years ended June 30, 2020 and 2019, the consolidated statements of operations, changes in net assets, and cash flows have been presented on the predecessor basis. The consolidated statement of assets and liabilities (referred as “balance sheet” effective June 30, 2021) at June 30, 2020 has been presented on the predecessor basis and the consolidated balance sheet at June 30, 2021, has been presented on the successor basis. Certain interim period information has been reclassified to conform to the current year end presentation. The reclassification has no effect on the Company's consolidated balance sheet or the consolidated statement of operations as previously reported. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates. Variable Interest Entities The Company evaluates the need to consolidate its investments in securities in accordance with ASC Topic 810, Consolidation (“ASC 810”). 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. Refer to Note 5 for additional information. Cash and Restricted Cash The Company’s cash represent balances held in current bank accounts and restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, debt service and leasing costs held by lenders. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. At times the cash balances held in financial institutions by the Company may exceed these insured limits. Investments Income Receivable Investments income receivable represent dividends, distributions, and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the consolidated financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. The Company monitors and adjusts its receivables, and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. The Company has determined that all investments income receivable balances outstanding as of June 30, 2021 and 2020, are collectible and do not require recording any uncollectible allowance. Rents and Other Receivables The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates. F - 19 Table of Contents Capital Pending Acceptance The Company conducts closings for new purchases of the Company’s common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are effective only upon the Company's acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated statements of assets and liabilities. As of June 30, 2021, there was no capital pending acceptance. As of June 30, 2020, capital pending acceptance was $87,739. Organization and Deferred Offering Costs Organization costs include, among other things, the cost of legal services pertaining to the organization and incorporation of the business, incorporation fees, and audit fees relating to public offerings and the initial statement of assets and liabilities. These costs are expensed as incurred. Offering costs include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. While the Company was a BDC, offering costs were 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 had not been amortized upon the expiration or earlier termination of an offering were accelerated and expensed upon such expiration or termination. Income Taxes and Deferred Tax Liability The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2020. Therefore, the Parent Company 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 taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2021. The income tax benefit of $13,348 in the consolidated statements of operation for the year ended June 30, 2019, relate to the Parent Company’s built-in gain tax adjustments. 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 income tax benefit during the year ended June 30, 2019. TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on their 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 and Madison and PVT are limited liability companies. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities. F - 20 Table of Contents The Company and its subsidiaries follow ASC 740, Income Taxes, (“ASC 740”) to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, the Company considers all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for recognizing, measuring, presenting, and disclosing uncertain tax positions in the consolidated financial statements. As of June 30, 2021 and 2020, there were no uncertain tax positions. Management’s determinations regarding ASC 740 are subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Subsequent Events Subsequent events are events or transactions that occur after the date of the consolidated statements of assets and liabilities but before the date the consolidated financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the consolidated statements of assets and liabilities are considered in the preparation of the consolidated financial statements presented herein. Subsequent events that occur after the date of the consolidated statements of assets and liabilities that do not provide evidence about the conditions that existed as of the date of the consolidated statements of net assets are considered for disclosure based upon their significance in relation to the Company's consolidated financial statements taken as a whole. Fair Value of Financial Instruments Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash, restricted cash, investments income, rent and other receivables, prepaid expenses and other assets, mortgage notes payable, accounts payable and accrued liabilities, below-market lease liabilities, net, deferred rent and other liabilities and due to related entities, approximate the fair values of such items. Revenue Recognition Realized gains or losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost basis (adjusted for return of capital, if any) of the investment. Investments are disposed of on a first-in, first-out basis. Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are evaluated by management and recorded as either investment income or as a reduction of cost basis (return of capital). Management determines the estimated fair value of the investment after the sale or refinance and compares this estimate to the adjusted cost basis of the investment. If the estimated fair value is higher than the adjusted cost basis, distributions are recorded as investment income. If the estimated fair value is lower than the adjusted cost basis, distributions are first recorded as return of capital to reduce the cost basis down to the estimated fair value. Distributions in excess of those recorded as return of capital are recorded as investment income. The Company recognizes minimum rent, including rental abatements, lease incentives, and contractual fixed increases attributable to operating leases on a straight-line basis over the term of the related leases when collectability is probable. The Company records amounts expected to be received in later years 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. F - 21 Table of Contents 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; and • whether the tenant improvements are expected to have any residual value at the end of the lease. The Company recognizes rental revenue, net of concessions, on a straight-line basis over the term of the lease, when collectability is determined to be probable. 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. Dividends and Distributions Dividends (and distributions, if any) to common stockholders are recorded on the date of declaration. The amount, if any, to be paid as a quarterly dividend (or distribution, if any) is approved quarterly by the Board of Directors and is generally based upon management's estimate of the Company's earnings for the quarter. Recent Accounting Pronouncements: In August 2018, the FASB issued guidance which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way they are calculated. The guidance also eliminated the following disclosures: (1) amount and reason for transfers between Level I and Level II, (2) policy for timing of transfers between levels of the fair value hierarchy and (3) valuation processes for Level 3 fair value measurement. The guidance was adopted and did not have a material effect on the Company’s consolidated financial statements. In May 2020, the SEC adopted rules Release No. 33-10786 (the "SEC Release"), Amendments to Financial Disclosures about Acquired and Disposed Businesses , amending Rule 1-02(w)(2) used in the determination of a significant subsidiary. In part, the SEC Release eliminated the use of the asset test, and amended the income and investment tests for determining whether an unconsolidated subsidiary requires additional disclosure in the footnotes of the financial statements. The SEC Release was adopted and did not have a material effect on the Company’s consolidated financial statements. Valuation of Investments The Company's consolidated financial statements include investments that are measured at their estimated fair values in accordance with GAAP. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. The Company develops fair values for investments based on available inputs which could include pricing that is observed in the marketplace. Examples of market information that the Company attempts to obtain include the following: • Recently quoted trading prices for the same or similar securities; • Recent purchase prices paid for the same or similar securities; • Recent sale prices received for the same or similar securities; • Relevant reports issued by industry analysts and publications; and • Other relevant observable and unobservable inputs, including liquidity discounts. F - 22 Table of Contents After considering all available indications of the appropriate rate of return that market participants would require, the Company considers the reasonableness of the range indicated by the results to determine an estimate that, in its opinion, is most representative of fair value. The real estate securities in which the Company invests are, due to the absence of an efficient market, generally illiquid. Establishing fair values for illiquid investments is inherently subjective and is often dependent upon significant estimates and modeling assumptions. If either the volume and/or level of trading activity for an investment has significantly changed from normal market conditions, or price quotations or observable inputs are not associated with orderly transactions, the market inputs used might not be relevant. For example, recently quoted trading prices might not be relevant if a ready market does not exist for the quantity of investments that the Company may wish to sell. In circumstances where relevant market inputs cannot be obtained, increased analysis and management judgment are required to estimate fair value. This generally requires the Company to establish the use of internal assumptions about future cash flows, including the cash flows of underlying real property, and appropriate risk-adjusted discount rates. Regardless of the valuation inputs used, the objective of fair value measurement is unchanged from what it would be if markets were operating at normal activity levels and/or transactions were orderly; that is, to determine the current exit price. The Company is under no compulsion to dispose of its investments, and expects to hold them for a substantial period of time. Therefore, estimated values as determined above may not reflect amounts that could be realized upon actual sale at a future date. Fair Value Measurements GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value. Market price is impacted by a number of factors, 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 measured and reported at fair value are classified and disclosed in one of the following categories: Level I – Quoted prices are available in active markets for identical investments as of the reporting date. 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. Level II – Price inputs are quoted prices for similar financial instruments in active markets; quoted prices for identical or similar financial instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable in active markets. Investments which are generally included in this category are publicly traded equity securities with restrictions. Level III – Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair values for these investments are estimated by management using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by management. 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. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment. F - 23 Table of Contents Equity Securities The Company has equity investments in various limited partnerships and non-traded entities, which do not have readily determinable fair values. The Company does not have controlling interests in these entities. Thus, these investments have been recorded as investments in equity securities in accordance with ASC Topic 321, Investments – Equity Securities , and measured at fair value. These investments are presented as a part of investments, at fair value in the consolidated balance sheet. The changes in the fair value of these investments are recorded in the consolidated statement of operations. Equity Method Investments with Fair Value Option Election The Company elected the fair value option of accounting for the investments listed below that would have otherwise been recorded under the equity method of accounting. The primary purpose of electing the fair value option was to enhance the transparency of the Company’s financial condition. Changes in the fair value of these investments, which are inclusive of equity in income, are recorded in the consolidated statement of operations during the period such changes occur. The below list of investments would have been accounted for under the equity method if the fair value method had not been elected and have been included in investments, at fair value and unconsolidated investments (non-securities), at fair value in the consolidated balance sheet as of June 30, 2021: Investee Legal Form Asset Type % Ownership Fair Value as of June 30, 2021 FSP Satellite Place Corporation Non Traded Company 35.60 % $ 2,867,911 5210 Fountaingate, LP Limited Partnership LP Interest 9.92 % 30,574 Bishop Berkeley, LLC Limited Liability Company LP Interest 69.03 % 5,142,164 BP3 Affiliate, LLC Limited Liability Company LP Interest 12.51 % 1,668,000 Britannia Preferred Members, LLC - Class 1 Limited Liability Company LP Interest 26.99 % 6,448,000 Britannia Preferred Members, LLC - Class 2 Limited Liability Company LP Interest 40.28 % 5,891,945 Capitol Hill Partners, LLC Limited Liability Company LP Interest 25.93 % 1,007,000 Citrus Park Hotel Holdings, LLC Limited Liability Company LP Interest 35.27 % 5,000,000 Dimensions 28, LLP Limited Partnership LP Interest 90.00 % 11,449,296 Lakemont Partners, LLC Limited Liability Company LP Interest 17.02 % 817,770 Secured Income L.P. Limited Partnership LP Interest 6.57 % 267,734 Total $ 40,590,394 Unconsolidated investments (non-securities) at Fair Value These are equity method investments that are majority owned subsidiaries of the Company, but do not meet the consolidation requirements under ASC topic 810. Under the Investment Company Act of 1940, as majority owned subsidiaries, these investments are considered “voting securities” as opposed to “investment securities.” Therefore, the Company listed these equity method investments at fair value separately from rest of the equity method investments at fair value in the consolidated balance sheet. As of June 30, 2021, the Company’s investments in Bishop Berkeley, LLC, Britannia Preferred Members, LLC - Class 1 and Class 2, and Dimensions 28, LLP were considered to be voting securities under the 1940 Act and therefore, were shown as unconsolidated investments (non-securities), at fair value in the consolidated balance sheet. For GAAP purposes, these investments have been recorded under the equity method investments, for which the Company has elected the fair value option as discussed above. Adoption of Lease Accounting Topic 842 In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor, and parties to sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to facilitate assessment the amount, timing, and uncertainty of cash flows arising from leases. F - 24 Table of Contents In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”). ASU 2018-11 provides lessors with a practical expedient to not separate lease and non-lease components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company adopted the practical expedient as of July 1, 2019, to account for lease and non-lease components as a single component in lease contracts where the Company or one of its subsidiaries is the lessor. The Company’s current portfolio consists of commercial office properties and residential apartment buildings whereby the Company generates 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. Non-lease components of the Company’s leases are combined with the related lease components and accounted for as a single lease component under Topic 842. The balances of net real estate investments and related depreciation on the Company’s consolidated financial statements relate to assets for which the Company is the lessor. 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: Buildings 16 – 45 years Building improvements 5 – 15 years Land improvements 5 – 15 years Furniture, fixtures and equipment 3 – 7 years In-place leases 1 – 10 years F - 25 Table of Contents 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 acquisition. 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 values. 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. Estimates of 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 are classified as operating leases and 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. Gain on Dispositions of Real Estate Investments Gains on sales of rental real estate are not considered sales to customers and will generally be recognized pursuant to the provisions of ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company will dispose of the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. Reportable Segments ASC 280, Segment Reporting , establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has one reportable segment, income-producing real estate properties, which consists of activities related to investing in real estate. The real estate properties are geographically diversified throughout the United States, and the Company evaluates operating performance on an overall portfolio level. F - 26 Table of Contents NOTE 3 – INVESTMENTS IN REAL ESTATE ASSETS The following table provides summary information regarding the Company’s operating properties, which are owned through the Company’s subsidiaries; Operating Partnership, Madison and PVT: Consolidated Operating Properties Property Name: Addison Corporate Center Commodore Apartments Pon de Leo Apartments Property Owner: The Operating Partnership Madison-PVT Partners LLC PVT-Madison Partners LLC Location: Windsor, CT Oakland, CA Oakland, CA Number of Tenants: 6 48 39 Year Built: 1980 1912 1929 Ownership Interest: 100% 100% 100% The following table summarizes the assets acquired and liabilities assumed at the acquisition date for the Operating Partnership’s acquisition of Property Owner on June 8, 2020: Purchase Price Allocation June 8, 2020 Land $ 7,814,670 Building 19,761,048 Building and tenant improvements 4,553,356 Intangible lease assets 6,580,926 Other current assets 3,872,238 Total assets acquired $ 42,582,238 Mortgages assumed` $ 24,404,257 Other current liabilities 1,647,965 Total liabilities assumed 26,052,222 Fair value of equity interests $ 16,530,016 As discussed in Note 1, the Company began presenting, on a consolidated basis, the underlying assets and liabilities of the Operating Partnership as of December 31, 2020. The Company’s carrying value of the Operating Partnership was the fair value on the effective date of the change in status, which was $8,027,584; however, the net asset value of the Company’s interest in the Operating Partnership as of the that date was $14,308,182. Therefore, during consolidation the Company recorded a carrying value adjustment of $6,332,745 on all of the Operating Partnership’s long-lived assets proportionately based on the relative carrying values at December 31, 2020, immediately prior to the termination of BDC status as shown in the following table: Carrying Value Before Adjustment Adjustment Adjusted Carrying Value Land $ 7,814,670 $ 1,358,055 $ 6,456,615 Building 19,040,593 3,308,926 15,731,667 Building and tenant improvements 3,986,945 692,862 3,294,083 Intangible lease assets: Lease in place 4,237,905 736,475 3,501,430 Leasing commissions 782,349 120,558 661,791 Leaseholds (above market) 541,822 94,159 447,663 Leasehold improvements 99,599 17,308 82,291 Other intangibles 25,333 4,402 20,931 $ 36,529,216 $ 6,332,745 $ 30,196,471 F - 27 Table of Contents The following table presents the allocation of real estate assets acquired and liabilities assumed during the six months ended June 30, 2021. Both acquisitions were considered asset acquisitions for accounting purposes. Property Name: Acquisition Date: Commodore Apartments March 5, 2021 Pon de Leo Apartments March 5, 2021 Purchase Price Allocation Land $ 5,519,963 $ 4,317,013 Building 6,513,902 10,818,957 Building and tenant improvements 144,384 185,924 Furniture, Fixtures & Equipment 830,429 746,368 Intangible lease assets 190,219 209,479 Net leasehold asset (liability) (485,544 ) (451,908 ) Total consideration paid for acquired real estate investments, net of liabilities assumed $ 12,713,353 $ 15,825,833 Operating Leases: The Company’s real estate assets are leased to tenants under operating leases that contain varying terms and expirations. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company does not require a security deposit from tenants on its commercial real estate properties, depending upon the terms of the respective leases and the creditworthiness of the tenants, but security deposits generally are not individually significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of the security deposit. Security deposits received in cash related to tenant leases are included in other accrued liabilities in the accompanying consolidated balance sheet and were immaterial as of June 30, 2021. The following table presents the components of income from real estate operations for the six months ended June 30, 2021: Lease Income- Operating leases $ 3,141,111 Variable lease income (1) 604,004 $ 3,745,115 (1) Primarily includes tenant reimbursements for utilities and common area maintenance. As of June 30, 2021, the future minimum rental income from the Company’s real estate properties under non-cancelable operating leases are as follows: Year ended June 30,: Rental Income 2022 $ 5,351,154 2023 3,154,883 2024 2,976,158 2025 3,051,039 2026 2,161,240 Thereafter 4,758,268 Total $ 21,452,742 F - 28 Table of Contents Lease Intangibles, Above-Market Lease Assets and Below-Market Lease Liabilities, Net As of June 30, 2021, the Company’s acquired lease intangibles, above-market lease assets and below-market lease liabilities, were as follows: Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Cost $ 5,141,279 $ 447,663 $ 937,452 Accumulated amortization (1,086,485 ) (63,952 ) (99,139 ) Total $ 4,054,794 $ 383,711 $ 838,313 Weighted average amortization period (years) 3.1 3.5 3.4 The Company’s amortization of lease intangibles, above-market lease assets and below-market lease liabilities for the six months ended June 30, 2021, were as follows Six Months Ended June 30, 2021 Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Amortization $ 1,086,486 $ 63,952 $ (99,139 ) The following table provides the projected amortization expense and adjustments to revenue from tenants for intangible assets and liabilities for the next five years: Year Ended June 30, : 2022 2023 2024 2025 2026 In-place leases, to be included in amortization $ 1,414,305 $ 1,425,147 $ 833,535 $ 69,243 $ 69,243 Above-market lease intangibles $ 127,904 $ 127,904 $ 127,904 $ - $ - Below-market lease liabilities (286,908 ) (267,695 ) (217,763 ) (65,947 ) - Total to be included in revenue from tenants $ (159,004 ) $ (139,791 ) $ (89,859 ) $ (65,947 ) $ - NOTE 4 – INVESTMENTS The following table summarizes the composition of the Company's equity method investments with fair value option election and other equity securities at fair value as of June 30, 2021 (successor basis): Asset Type Fair Value June 30, 2021 Publicly Traded Companies $ 169,200 Non Traded Companies 29,426,441 Non Traded Company (Equity method investment with fair value option election) 2,867,911 LP Interests 288,494 LP Interests (Equity method investment with fair value option election) 37,722,483 Investment Trust 34,714 Total $ 70,509,243 F - 29 Table of Contents The following table summarizes the composition of the Company's investments at cost and fair value as of June 30, 2020 (predecessor basis): June 30, 2020 Asset Type Cost Fair Value Publicly Traded Companies $ 8,454,348 $ 7,244,654 Non Traded Companies 42,474,614 32,808,076 LP Interests 53,713,785 53,618,425 Investment Trust 49,901 33,990 Total $ 104,692,648 $ 93,705,145 The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of June 30, 2021, according to the fair value hierarchy (successor basis): Asset Type Total Level I Level II Level III Publicly Traded Companies $ 169,200 $ 169,200 $ - $ - Non Traded Companies 32,294,352 - - 32,294,352 LP Interests 38,010,977 - - 38,010,977 Investment Trust 34,714 - - 34,714 Total $ 70,509,243 $ 169,200 $ - $ 70,340,043 The following table presents fair value measurements of the Company's investments measured at fair value on a recurring basis as of June 30, 2020, according to the fair value hierarchy (predecessor basis): Asset Type Total Level I Level II Level III Publicly Traded Companies $ 7,244,654 $ 7,244,654 $ - $ - Non Traded Companies 32,808,076 - - 32,808,076 LP Interests 53,618,425 - - 53,618,425 Investment Trust 33,990 - - 33,990 Total $ 93,705,145 $ 7,244,654 $ - $ 86,460,491 The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the six months ended June 30, 2021 (successor basis): Balance at December 31, 2020 $ 68,877,889 Purchases of investments 8,830,765 Transfers to Level I (229,879 ) Proceeds from sales, net (1,922,780 ) Return of capital distributions (6,001,052 ) Net realized losses (160,108 ) Net unrealized gains 945,208 Ending balance at June 30, 2021 $ 70,340,043 The transfers of $229,879 from Level III to Level I category during the six months ended June 30, 2021 resulted from one of the Company's investments converting from a non-traded REIT to publicly traded REIT. Transfers are assumed to have occurred at the beginning of the period. For the six months ended June 30, 2021, changes in unrealized gains, net included in earnings relating to Level III investments still held at June 30, 2021 were $945,208. F - 30 Table of Contents The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the six months ended December 31, 2020 (predecessor basis): Balance at July 1, 2020 $ 86,460,491 Purchases of investments 13,448,477 Transfers to Level I (1,900,470 ) Consolidation of the Operating Partnership (Note 1) (8,027,584 ) Proceeds from sales, net (1,011,748 ) Return of capital (11,486,835 ) Net realized gains 30,050 Net unrealized losses (8,634,492 ) Ending balance at December 31, 2020 $ 68,877,889 The transfers of $1,900,470 from Level III to Level I category during the six months ended December 31, 2020 resulted from one of the Company's investments converting from a non-traded REIT to publicly traded REIT. Transfers are assumed to have occurred at the beginning of the period. For the six months ended December 31, 2020, changes in unrealized losses, net included in earnings relating to Level III investments still held at December 31, 2020 were $1,836,915. The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the year ended June 30, 2020 (predecessor basis): Balance at July 1, 2019 $ 101,094,142 Purchases of investments 35,586,486 Proceeds from sales, net (3,639,699 ) Return of capital (31,368,114 ) Net realized gains 608,053 Net unrealized losses (15,820,377 ) Ending balance at June 30, 2020 $ 86,460,491 For the year ended June 30, 2020, changes in unrealized losses, net included in earnings relating to Level III investments still held at June 30, 2020 were $12,445,631. F - 31 Table of Contents The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2021 (successor basis): Asset Type Fair Value Primary Valuation Techniques Unobservable Inputs Used Range Weighted Average Non Traded Company $ 2,867,911 Direct Capitalization Method Capitalization rate 7.9 % Liquidity discount 32.0 % Non Traded Companies 66,337 Estimated Liquidation Value Sponsor provided value Liquidity discount 2.0% - 67.0 % 53.6 % Bankruptcy filing Non Traded Companies 29,360,104 Market Activity Secondary market industry publication Underlying property sales contract Acquisition cost LP Interests 19,717,495 Direct Capitalization Method Capitalization rate 3.5% - 7.5 % 5.8 % Liquidity discount 20.0% - 33.0 % 20.9 % LP Interests 11,448,000 Discounted Cash Flow Discount rate 9.0% - 20.0 % 13.2 % Discount term (months) 24 LP Interests 6,845,482 Estimated Liquidation Value Sponsor provided value Underlying property sales contract Liquidity discount 5.0% - 46.19 % 16.1 % Appraisal Investment Trust 34,714 Direct Capitalization Method Capitalization rate 6.0 % Liquidity discount 33.0 % $ 70,340,043 The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2020 (predecessor basis): Asset Type Fair Value Primary Valuation Techniques Unobservable Inputs Used Range Weighted Average Non Traded Companies $ 541,858 Direct Capitalization Method Capitalization rate 6.5% - 7.6 % 7.5 % Liquidity discount 32.0% - 35.0 % 32.1 % Non Traded Companies 65,856 Estimated Liquidation Value Sponsor provided value Liquidity discount 12.0% - 78.0 % 45.1 % Non Traded Companies 32,200,362 Market Activity Secondary market industry publication Liquidity discount * 7.5% - 12.5 % 7.6 % LP Interests 24,974,379 Direct Capitalization Method Capitalization rate 3.4% - 6.8 % 5.2 % Liquidity discount 5.0% - 40.0 % 15.5 % LP Interests 14,976,861 Discounted Cash Flow Discount rate 9.0% - 20.0 % 11.6 % Discount term (months) 6.0 - 9.0 7.1 LP Interests 11,724,322 Estimated Liquidation Value Sponsor provided value Underlying property sales contract Underlying property appraisal Liquidity discount 19.0% - 43.0 % 41.5 % LP Interests 1,942,863 Market Activity Underlying security sales contract Secondary market industry publication Contributed capital Investment Trust 33,990 Market Activity Underlying security sales contract $ 86,460,491 * In the past years, the Company valued Level III investments primarily by reference to secondary market activities. However, due to the COVID-19 pandemic, secondary market activities significantly declined during the second quarter of 2020. While the most active of these securities had transactions reported based on new COVID-19 occupancy and financial information, two of the Level III investments only had earlier reported transactions. Therefore, to determine the fair values of these non-traded securities as of June 30, 2020, management reviewed and evaluated multiple data sources as part of management’s Level III valuation process and applied significant subjective judgment about the effects of overall market declines during times of economic turmoil to arrive at these valuations. F - 32 Table of Contents Impact of COVID-19 Pandemic The COVID-19 pandemic has adversely impacted the fair value of our investments as of June 30, 2021 and June 30, 2020, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the COVID-19 pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the COVID-19 pandemic. As a result, our valuations at June 30, 2021 and 2020, may not show the complete or continuing impact of the COVID-19 pandemic and the resulting measures taken in response thereto. Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses subsequent to June 30, 2021, which could have a material adverse effect on our business, financial condition and results of operations. Summarized or Separate Audited Financial Statements for Equity Method Investments (Fair Value Option) Our investments in securities are generally in small and mid-sized companies in a variety of industries. In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our equity method investments measured at fair value under the Fair Value Option are considered “significant,” if any. Regulation S-X mandates the use of three different tests to determine if any of our investments are considered significant investments: the investment test, the asset test, and the income test. Rule 3-09 of Regulation S-X requires separate audited financial statements for any significant equity method investments in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%. For interim reporting, under SEC Rule 10-01(b)(1), the investment and income tests prescribed under Rule 3-09 should be applied to all of our equity method investments measured at fair value under the Fair Value Option and if either of the two tests exceed 20%, summarized income statement information of each equity method investee is required to be disclosed separately. The summarized income statement information is not required for any equity method investee that would not be required, pursuant to Rule 13a-13 or 15d -13, to file quarterly financial information with the SEC if it were a registrant. In addition to the SEC rules, ASC 323-10-50-3(c) requires summarized financial statements of its equity method investments, including those reported under the fair value option, if they are material individually or in aggregate. The Company’s equity method investments accounted under the fair value option were material in aggregate as of June 30, 2021. The aggregated summarized financial information of the investees are as follows: Total Assets $ 230,663,168 Total Liabilities $ 145,077,360 Total Equities $ 85,585,809 Total Revenues $ 11,641,169 Total Expenses $ 10,880,536 Total Net Income $ 760,632 Unconsolidated Significant Subsidiaries In accordance with SEC Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our investments in securities are considered “significant subsidiaries,” if any. Regulation S-X mandates the use of three different tests to determine if any of our controlled investments are significant subsidiaries: the investment test, the asset test, and the income test. Rule 3-09 of Regulation S-X requires separate audited financial statements for any unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%. F - 33 Table of Contents As of June 30, 2021, none of our investments were considered a significant subsidiary under both SEC rules. As of June 30, 2020, one of our investments, the Operating Partnership, was determined to be a significant subsidiary under the asset test as the Operating Partnership’s total assets exceeded 20% of the Company’s total assets as of June 30, 2020. Under the Rule 3-09, separate audited financial statements were required to be included in the Company’s annual report for the fiscal year ended June 30, 2021. However, as discussed in Note 1, in connection with the termination of the Company’s status as a BDC, the Operating Partnership was consolidated with the Company as of December 31, 2020. Therefore, separate audited financial statements of this partnership are no longer required in the Company’s annual report for the year ended June 30, 2021. NOTE 5 – VARIABLE INTEREST ENTITIES A variable interest in a variable interest entity (VIE) is an investment or other interest that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. The Company’s variable interests in VIEs include limited partnership interests. VIEs sometimes finance the purchase of assets by issuing limited partnership interests that are either collateralized by or indexed to the assets held by the VIE. The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. The Company determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers: (a) which variable interest holder has the power to direct activities of the VIE that most significantly impact the VIE’s economic performance; (b) which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; (c) the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; (d) the VIE’s capital structure; (e) the terms between the VIE and its variable interest holders and other parties involved with the VIE; and (f) related-party relationships. The Company reassesses its evaluation of whether an entity is a VIE when certain reconsideration events occur. The Company reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. Nonconsolidated VIEs As of June 30, 2021, thirteen of the Company’s unconsolidated VIEs include interests in limited partnerships and limited liability companies. The Company has determined that it is not the primary beneficiary of these entities because the managing partner or member of each of these entities has the power to direct the activities that most significantly affect the VIE’s economic performance. Accordingly, these VIEs have not been consolidated with the Company, and they have been reported as investments in limited partnerships recorded at fair value in the June 30, 2021, consolidated balance sheet. The table below presents a summary of the nonconsolidated VIEs in which the Company holds variable interests. Total Nonconsolidated VIEs As of June 30, 2021 Fair value of investments in VIEs $ 38,006,233 Carrying value of variable interests - assets $ 38,529,875 Carrying value of variable interests - liabilities $ - Maximum Exposure to Loss: Limited Partnership Interest $ 38,529,875 The Company’s exposure to the obligations of VIEs is generally limited to the carrying value of the limited partnership interests in these entities. NOTE 6 – RELATED PARTY TRANSACTIONS Advisory Agreements Effective Through December 31, 2020: Under the Amended and Restated Investment Advisory Agreement, the Company will pay the Adviser a fee for its services consisting of three components - a portfolio structuring fee, a base management fee, and a subordinated incentive fee. F - 34 Table of Contents The portfolio structuring fee is for the Adviser's initial work performed in identifying, evaluating and structuring the acquisition of assets. The fee equals 3.0% of the gross invested capital (“Gross Invested Capital”), which equals the number of shares issued, multiplied by the offering price of the shares sold ($10.00, regardless of whether or not shares were issued with volume or commission discounts), plus any borrowed funds. These services are performed on an ongoing basis in anticipation of deploying new capital, generally within 15 days of the receipt of capital. Therefore, this fee is expensed in the period the capital is accepted. The base management fee is calculated based on the Company's Gross Invested Capital plus any borrowing for investment purposes. The base management fees range from 1.5% to 3.0%, depending on the level of Gross Invested Capital. The subordinated incentive fee has two parts—income and capital gains. The incentive fee components (other than during liquidation) are designed so that neither the income incentive fee nor the capital gains incentive fee is payable to the Adviser unless our stockholders have first received dividends at a rate of at least 7.0% per annum for the relevant measurement period (a fiscal quarter, for the income incentive fee; a fiscal year, for the capital gains incentive fee). The income incentive fee (the “Income Fee”) is calculated and payable quarterly in arrears as follows: (i) the sum of preliminary net investment income for each fiscal quarter since the effective date of the Amended and Restated Investment Advisory Agreement (October 1, 2017) exceeding 7% of the “Contributed Capital” (which equals the number of shares issued multiplied by the maximum public offering price at the time such shares were sold, regardless of whether or not shares were issued with volume or commission discounts or through the DRIP, as such amount is computed from time to time) on an annualized basis up to 8.75% of Contributed Capital; and (ii) 20.0% of our preliminary net investment income for each fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate; minus (iii) the sum of all previously paid income incentive fees since the effective date, plus (iv) any incremental income incentive fee payable resulting from the reanalysis after calculation of the capital gains incentive fee. The capital gains incentive fee (the “Capital Gains Fee”) is calculated and payable in arrears as of the end of each fiscal year as follows: (i) the sum of all "capital gains" (calculated as net realized capital gains less unrealized capital depreciation) for each fiscal year after the effective date exceeding 7% of the Contributed Capital on an annualized basis up to 8.75% of Contributed Capital, which thresholds are reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); and (ii) 20.0% of all capital gains for each fiscal quarter after the effective date exceeding 8.75% of Contributed Capital at an annualized rate, which threshold is reduced by (but not below zero) the cumulative preliminary net investment income for each fiscal quarter since the effective date (or, increased, in the case of negative cumulative preliminary net investment income); minus (iii) the sum of all previously paid income incentive fees since the effective date and prior to the end of such fiscal year; less (iv) the aggregate amount of all capital gains incentive fees paid in prior fiscal years ending after the effective date. To the extent that such calculation would result in a capital gains incentive fee that exceeds 20% of all realized capital gains for the measurement period, the capital gains incentive fee shall be capped so that under no circumstance does it exceed 20% of the realized capital gains for the measurement period. Advisory Agreements Effective January 1, 2021: As discussed in Note 1, on January 26, 2021, the Board of Directors of the Company approved, effective January 1, 2021, two advisory agreements, an Advisory Management Agreement with the Real Estate Adviser and the Amended and Restated Investment Advisory Agreement with the Investment Adviser. F - 35 Table of Contents The terms of the Advisory Management Agreement with the Real Estate Adviser provide that the Company will continue to pay an Asset Management Fee on essentially the same terms as it was paying the Investment Adviser prior to 2021, namely based upon a percentage of Invested Capital (3% of the first $20 million, 2% of the next $80 million, and 1.5% over $100 million). Invested Capital is equal to the amount calculated by multiplying the total number of outstanding Shares, Preferred Shares, and Partnership Units issued by the Company by the price paid for each or the value ascribed to each in connection with their issuance. The Advisory Management Agreement also provides for a 2.5% Acquisition Fee on new (non-security) purchases, subject to certain limitations designed to eliminate incentives to “churn” Company assets. The new Advisory Management Agreement also provides for an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. The Company will not pay any Property Management Fees, Debt Financing Fees, or Disposition Fees to the Real Estate Adviser. The Investment Adviser will receive an annual fee equal to $100 for providing the investment advice to the Company as to its securities portfolio under the Amended and Restated Investment Advisory Agreement. During the six months ended June 30, 2021, the Company incurred the asset management fees of $1,354,323 and asset acquisition fees of $343,750 under the new advisory agreement with the Real Estate Adviser. The asset acquisition fees were paid on the real estate acquisitions of Madison and PVT. During the six months ended December 31, 2020, the Company incurred the base management fees of $1,335,376 and portfolio structuring fees of $6,679 under the previous advisory agreement with the Investment Adviser. During the years ended June 30, 2020 and 2019, the Company incurred base management fees of $2,549,076 and $2,206,227, respectively, and portfolio structuring fees of $588,203 and $707,589, respectively, under the previous advisory agreement with the Investment Adviser. The asset management and base management fees mentioned above were based on the following quarter ended Invested Capital segregated in two columns based on the annual fee rate: Asset/Base Management Fee Annual % 3.0% 2.0% 1.5% Total Invested Capital For the Year Ended June 30, 2021 Quarter ended: September 30, 2020 $ 20,000,000 $ 80,000,000 $ 28,769,486 $ 128,769,486 December 31, 2020 20,000,000 80,000,000 33,997,317 133,997,317 March 31, 2021 20,000,000 80,000,000 34,120,859 134,120,859 June 30, 2021 20,000,000 80,000,000 33,648,965 133,648,965 For the Year Ended June 30, 2020 Quarter ended: September 30, 2019 $ 20,000,000 $ 80,000,000 $ 15,998,789 $ 115,998,789 December 31, 2019 20,000,000 80,000,000 21,409,289 121,409,289 March 30, 2020 20,000,000 80,000,000 27,070,974 127,070,974 June 30, 2020 20,000,000 80,000,000 28,607,752 128,607,752 For the Year Ended June 30, 2019 Quarter ended: September 30, 2018 $ 20,000,000 $ 72,435,844 $ - $ 92,435,844 December 31, 2018 20,000,000 78,322,307 - 98,322,307 March 31, 2019 20,000,000 80,000,000 4,719,872 104,719,872 June 30, 2019 20,000,000 80,000,000 9,263,200 109,263,200 During the six months ended June 30, 2021, the Company did not incur or accrue any incentive management fee under the new Advisory Management Agreement. F - 36 Table of Contents Similarly, the Company did not accrue Income Fee or Capital Gains Fee for the six months ended December 31, 2020, under the previous advisory agreement with the Investment Advisor. For the year ended June 30, 2020, the Company neither incurred the Capital Gains Fee nor the Income Fee. For the year ended June 30, 2019, the Company incurred $1,789,870 of the Capital Gains Fee; however, did not incur the Income Fee. Organization and Offering Costs Reimbursement: As provided in the previous advisory agreement with the Investment Adviser and the prospectus of the Company, offering costs incurred and paid by the Company in excess of $1,650,000 on the third public offering were reimbursed by the Investment Adviser except to the extent that 10% in broker fees are not incurred (the “broker savings”). In such case, the broker savings were available to be paid by the Company for marketing expenses or other non‑cash compensation. Total offering costs incurred on the third public offering as of the termination date of October 31, 2020 were $624,188 which were below the reimbursement threshold. Therefore, there were no amounts reimbursable from the Investment Adviser as of the offering termination date. Of the cumulative offering costs incurred on the third public offering by the Company as of the offering termination date of October 31, 2020 and June 30, 2020, MacKenzie had paid on behalf of the Company a total of $346,349 and $300,212, respectively. Of the amounts paid by MacKenzie, as of June 30, 2020, the Company had not reimbursed MacKenzie in the amounts $52,492. Therefore, those amounts were recorded as payable to MacKenzie and included as a part of due to related entities in the consolidated statements of assets and liabilities (predecessor basis) as of June 30, 2020. The Company had fully reimbursed MacKenzie as of June 30, 2021. During the six months ended June 30, 2021 and December 31, 2020, total offering costs paid by MacKenzie on behalf of the Company on its second and third public offerings were $0 and $46,136, respectively. During the years ended June 30, 2020 and 2019, total offering costs paid by MacKenzie on behalf of the Company on its second and third public offerings were $444,935 and $550,908, respectively. The third public offering terminated on October 31, 2020. Therefore, the remaining deferred offering costs that had not been amortized as of the termination date were fully expensed as of December 31, 2020. Total amortization of these deferred costs for the six months ended June 30, 2021 and December 31, 2020, were $0 and $342,015, respectively. Total amortization of these deferred costs for the years ended June 30, 2020 and 2019, were $880,138 and $556,165, respectively. Administration Agreement: Under the Administration Agreement, the Company reimburses MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing the Company with other administrative services, subject to the independent directors' approval. In addition, the Company reimburses MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of the Company's Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff. Effective November 1, 2018, transfer agent services are also provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by the Company. No fee (only cost reimbursement) is being paid by the Company to MacKenzie for this service. The administrative cost reimbursements for the six months ended June 30, 2021 and December 31, 2020, were $310,400 and $310,400, respectively. The administrative cost reimbursements for the years ended June 30, 2020 and 2019, were $680,000 and $570,667, respectively. Transfer agent services cost reimbursements for the six months ended June 30, 2021 and December 31, 2020, were $61,600, and $61,600, respectively. Transfer agent services cost reimbursements for the years ended June 30, 2020 and 2019, were $80,000 and $23,333, respectively. F - 37 Table of Contents The table below outlines the related party expenses incurred for the six months ended June 30, 2021 and December 31, 2020, and years ended June 30, 2020 and 2019, and unpaid as of June 30, 2021, and 2020. Six Months Ended Six Months Ended Incurred For The Year Ended Unpaid as of Types and Recipient June 30, 2021 December 31, 2020 June 30, 2020 June 30, 2019 June 30, 2021 June 30, 2020 Asset management fees- the Real Estate Adviser $ 1,354,323 $ - $ - $ - $ - $ - Base management fees- the Investment Adviser - 1,335,376 2,549,076 2,206,227 - 657,280 Asset acquisition fees- the Real Estate Adviser (3) 343,750 - - - - Portfolio structuring fees - the Investment Adviser - 6,679 588,203 707,589 - - Subordinated Incentive fee - the Adviser - - - 1,789,870 - - Administrative cost reimbursements - MacKenzie 310,400 310,400 680,000 570,667 - - Transfer agent cost reimbursements - MacKenzie 61,600 61,600 80,000 23,333 - - Organization & Offering Cost (2) - MacKenzie - 342,015 444,935 550,908 - 52,492 Other expenses (1) - MacKenzie - - - 1,937 8,492 Due to related entities $ 1,937 $ 718,264 (1) Expenses paid by MacKenzie on behalf of the Company to be reimbursed to MacKenzie. (2) Offering costs paid by MacKenzie - discussed in Note 6 under organization and offering costs reimbursements. These are amortized over twelve-month period as discussed in Note 2. (3) Asset acquisition fees paid to the Real Estate Adviser were capitalized as a part of the real estate basis in accordance with the Company policy. Controlled or Affiliated Investments ( Predecessor Basis ) : Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of June 30, 2020, the Company is deemed to be either “affiliated” with, or in “control” of, the below portfolio companies despite the fact that the Company does not have the power to exercise control over the management or policies of these portfolio companies. June 30, 2020: Name of Issuer and Title of Issue Fair Value at June 30, 2019 Gross Additions Transfers Gross Reductions (1) Net Realized Gain/ (Losses) Net Change in Unrealized Gains/(Losses) Fair Value at June 30, 2020 Interest/Dividend/Other income Year Ended June 30, 2020 Affiliated Investments: 5210 Fountaingate, LP $ 552,693 $ - $ - $ - $ - $ (126,897 ) $ 425,796 $ - Arrowpoint Burlington LLC 1,088,910 - - (1,333,331 ) 583,331 (338,910 ) - - BP3 Affiliate, LLC 1,350,000 318,000 - - - - 1,668,000 - BR Desota Investment Co, LLC 4,250,000 - - (4,250,000 ) - - - 46,623 BR Everwood Investment Co, LLC - 3,750,000 - - - - 3,750,000 479,871 BR Quinn35 Investment Co, LLC 4,000,000 - - (4,000,000 ) - - - 167,768 BR Sunrise Parc Investment Co, LLC - 2,720,911 - - - - 2,720,911 253,410 BR Westerly Investment Co, LLC - 4,120,667 - (4,120,667 ) - - - - FSP Energy Tower I Corp. Liquidating Trust 57,566 - - (49,637 ) - 1,881 9,810 37,438 FSP Satellite Place 712,585 41,693 - - - (221,699 ) 532,579 - Lakemont Partners, LLC 1,007,700 - - (58,820 ) - (91,720 ) 857,160 26,135 MPF Pacific Gateway - Class B 7,316 - - - - (152 ) 7,164 - Secured Income, LP 302,009 - - - - (40,095 ) 261,914 - Summit Healthcare REIT, Inc. 2,587,408 4,488 - - - (717,346 ) 1,874,550 - $ 15,916,187 $ 10,955,759 $ - $ (13,812,455 ) $ 583,331 $ (1,534,938 ) $ 12,107,884 $ 1,011,245 Controlled Investments: Addison NC, LLC 3,600,000 $ - $ (2,000,000 ) $ - $ - $ (1,600,000 ) $ - $ - Addison Property Member, LLC 7,314,855 - (7,316,326 ) - - 1,471 - 1,176,187 Bishop Berkeley, LLC 4,051,013 - - - - (196,790 ) 3,854,223 69,034 Britannia Preferred Members, LLC -Class 1 2,986,550 - - - - 519,400 3,505,950 - Britannia Preferred Members, LLC -Class 2 7,758,915 - - - - (669,316 ) 7,089,599 - Capitol Hill Partners, LLC 1,852,500 - - - - (383,800 ) 1,468,700 - Citrus Park Hotel Holdings, LLC - 5,000,000 - - - - 5,000,000 287,500 Coastal Realty Business Trust, REEP, Inc. - A 39,053 - - - - (5,063 ) 33,990 - Dimensions28 LLP 10,886,076 - - - - 63,612 10,949,688 485,321 MacKenzie Realty Operating Partnership, LP - 2,829,579 9,316,326 - - (532,764 ) 11,613,141 - Sunlit Holdings, LLC - 5,000,000 - (5,000,000 ) - - - 334,111 $ 38,488,962 $ 12,829,579 $ - $ (5,000,000 ) $ - $ (2,803,250 ) $ 43,515,291 $ 2,352,153 Of the investments listed above, the Company (or its affiliates) has the power to exercise control over the management or policies of the portfolio companies listed below: F - 38 Table of Contents Coastal Realty Business Trust ("CRBT"): CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. The Company owns two series of CRBT and is the only beneficiary of such series. Under the terms of the agreement, there are no redemption rights to any of the series participants. The Company and TRS are the sole beneficiaries of the following series as of June 30, 2021 and 2020: • CRBT, REEP, Inc.-A, which has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland. The Operating Partnership: As of June 30, 2020, the Operating Partnership was considered as a controlled investment. The Operating Partnership has been consolidated with the Company effective December 31, 2020 as discussed above in note 1. MPF Pacific Gateway: MPF Pacific Gateway, which was managed by MacKenzie, was a holding company that owned an investment in a REIT Liquidating Trust. The Company had a 15.82% ownership interest in MPF Pacific Gateway. The company made final liquidating distributions and dissolved during the year ended June 30, 2021. Related Party Investment Purchases: During the year ended June 30, 2021, two investment funds affiliated with the Company’s Advisers, which are also advised by the Investment Adviser, desired to sell Britannia Preferred Members, LLC- Class 1 and Class 2 and FSP Satellite Place, LLC for cash. The Company desired to purchase those securities at a price equal to the net asset value as agreed to by the Investment Adviser and the Board. While the Investment Adviser believes that the purchase price for each of the securities was higher than any other third party would reasonably pay, the Company desired to increase its ownership of these two securities in order to solidify more control of them. The Board of Directors approved the offers made to the Funds and each of the Funds subsequently accepted the offer. The details of these purchases are as follows: Name of the Securities Purchase Price per Unit Units Purchased Total Price Paid Britannia Preferred Members, LLC - Class 1 $ 36,250.00 62.52 $ 2,266,350 Britannia Preferred Members, LLC - Class 2 $ 10.40 106,000.00 1,102,400 FSP Satellite Place LLC $ 46,895.00 19.01 891,709 $ 4,260,459 NOTE 7 – MARGIN LOANS The Company has a brokerage account through which it buys and sells publicly traded securities. The provisions of the account allow the Company to borrow on certain securities held in the account and to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account are used as collateral. As of June 30, 2021, the Company had no margin credit available for cash withdrawal or the ability to purchase in additional securities. As of June 30, 2020, the Company had $2,655,155 of margin credit available for cash withdrawal or the ability to purchase up to $18,770,519 in additional publicly traded securities. As of June 30, 2021 and 2020, there was no amount outstanding under this short-term credit line. F - 39 Table of Contents NOTE 8 – MORTGAGE NOTES PAYABLE AND DEBT GUARANTY Property Owner Note Payable Property Owner is the obligor under a note payable to Wells Fargo Bank, NA in the original loan amount of $32,000,000 at an interest rate of LIBOR plus 3.75%. The loan originally matured on November 1, 2019 and is secured by the properties owned by Property Owner. On June 8, 2020, as part of the Contribution Agreement discussed above under Note 1, the Company agreed to guarantee the loan and the maturity date of the loan was extended to April 30, 2021, with an option to further extend the maturity date to April 30, 2022. In April 2021, the Company exercised the option and extended the loan maturity date to April 30, 2022. The principal balance of the loan immediately prior to the Loan Modification Agreement was $25,827,107. The new loan principal amount due under the modified agreement was $24,404,257, and the interest rate was modified to be equal to the Federal Funds Rate plus 3.75%. As of June 30, 2021, the outstanding loan amount was $23,568,330. The loan requires payments only of interest through the maturity date; however, certain provisions of the loan agreement allow the lender to apply excess cash flow during a cash trap period to the principal balance. Under the Loan Modification Agreement and Replacement Guaranty, the Company guaranteed only the “Recourse Obligations” under the loan, which are triggered only if the guarantor of the loan engages in “Bad Boy Acts” (such as fraud, intentional misrepresentation, willful misconduct, waste, conversion, intentional failure to pay taxes or maintain insurance, filing for bankruptcy, etc.). As of June 30, 2021, the Company has not recorded any debt guaranty obligation because (i) the Property Owner was current on the loan payments, (ii) the Company believes the Property Owner has sufficient cash flow to meet its monthly payments, and (iii) the Company has not engaged in inappropriate actions that would give rise to a guaranty obligation. In addition, the appraised value of the collateral was higher than the loan balance as of June 30, 2021. Madison and PVT Notes Payable On February 26, 2021, Madison and PVT obtained mortgage loans from First Republic Bank in the amounts of $6,737,500 and $8,387,500, respectively, both at a fixed interest rate of 3.0% per annum through April 1, 2026. Effective May 1, 2026, interest rates will be the average of the twelve most recently published yields on US Treasury securities adjusted a constant maturity of one year as published by the Federal Reserve System in the Statistical Release H.15 plus 2.75% per annum. The loans were obtained to finance the acquisition of the Commodore Apartments and Pon De Leo Apartments, which are located in Oakland, California. The loans mature on April 1, 2031 and are cross-collateralized by both properties owned by Madison and PVT. The loan requires interest only monthly payments through April 1, 2026 and beginning May 1, 2026 monthly payments of principal and interests are due based on 360 months of amortization period. The remaining unpaid principal balance is due at maturity date. As of June 30, 2021, the outstanding loan amounts were $6,737,500 and $8,387,500, on the Madison and PVT mortgage loans, respectively. F - 40 Table of Contents NOTE 9 - FINANCIAL HIGHLIGHTS (PREDECESSOR BASIS) The following is a schedule of financial highlights of the Company for the years ended June 30, 2020, 2019, 2018, and 2017: For The Year Ended June 30, 2020 June 30, 2019 June 30, 2018 June 30, 2017 Per Share Data: Beginning net asset value ("NAV") $ 9.44 $ 10.07 $ 9.84 $ 9.94 Net investment income (1) 0.28 0.57 0.30 0.33 Net realized gain (1) 0.15 0.12 0.36 0.31 Net unrealized gain (loss) (1) (1.39 ) (0.40 ) 0.79 0.39 Net increase in net assets resulting from operations (0.96 ) 0.29 1.45 1.03 Issuance of common stock above (below) NAV (1) (4) - (0.21 ) (0.32 ) (0.37 ) Redemption of common stock below NAV (1) (6) 0.01 0.02 0.01 0.02 Dividends to stockholders (1) (5) (0.45 ) (0.73 ) (0.91 ) (0.78 ) Ending NAV $ 8.04 $ 9.44 $ 10.07 $ 9.84 Weighted average common Shares outstanding 12,198,040 9,951,816 7,440,841 5,183,166 Shares outstanding at the end of period 12,836,608 10,926,320 8,496,142 6,096,773 Net assets at the end of period $ 103,225,721 $ 103,115,381 $ 85,595,319 $ 59,989,525 Average net assets (2) $ 103,170,551 $ 94,355,350 $ 72,792,422 $ 50,160,858 Ratios to average net assets Total expenses 5.10 % 6.62 % 6.52 % 6.05 % Net investment income 3.36 % 5.98 % 3.06 % 3.46 % Total rate of return (2) (3) (11.37 )% 3.06 % 14.79 % 10.67 % (1) Based on weighted average number of shares of common stock outstanding for the period. (2) Average net assets were derived from the beginning and ending period-end net assets. (3) Total return is based on the net increase (decrease) in net assets resulting from operations divided by average net assets. An individual stockholder’s return may vary from this return based on the time of capital transactions. (4) Net of sales commissions and dealer manager fees of $1.00 per share as of October 30, 2019 and $1.03 per share thereafter . (5) Dividends are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. (6) Amounts based on differences between the actual redemption price and the NAVs preceding the redemptions . NOTE 10 – EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to potentially diluted securities. The following table sets forth the computation of basic and diluted earnings per share for the six months ended June 30, 2021 and December 31, 2020, and years ended June 30, 2020 and 2019: Six Months Ended June 30, 2021 Six Months Ended December 31, 2020 Year Ended June 30, 2020 Year Ended June 30, 2019 (Successor Basis) (Predecessor Basis) (Predecessor Basis) (Predecessor Basis) Net Income (loss) $ 264,157 $ (9,667,137 ) $ (11,725,552 ) $ 2,885,507 Basic and diluted weighted Average common shares outstanding 13,332,535.70 13,020,208.16 12,198,040.44 9,951,815.67 Basic and diluted earnings per share $ 0.02 $ (0.74 ) $ (0.96 ) $ 0.29 F - 41 Table of Contents NOTE 11 – SHARE OFFERINGS AND FEES During the year ended June 30, 2021, the Company issued 21,720 shares with gross proceeds of $218,439. For the year ended June 30, 2021, the Company incurred selling commissions and fees of $18,060. In addition to the shares sold through our public offering, in October 2020, the Company issued 504,091.15 shares at $7.85 per share, which was the most recent NAV at the time of the issuance, to the Class A unit holders of the Operating Partnership as discussed in Note 1. During the year ended June 30, 2020, the Company issued 1,943,646 shares with gross proceeds of $19,505,452, under the current offering and issued 317,840 shares under the Company's dividend reinvestment plan ("DRIP") with gross proceeds of $2,891,349. For the year ended June 30, 2020, the Company incurred selling commissions and fees of $1,823,648. No selling commissions and fees were incurred for the shares issued under the DRIP. NOTE 12 – SHARE REPURCHASE PLAN On May 11, 2020, after assessing the impacts of the COVID-19 pandemic, the Company’s board of directors unanimously approved the suspension of the Company’s Share Repurchase Program. The Company resumed the Share Repurchase Program on March 19, 2021. During the year ended June 30, 2021, the Company made tender offers to purchase its own shares as noted in the below table: Period Total Number of Shares Repurchased Repurchase Price Per Share Total Repurchase Consideration During the year ended June 30, 2021: April 22, 2021 through May 12, 2021 68,135.92 $ 6.00 $ 408,818 During the year ended June 30, 2020, the Company made tender offers to purchase its own shares as noted in the below table: Period Total Number of Shares Repurchased Repurchase Price Per Share Total Repurchase Consideration During the year ended June 30, 2020: August 13, 2019 through September 16, 2019 70,114.03 $ 9.00 $ 631,026 November 18, 2019 through December 19, 2019 102,739.90 $ 9.00 $ 924,659 February 14, 2020 through March 18, 2020 178,344.44 $ 9.19 $ 1,638,985 351,198.37 $ 3,194,670 NOTE 13 – STOCKHOLDER DIVIDENDS AND INCOME TAXES On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, the Company’s board of directors unanimously approved the suspension of regular quarterly dividends to the Company’s stockholders. On May 10, 2021, the Board of Directors reinstated the quarterly dividend at the rate of $0.05 per common share, payable to holders of record as of May 15, 2021. Subsequently, the Company declared $0.06 per common share for the quarter ended June 30, 2021, on July 9, 2021 and $0.07 per common share for the quarter ending September 30, 2021 on September 13, 2021. The dividend declared on July 9, 2021 was paid on July 26, 2021. The dividend declared on September 13, 2021 will be paid on or about October 30, 2021. The Board intends to continue such dividend so long as it is supported by the previous quarter’s income, but may increase or decrease the dividend accordingly. F - 42 Table of Contents The following table reflects the dividends per share that the Company has declared on its common stock during the six months ended June 30, 2021: Distributions During the Quarter Ended Per Share Amount June 30, 2021 $ 0.050 $ 664,714 Of the total dividends paid during the six months ended June 30, 2021, $204,277 has been reinvested under the Company’s DRIP. The following table reflects the dividends per share that the Company has declared on its common stock during the year ended June 30, 2020: Distributions During the Quarter Ended Per Share Amount September 30, 2019 $ 0.175 $ 1,983,801 December 31, 2019 0.175 2,096,915 March 31, 2020 0.120 1,461,875 $ 0.470 $ 5,542,591 Of the total dividends paid during the year ended June 30, 2020, $2,891,349 has been reinvested under the Company’s DRIP. Income Taxes (Predecessor Basis) While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is December 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified. For income tax purposes, dividends paid to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to stockholders for the tax year ended December 31, 2019 (the most recent tax year ended completed and filed), is as follows: December 31, 2019 Capital gain $ 2,415,285 Ordinary income 3,085,298 Return of capital 24,521 Total dividends $ 5,525,104 The tax character of dividends paid to stockholders during the tax year ended December 31, 2020, is expected to be ordinary income, capital gains and return of capital. Because of the difference between our fiscal and tax year ends, the final determination of the tax character of dividends will not be made until we file our tax return for the tax year ending December 31, 2020. The components of undistributed earnings on a tax basis as of December 31, 2019 is as follows: December 31, 2019 Unrealized fair value appreciation $ 4,813,649 The following table presents the aggregate gross unrealized appreciation, depreciation, and cost basis of investments for income tax purposes as of: June 30, 2020 Aggregate gross unrealized appreciation $ 4,054,329 Aggregate gross unrealized depreciation (12,067,004 ) Net unrealized appreciation (depreciation) $ (8,012,675 ) Aggregate cost (tax basis) $ 101,717,821 F - 43 Table of Contents MacKenzie Realty Capital, Inc. Schedule III- Real Estate Properties and Accumulated Depreciation June 30, 2021 Initial Costs Subsequent Acquisition Gross Amount Carried at Property: Acquisition Date Encumbrances at June 30, 2021 Land Building & Improvements Land Building & Improvements June 30, 2021 Accumulated Depreciation Addison Corporate Center December 31, 2020 * $ 23,568,330 $ 6,456,615 $ 19,108,041 $ - $ - $ 25,564,656 $ (914,064 ) Commodore Apartment Building March 5, 2021 6,737,500 5,519,963 7,488,715 - - 13,008,678 (83,937 ) Pon Do Leo Apartment Building March 5, 2021 8,387,500 4,317,013 11,751,249 - - 16,068,262 (109,465 ) $ 38,693,330 $ 16,293,591 $ 38,348,005 $ - $ - $ 54,641,596 $ (1,107,466 ) *Date the Company consolidated the underlying entity that owns the property A summary of activity for real estate and accumulated depreciation for the year ended June 30, 2021. The Company did not own any real estate properties prior to year ended June 30, 2021. Real Estate Year Ended June 30, 2021 Balance at the beginning of the year $ - Additions- acquisitions 54,641,596 Balance at end of the year $ 54,641,596 Accumulated Depreciation Balance at the beginning of the year $ - Depreciation expense 1,107,466 Balance at end of the year $ 1,107,466 S - 1 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MACKENZIE REALTY CAPITAL, INC. (Registrant) By: /s/ Robert Dixon Robert Dixon Chief Executive Officer Date: September 28, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert Dixon Chief Executive Officer September 28, 2021 Robert Dixon (Principal Executive Officer) /s/ Angche Sherpa Chief Financial Officer September 28, 2021 Angche Sherpa (Principal Financial and Accounting Officer) /s/ Chip Patterson Director September 28, 2021 Chip Patterson /s/ Tim Dozois Director September 28, 2021 Tim Dozois /s/ Tom Frame Director September 28, 2021 Tom Frame