MacKenzie Realty Capital, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements by MacKenzie Realty Capital, Inc., its wholly owned subsidiary MRC TRS, Inc. and its majority owned subsidiaries; MacKenzie Realty Operating Partnership, LP, Madison-PVT Partners LLC and PVT-Madison Partners LLC (the “Company,” “we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, stockholders can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” in our Annual Report on Form 10-K. We may experience fluctuations in our operating results due to a number of factors, including the effect of the withdrawal of our BDC election, the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods. Overview Historically, we were an externally managed non-diversified closed-end management investment company that elected to be treated as a BDC under the 1940 Act, but we withdrew our election to be treated as a BDC on December 31, 2020. Our objective remains to generate both current income and capital appreciation through real estate-related investments. We have elected to be treated as a REIT under the Code and as a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income. Our wholly owned subsidiary, MRC TRS, Inc., is subject to corporate federal and state income tax on its taxable income at regular statutory rates. We are managed by the Advisers, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate. Authorization to Withdraw BDC Election On October 23, 2020, holders of a majority of the outstanding common stock of the Company approved the authorization of the Company’s board of directors to withdraw the Company’s election to be regulated as a BDC under the 1940 Act. The Company submitted the withdrawal to be effective with the SEC on December 31, 2020. Withdrawal of our election to be regulated as a BDC does not affect our registration under Section 12(g) of the Exchange Act, and we continue to file periodic reports on Form 10-K, Form 10-Q, and Form 8-K, as well as file proxy statements and other reports required under the Exchange Act. As a result of the withdrawal of our election to be regulated as a BDC, we are no longer be treated as an investment company for purposes of applying GAAP, which results in a significant change in our future financial statement presentation. The most notable changes to the format of our consolidated financial statements include the removal of the Consolidated Schedule of Investments and Financial Highlights and the consolidation of majority owned subsidiaries onto our financial statements. Exclusive of our subsidiary MacKenzie Realty Operating Partnership, LP (the “Operating Partnership”), we expect our other equity investments, both public and private, to continue to be reported at fair value within our consolidated financial statements under provisions of GAAP. We intend to, where appropriate, provide supplemental non-GAAP information in order to enhance our investors’ overall understanding of our consolidated financial statements. 32 Table of Contents The Company undertook several steps to meet the requirements for withdrawal of its election to be regulated as a BDC, including (i) preparing a plan of operations in contemplation of such a change to the status of the Company, (ii) evaluating potential investments in real estate assets that will allow the Company to transition to direct real estate asset investments, (iii) reviewing the potential adjusted investment strategy with potential capital providers, and (iv) consulting with outside counsel as to the requirements for withdrawing its election as a BDC. During this transition period, the Company liquidated most of its securities portfolio. As of March 31, 2022, the Company’s securities portfolio excluding the unconsolidated investments (non-securities) is less than 20% of its total assets. These unconsolidated investments (non-securities) do not meet the consolidation requirements under GAAP; however, are considered “voting securities” under the 1940 Act as opposed to “investment securities”. Investment Plan Now that we are no longer a BDC, we generally seek to invest in real estate assets. We intend to invest at least 80% of our total assets in equity or debt in real estate assets. We can invest up to 20% of our total assets in investment securities of real estate companies. A real estate company is one that (i) derives at least 50% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50% of its assets invested in such real estate. We will not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities. When purchasing securities, we generally favor purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate related investments. Our investment objective is to generate current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments. Our independent directors review our investment policies periodically, at least annually, to confirm that our policies are in the best interests of our stockholders. Each such determination and the basis thereof are contained in the minutes of our board of directors’ meetings. We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value. We intend to expand our investment strategy to include acquisition of distressed real properties. Like our other investments, we would expect to hold distressed properties and infuse funds as necessary to extract unrealized value. We will engage in various investment strategies to achieve our overall investment objectives. The strategy we select depends upon, among other things, market opportunities, the skills and experience of the Adviser’s investment team and our overall portfolio composition. We generally seek to acquire assets that produce ongoing distributable income for investors, yet with a primary focus on purchasing such assets at a discount from what the Adviser estimates to be the actual or potential value of the real estate. The Company’s investment strategies since its inception have included making loans to or investments in previously syndicated projects that had encountered difficulties with occupancy, financing, tenant improvements or other cash needs. Since entering the recent recession, certain of our portfolio companies have encountered additional cash shortfalls, and, in some cases, we have provided additional capital to the extent that we now own the majority of the project (such as Addison Corporate Center). In such cases, we intend to consolidate the portfolio company into our financial statements, which is a key reason for dropping our BDC status. The Company intends to continue its historical activities related to tender offers for shares of non-traded REITs in order to boost its short-term cash flow and to support its distributions, subject to the constraint that such securities will not exceed 20% of our portfolio. The Company believes this niche strategy will allow it to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance that some portion of any distribution is not a return of capital. Rental and reimbursement We generate rental revenue by leasing office space and apartment units to the building’s tenants. These tenant leases fall under the scope of ASC 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. 33 Table of Contents Investment income We generate revenues in the form operating income, capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees are generated in connection with our investments and recognized as earned. Expenses Our primary operating expenses include the payment of: (i) advisory fees to our Advisers; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment and Real Estate Adviser for its work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We will bear all other expenses of our operations and transactions, including: • the cost of operating and maintaining real estate properties; • the cost of calculating our net asset value, including the cost of any third-party valuation services; • the cost of effecting sales and repurchases of our shares and other securities; • interest payable on debt, if any, to finance our investments; • fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees; • transfer agent and safekeeping fees; • fees and expenses associated with marketing efforts; • federal and state registration fees, any stock exchange listing fees in the future; • federal, state and local taxes; • independent directors’ fees and expenses; • brokerage commissions; • fidelity bond, directors and officers errors and omissions liability insurance, and other insurance premiums; • direct costs and expenses of administration and sub-administration, including printing, mailing, and staff; • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act and applicable federal and state securities laws; and • all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that are based upon our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff. 34 Table of Contents Portfolio Investment Composition Beginning with the withdrawal of our election to be treated as a BDC on December 31, 2020, we began transforming our portfolio of investments in an orderly fashion into one comprised of controlled real estate investments (either wholly owned or controlled through voting securities). As of March 31, 2022, we still owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below. We also owned various investments in entities that own real estate which gave us enough control such that the investments are not securities for 1940 Act purposes, but not enough to consolidate the financials of such entities with our own; these are listed below as “Unconsolidated investments (non-securities), at fair value”. As a result of the change in the Company’s status and applying the new basis of accounting, on the effective date of the termination of the Company’s status as a BDC, the Company recorded the fair value of the investments as the new carrying value of the investments. The following table summarizes the composition of our investments at fair value as of March 31, 2022: Investments, at fair value Fair Value March 31, 2022 3100 Airport Way South LP $ 286,559 5210 Fountaingate 2,000 American Healthcare REIT, Inc. – Class I 358,245 Capitol Hill Partners, LLC 1,425,000 Citrus Park Hotel Holdings, LLC 5,000,000 Coastal Realty Business Trust, REEP, Inc. - A 36,160 Corporate Property Associates 18 Global A Inc. 38,359 Franklin BSP Realty Trust, Inc. - Series F Convertible Preferred Stock 3,001,377 FSP Satellite Place Corp. 3,942,041 FSP Energy Tower I Corp. Liquidating Trust 10,981 Healthcare Trust, Inc. 2,799,562 Highlands REIT Inc. 3,984,784 HGR Liquidating Trust 732 KBS Real Estate Investment Trust II, Inc. 1,365,338 Lakemont Partners, LLC 840,700 Moody National REIT II, Inc. 16,354 Satellite Investment Holdings, LLC - Class B 5,428 Secured Income, LP 304,596 SmartStop Self Storage REIT, Inc Class A 113,420 SmartStop Self Storage REIT, Inc Class T 9,272 Strategic Realty Trust, Inc. 353,566 Summit Healthcare REIT, Inc. 1,832,267 Total $ 25,726,741 Unconsolidated investments (non-securities), at fair value BP3 Affiliate, LLC $ 1,668,000 Britannia Preferred Members, LLC - Class 2 235,926 Dimensions28 LLP 19,721,340 Total $ 21,625,266 Properties In addition to our investment securities, we currently own and manage one commercial real estate property (Addison Corporate Center) located in Windsor, CT and three residential apartments: Commodore Apartments and Pon De Leo Apartments, located in Oakland, CA and the Hollywood Property located in Los Angeles, CA. The Addison Corporate Center and the Hollywood Property are owned through our subsidiary, the Operating Partnership, the Commodore Apartments are owned through our subsidiary Madison, and the Pon De Leo Apartments are owned through our subsidiary PVT. 35 Table of Contents Addison Corporate Center contains 605,502 square feet, of which approximately 185,000 square feet is office space and the remainder is designated as flex office/warehouse space. As of March 31, 2022, the property is approximately 63% occupied by 6 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options Sun Life Insurance 100,623 $ 1,635,124 5/31/22 No Triumph Aircraft Design, Manufacturing, and Engineering 88,255 $ 345,077 5/31/27 No Belcan Global Engineering and Consulting 66,072 $ 1,156,260 9/30/29 No Quest Diagnostics Laboratory Services 65,459 $ 1,243,721 10/31/25 1, 3 years The following information pertains to lease expirations at the Addison Corporate Center: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2022 2 140,289 $ 3,011,865 52 % 2025 2 70,164 $ 1,330,952 23 % 2027 1 88,255 $ 345,077 6 % 2029 1 66,072 $ 1,156,260 20 % Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units. As of March 31, 2022, Commodore Apartment building is approximately 97.9% occupied. Pon De Leo Apartments is also a mid-rise apartment building built in 1929 and has 39 units. As of March 31, 2022, Pon Do Leo Apartment building is approximately 94.9% occupied. The following table provides information regarding each of the Oakland properties: Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit Pon De Leo Multi-Family Residential Oakland, CA 36,654 39 94.9 % $ 1,013,352 $ 2,282 Commodore Multi-Family Residential Oakland, CA 31,156 48 97.9 % $ 872,940 $ 1,548 Hollywood Hillview Apartments (“Hollywood Property”), located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 55 units. The property contains approximately 37,000 square feet of net rentable area, of which 8,560 square feet is retail space. All of the retail space is currently occupied by restaurants and nightclubs. The apartment units are 21.8% occupied as of March 31, 2022 as leases were allowed to expire by the previous owner. The building is currently going through extensive renovations in order to reposition the complex as a premier rental with significant rate increases over previous years. Virtually all of the extensive apartment renovations have been completed, with the final apartments scheduled to be finished as remaining tenants vacate. A grand opening for the public was held in early April and marketing of the newly renovated units began in late April. There are no present plans for the improvement or development of any property except for the Hollywood Property. Each property is being held for income production and increased occupancy and/or rental rates. We have property and liability insurance policies on all three properties which we believe are adequate. 36 Table of Contents The markets in which the Company’s properties (those consolidated and those that are not yet consolidated) operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors. Our West coast multi-family properties, the Pon De Leo and the Commodore, are generally restricted from raising rents by local rent control laws. Two of our unconsolidated investments in apartment properties, Lakemont Partners and Capitol Hill, are also subject to rent control. Rent control can result in average rents that are significantly below market, and this provides some buffer against declining rents in a recession. However, in order to encourage development, rent control usually does not apply to newer properties. Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties. Our consolidated office property, Addison Corporate Center, is a class B suburban office property located in Windsor, Connecticut. Addison must compete with every other office property in the market, as well as facing the uncertainty of workers returning to the office after COVID-19. Our unconsolidated investment in an office property, Britannia Business Center, faces the same competitive factors in its sub-market, the San Francisco suburban East Bay. Our unconsolidated investment in a hotel property, Citrus Park Hotel, is a Courtyard by Marriott located in the Tampa/St. Petersburg market that competes for business and leisure travel. Citrus Park suffered a significant decline during 2020 as a result of a drastic reduction in business and leisure travel but is expected to recover as travel returns to normal. 37 Table of Contents Investments as of June 30, 2021 The following table summarizes the composition of our investments at fair value as of June 30, 2021: Investments, at fair value Fair Value June 30, 2021 3100 Airport Way South LP $ 283,750 5210 Fountaingate 30,574 Benefit Street Partners Realty Trust, Inc. 2,693,265 Capitol Hill Partners, LLC 1,007,000 CBL & Associates Properties, Inc. - Preferred D 169,200 CIM Real Estate Finance Trust, Inc. 3,197,484 Citrus Park Hotel Holdings, LLC 5,000,000 CNL Healthcare Properties, Inc. 1,071,445 Coastal Realty Business Trust, REEP, Inc. - A 34,714 Corporate Property Associates 18 Global A Inc. 34,603 FSP 303 East Wacker Drive Corp. Liquidating Trust 773 FSP Energy Tower I Corp. Liquidating Trust 10,479 FSP Grand Boulevard Corp. Liquidating Trust (Residual) 4,597 FSP Satellite Place Corp. 2,867,911 Griffin-American Healthcare REIT III, Inc. 329,522 Griffin Capital Essential Asset REIT, Inc. 519,666 Healthcare Trust, Inc. 2,588,464 Highlands REIT Inc. 3,047,188 HGR Liquidating Trust 50,488 InvenTrust Properties Corp. 3,248,093 KBS Real Estate Investment Trust II, Inc. 1,788,593 KBS Real Estate Investment Trust III, Inc. 721,172 Lakemont Partners, LLC 817,770 Moody National REIT II, Inc. 19,240 New York City REIT, Inc Cl B 283,249 Phillips Edison & Company, Inc. (Phillips Edison Grocery Center REIT I) 6,131,261 Satellite Investment Holdings, LLC - Class B 4,745 Secured Income, LP 267,734 Sila Realty Trust, Inc. 1,366,105 SmartStop Self Storage REIT, Inc Class A 76,312 SmartStop Self Storage REIT, Inc Class T 6,239 Steadfast Apartment REIT 503 Strategic Realty Trust, Inc. 376,482 Summit Healthcare REIT, Inc. 1,747,701 The Parking REIT Inc. 113,516 Total $ 39,909,838 Unconsolidated investments (non-securities), at fair value Fair Value June 30, 2021 Bishop Berkeley, LLC $ 5,142,164 BP3 Affiliate, LLC 1,668,000 Britannia Preferred Members, LLC - Class 2 5,891,945 Britannia Preferred Members, LLC - Class 1 6,448,000 Dimensions28 LLP 11,449,296 Total $ 30,599,405 38 Table of Contents Results of Operations COVID-19 pandemic Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level. However, measures taken to limit the impact of the COVID-19 pandemic, including social distancing and other restrictions on travel, congregation, and business operations have already resulted in significant negative economic impacts, including steep declines in certain stock market segments and in the traded prices for certain real-estate related assets. As a result of these impacts, we experienced a large decrease in fair values of some of our investments during the year ended June 30, 2021, and 2020. In addition, some of the companies in which we have invested have cancelled their quarterly dividends and distributions for the current and future quarters. The long-term impact of the COVID-19 pandemic on the United States and world economies remains uncertain, but may result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted . MacKenzie and our Advisers have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. They implemented business continuity plans and the management team is in place to respond to changes in the global environment quickly and effectively. To protect the health and safety of their team members, they successfully transitioned almost their entire workforce to remote work environments. They are working closely with our clients to support them as necessary and as seamlessly as possible. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position and operating results. This includes the evaluation and implementation of certain efforts to help us mitigate the impact that reduced revenues from distributions and capital events may have on our fiscal year 2022 financial results. We are focusing on maintaining a strong balance sheet and liquidity position and searching for opportunistic investments. In anticipation of reduced revenues and uncertain future economic conditions, the board of directors had discontinued distributions starting March 2020 and share redemptions starting May 2020. However, after reassessing the Company’s cash flow, the board of directors reinstated the quarterly distributions in May 2021. The board intends to continue quarterly distributions so long as it is supported by the previous quarter’s income, but may increase or decrease the distribution accordingly. Further, the board authorized a repurchase offer in March 2021 for those who needed liquidity (at a substantial discount to NAV), and has recently opened the Share Repurchase Program in cases of the death or disability of a stockholder. Due to the termination of the Company’s BDC status effective December 31, 2020, during the three and nine months ended March 31, 2022, the Company operated as an operating REIT. T he Company operated as a BDC for the period of July 1 through December 31, 2020 and as an operating REIT for the period of January 1, 2021 through March 31, 2021. Therefore, for the discussion of net unrealized gains and losses and cash flow activities, the prior fiscal year-to-date operating activities have been reported in two different periods; three months ended March 31, 2021 and six months ended December 31, 2020 and those periods have been compared to the same current year periods. Three Months Ended March 31, 2022 and 2021 Rental and reimbursements revenues: Rental and reimbursement revenues are generated from the Company’s commercial and residential real estate properties. During the three months ended March 31, 2022, the Company generated $2.52 million in rental and reimbursements revenues, of which $2.00 million was generated from the Addison Corporate Center and Hollywood Property tenants, and $0.52 million from the two residential apartments. During the three months ended March 31, 2021, the Company generated $1.76 million in rental and reimbursements revenues, of which $1.62 million was generated from the Addison Corporate Center tenants and $0.15 million from the residential Apartments. The Company acquired the two residential apartments on March 5, 2021; thus, they only generated one month of rental revenues. 39 Table of Contents Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the three months ended March 31, 2022 and 2021 was $1.17 million and $1.04 million, respectively. During the three months ended March 31, 2022, we received $0.72 million of distributions from operations, sales, and liquidations as compared to $0.54 million during the three months ended March 31, 2021. During the three months ended March 31, 2022, we received dividends, interest, and other investment income of $0.45 million as compared to $0.49 million received during the three months ended March 31, 2021. Operating expenses: The Company’s base management, portfolio structuring, and subordinated incentive fees were based on the investment advisory agreement that was effective through December 31, 2020, and, subsequent to December 31, 2020, based upon the base management and advisory fees under the advisory agreement that was effective January 1, 2021. Asset/base management fee: The asset management fees under the new advisory agreement for the three months ended March 31, 2022 and 2021 were both $0.68 million. Incentive management fee or subordinated incentive fee: Under the new Advisory Management Agreement, the Company pays an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. Under the previous advisory agreement that was effective through December 31, 2020, the subordinated incentive fee had two components: a Capital Gains Fee and an Income Fee. The Capital Gains Fee was based on realized gains (including the distributions received from sales/capital transactions) and the Income Fee was based on net investment income. The Company did not incur any incentive management fee for the three months ended March 31, 2022. Similarly, the Company did not incur any subordinated incentive fee (Capital Gains Fee or Income Fee) during the three months ended March 31, 2021. This was because the cumulative net investment income and net realized gains were below the threshold of 7% of Contributed Capital. Administrative cost reimbursements and Transfer agent reimbursements: Costs reimbursed to MacKenzie for the three months ended March 31, 2022, were $0.15 million as compared to $0.16 million for the three months ended March 31, 2021. The slight decrease was due to a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to March 31, 2021, as a result of the decrease in the Company’s capital raising activities. Transfer agent cost reimbursement paid to MacKenzie for three months ended March 31, 2022 and 2021 were both $0.03 million. Property operating and maintenance expenses: Operating and maintenance expenses mainly consists of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of the Company’s commercial and residential real estate assets. During the three months ended March 31, 2022, the Company incurred operating and maintenance expenses of $1.47 million, of which $1.37 million mainly incurred in the operation of Adison Corporate Center and Hollywood Property. Operating and maintenance expenses incurred in the operation of two residential apartments were $0.10 million. During the three months ended March 31, 2021, the Company incurred operating and maintenance expenses of $1.15 million, of which $1.09 million mainly incurred in the operation of Adison Corporate Center. Operating and maintenance expenses incurred in the operation of two residential apartments were $0.06 million since the properties were acquired and in operation for only one month. 40 Table of Contents Depreciation and amortization: During the three months ended March 31, 2022, the Company recorded depreciation and amortization of $1.15 million, of which $1.00 million was the depreciation and amortization of real estate and intangible assets it owned through the Operating Partnership. $0.15 million of the total was related to the depreciation and amortization of real estate assets and intangibles owned through Madison and PVT. During the three months ended March 31, 2021, the Company recorded depreciation and amortization of $0.98 million, of which $0.80 million was the depreciation and amortization of real estate and intangible assets it owned through the Operating Partnership. $0.18 million of the total related to the depreciation and amortization of real estate assets and intangibles owned through Madison and PVT. Interest expense: Interest expense for the three months ended March 31, 2022 was $0.57 million, of which $0.44 million was incurred on the notes payable associated with the Addison Corporate Center and Hollywood Property, and $0.11 million was incurred on the two mortgage notes payable associated with the two residential apartments. Interest expense for the three months ended March 31, 2021 was $0.27 million, of which $0.23 million was the interest expense incurred on the notes payable associated with the Addison Corporate Center and $0.04 million was the interest expense on the two mortgage notes payable associated with the two residential apartments. Other operating expenses: Other operating expenses include professional fees, directors’ fees, printing and mailing expenses, and other general and administrative expenses. Other operating expenses for the three months ended March 31, 2022 and 2021, were $0.34 million and $0.16 million, respectively. The increase in other operating expenses is due to two reasons: (i) an acquisition of new property, Hollywood Property in October 2021, resulting in larger amount of general and administrative operating expenses during the three months ended March 31, 2022, and (ii) the two existing properties, Pon De Leo and Commodore, under the Operating Partnership reporting full three months of operation during three months ended March 31, 2022 as compared to less than one month of operation during the three months ended March 31, 2021 as the properties were acquired in March 2021. Net realized gain/loss on investments: During the three months ended March 31, 2022, the Company had a realized gain of $5.11 million as compared to $0.72 million during the three months ended March 31, 2021. Total realized gains for the three months ended March 31, 2022, were realized from sale of a publicly traded REIT securities, three non-traded REIT securities, and a limited partnership interest with total realized gains of $5.11 million. Total realized gains for the three months ended March 31, 2021, were realized from sales of seventeen publicly traded REIT securities with total realized gains of $0.90 million offset by a realized loss of $0.18 million from one limited partnership interest. Net unrealized gain/loss on investments: During the three months ended March 31, 2022, we recorded net unrealized gains of $1.26 million, which were net of $0.42 million of unrealized gains reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains for the three months ended March 31, 2022 were $1.68 million, resulted from fair value appreciations of $4.60 million from limited partnership interests and fair value depreciations of $2.91 million from non-traded REIT securities and $0.01 million from investment trust. During the three months ended March 31, 2021, we recorded net unrealized gains of $1.16 million and did not have any reclassification adjustments as the accumulated unrealized gains and losses as of December 31, 2020 on all investments were recorded as carrying value adjustments due to the termination of the Company’s BDC status. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains for the three months ended March 31, 2021, resulted from fair value appreciations of $0.84 million from limited partnership interests and $0.32 million from non-traded REIT securities. 41 Table of Contents Income tax provision (benefit): The Parent Company has elected to be treated as a REIT for tax purposes under the Code and, as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2020. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2020. Similarly, for the tax year 2021, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2021. TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of March 31, 2022, they did not have any taxable income for tax years 2021 or 2022. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2021 and 2022. The Operating Partnership is a limited partnership and its wholly owned subsidiary, the Addison Property Owner, is a limited liability company. Accordingly, all income tax liabilities of these two entities flow through to their partners, which is the Company. Therefore, no income tax provisions are recorded for these two entities. Nine Months Ended March 31, 2022 and 2021 Rental and reimbursements revenues: Rental and reimbursement revenues are generated from the Company’s commercial and residential real estate properties. During the nine months ended March 31, 2022, the Company generated $7.81 million in rental and reimbursements revenues, of which $6.21 million was generated from the Addison Corporate Center and Hollywood Property tenants, and $1.60 million from the two residential apartments. During the three months ended March 31, 2021, the Company generated $1.76 million in rental and reimbursements revenues, of which $1.62 million was generated from the Addison Corporate Center tenants and $0.14 million from the residential Apartments. The Company acquired the two residential apartments on March 5, 2021; thus, they only generated one month of rental revenues. There were no rental revenues during the six months ended December 31, 2020 as the Company did not own any real estate properties. Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the nine months ended March 31, 2022 and 2021 was $4.52 million and $2.92 million, respectively. During the nine months ended March 31, 2022, we received $3.40 million of distributions from operations, sales, and liquidations as compared to $1.40 million during the nine months ended March 31, 2021. During the nine months ended March 31, 2022, we received dividends, interest, and other investment income of $1.12 million as compared to $1.52 million received during the nine months ended March 31, 2021. Operating expenses: The Company’s base management, portfolio structuring, and subordinated incentive fees were based on the investment advisory agreement that was effective through December 31, 2020, and, subsequent to December 31, 2020, based upon the base management and advisory fees under the advisory agreement that was effective January 1, 2021. 42 Table of Contents Asset/base management fee: The asset management fees under the new advisory agreement for the nine months ended March 31, 2022 and three months ended March 31, 2021 were $2.03 million and $0.68 million, respectively. The base management fee under the previous advisory agreement for the six months ended December 31, 2020 was $1.34 million. The asset management fees are essentially on the same terms as the base management fees the Company was paying the Adviser prior to 2021, namely based upon a percentage of Invested Capital, which is equal to the amount calculated by multiplying the total number of outstanding common shares, preferred shares, and the partnership units (units in our operating partnership issued by us and held by persons other than us) issued by the Company by the price paid for each or the value ascribed to each in connection with their issuance. The increase of $0.01 million, or 0.8% was due to a slight increase in the invested capital by $1.73 million from $134.12 million as of March 31, 2021, to $135.85 million as of March 31, 2022. Incentive management fee or subordinated incentive fee: Under the new Advisory Management Agreement, the Company pays an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. Under the previous advisory agreement that was effective through December 31, 2020, the subordinated incentive fee had two components: a Capital Gains Fee and an Income Fee. The Capital Gains Fee was based on realized gains (including the distributions received from sales/capital transactions) and the Income Fee was based on net investment income. The Company did not incur any incentive management fee for the nine months ended March 31, 2022. Similarly, the Company did not incur any subordinated incentive fee (Capital Gains Fee or Income Fee) during the nine months ended March 31, 2021. This was because the cumulative net investment income and net realized gains were below the threshold of 7% of Contributed Capital. Administrative cost reimbursements and Transfer agent reimbursements: Costs reimbursed to MacKenzie for the nine months ended March 31, 2022, were $0.46 million as compared to $0.47 million for the nine months ended March 31, 2021. The slight decrease was due to a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to March 31, 2021, as a result of the decrease in the Company’s capital raising activities. Transfer agent cost reimbursement paid to MacKenzie for nine months ended March 31, 2022 and 2021 were $0.08 million and $0.09 million, respectively. Property operating and maintenance expenses: Operating and maintenance expenses mainly consists of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of the Company’s commercial and residential real estate assets. During the nine months ended March 31, 2022, the Company incurred operating and maintenance expenses of $4.71 million, of which $3.92 million mainly incurred in the operation of Adison Corporate Center and Hollywood Property. Operating and maintenance expenses incurred in the operation of two residential apartments were $0.79 million. During the three months ended March 31, 2021, the Company incurred operating and maintenance expenses of $1.15 million, of which $1.09 million mainly incurred in the operation of Adison Corporate Center. Operating and maintenance expenses incurred in the operation of two residential apartments were $0.06 million since the properties was acquired and in operating for only one month. The Company did not have such expenses during the six months ended December 31, 2020 as it did not own and operate any real estate assets as of December 31, 2020. Depreciation and amortization: During the nine months ended March 31, 2022, the Company recorded depreciation and amortization of $3.23 million, of which $2.78 million was the depreciation and amortization of real estate and intangible assets it owned through the Operating Partnership. $0.45 million of the total was related to the depreciation and amortization of real estate assets and intangibles owned through Madison and PVT. During the three months ended March 31, 2021, the Company recorded depreciation and amortization of $0.98 million, of which $0.80 million was the depreciation and amortization of real estate and intangible assets it owned through the Operating Partnership. $0.18 million of the total related to the depreciation and amortization of real estate assets and intangibles owned through Madison and PVT. The Company did not have such expenses during the six months ended December 31, 2020 as it did not own and operate any real estate assets as of December 31, 2020. During the six months ended December 31, 2020, the Company had deferred offering costs amortization of $0.34 million, which was related to offering costs incurred by the Company on its third public offering that terminated in October 2020. The remaining unamortized balance of those deferred offering costs were fully amortized in October 2020 after the termination of the offering. Therefore, there was no such amortization during the nine months ended March 31, 2022. 43 Table of Contents Interest expense: Interest expense for the nine months ended March 31, 2022 was $1.42 million, of which $1.05 million was incurred on the notes payable associated with the Addison Corporate Center and Hollywood Property, and $0.35 million was incurred on the two mortgage notes payable associated with the two residential apartments. Interest expense for the three months ended March 31, 2021 was $0.27 million, of which $0.23 million was the interest expense incurred on the notes payable associated with the Addison Corporate Center and $0.04 million was the interest expense on the two mortgage notes payable associated with the two residential apartments. The Company did not incur any interest expense during the six months ended December 31, 2020 as it did not have any notes payable outstanding as of December 31, 2020. Other operating expenses: Other operating expenses include professional fees, directors’ fees, printing and mailing expenses, and other general and administrative expenses. Other operating expenses for the nine months ended March 31, 2022 and 2021, were $0.90 million and $0.53 million, respectively. The increase in other operating expenses is due to two reasons: (i) an acquisition of new property, Hollywood Property in October 2021, resulting in larger amount of general and administrative operating expenses during the nine months ended March 31, 2022, and (ii) the two existing properties, Pon De Leo and Commodore, under the Operating Partnership reporting full nine months of operation during nine months ended March 31, 2022 as compared to less than one month of operation during the nine months ended March 31, 2021 as the properties were acquired in March 2021. Net realized gain/loss on investments: During the nine months ended March 31, 2022, the Company had realized gain of $9.46 million as compared to $1.74 million during the nine months ended March 31, 2021. Total realized gains for the nine months ended March 31, 2022, were realized from sale of three publicly traded REIT securities with total realized gains of $4.26 million, thirteen non-traded REIT securities with net realized gain of $4.28 million, and a limited partnership interest with total realized gains of $0.92 million. Total realized gains for the nine months ended March 31, 2021, were realized from sale of eighteen publicly traded REIT securities with total realized gains of $1.89 million and three non-traded REIT securities with net realized gain of $0.04 million offset by a realized loss of $0.19 million from two limited partnership interests. Net unrealized gain/loss on investments: During the nine months ended March 31, 2022, we recorded net unrealized gains of $6.18 million, which were net of $2.14 million of unrealized gains reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains excluding the reclassification adjustment for the nine months ended March 31, 2022, were $8.32 million, which resulted from fair value appreciation of $7.68 million from limited partnership interests, $0.62 million from non-traded REIT securities, $0.01 million from investment trust and $0.01 million from publicly traded REIT securities. Nine months ended March 31, 2021, net unrealized gains and losses are discussed in two periods; three months ended March 31, 2021 as a REIT and six months ended December 31, 2020 as a BDC. Three months ended March 31, 2021: During the three months ended March 31, 2021, we recorded net unrealized gains of $1.16 million and did not have any reclassification adjustments as the accumulated unrealized gains and losses as of December 31, 2020 on all investments were recorded as carrying value adjustments due to the termination of the Company’s BDC status. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains for the three months ended March 31, 2021, resulted from fair value appreciations of $0.84 million from limited partnership interests and $0.32 million from non-traded REIT securities. 44 Table of Contents Six months ended December 31, 2020: During the six months ended December 31, 2020, we recorded net unrealized losses of $10.14 million, which were net of $0.81 million of unrealized gains reclassification adjustments. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized losses excluding the reclassification adjustment for the six months ended December 31, 2020, were $9.33 million, which resulted from fair value depreciation of $7.32 million from limited partnership interests, $1.36 million from non-traded REIT securities, and $0.65 million from publicly traded REIT securities. The large decrease in fair value of partnership interests was mainly due to the decline in the underlying property value of the Operating Partnership before consolidation resulting from unfavorable leasing activities as a result of the COVID-19 pandemic. Income tax provision (benefit): Income tax provision for nine months ended March 31, 2022 and 2021 are discussed above under the three months ended section. Liquidity and Capital Resources Capital Resources: We offered to sell up to 5 million shares under our first public offering and up to 15 million shares each under our second and third public offerings. As of March 31, 2022, the Company has raised total gross proceeds of $119.10 million from the issuance of shares under the three public offerings, $42.46 million from our first public offering, which concluded in October 2016, $67.99 million from the second public offering, which concluded in October 2019, and $8.65 million from our third public offering, which concluded in October 2020. In addition, we have raised $12.20 million from the issuance of shares under our dividend reinvestment plan (“DRIP”) . Of the total capital raised from the public offerings as of March 31, 2022, we have used $11.07 million to repurchase shares under the Company’s share repurchase program. In April 2021, we filed a preliminary offering statement pursuant to Regulation A with the SEC to sell up to $50,000,000 of shares of the Company’s Series A preferred stock at an initial offering price of $25.00 per share (the “Offering Circular”). The sale of shares pursuant to the offering began after the Offering Circular was qualified by the SEC in November 2021. As of March 31, 2022, we have raised $1.98 million from the sale of preferred stock. We plan to fund future investments with the net proceeds raised from our preferred equity offering and any future offerings of securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities. While we were a BDC, we did not borrow money on a long-term basis or issue debt securities at the Company level; however, now that our BDC status is withdrawn, we may borrow money within the underlying companies in which we have majority ownership. In addition, from time to time we may draw on the margin line of credit on a temporary basis to bridge our investment purchases and sales or capital raising. We intend to utilize leverage to enhance the total returns of our portfolio, and we expect to have greater flexibility in raising debt capital, following the withdrawal of our BDC election. Historically, we have only been able to access leverage at attractive costs through a credit facility. We also expect to have greater flexibility in issuing securities with common equity participation features (such as warrants and convertible notes) and/or additional classes of stock (such as preferred) in order to facilitate capital formation now that we are no longer subject to the restrictions of the 1940 Act. Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the board of directors at least quarterly. The maximum amount of such borrowing will no longer be limited by the 1940 Act. We used the funds raised from our public offerings to invest in portfolio companies, paying cash dividends to holders of our common stock (from investment income and realized capital gains), and paying operating expenses. The Company finished the three months ended March 31, 2022 with cash and cash equivalents, restricted cash, and receivables of $42.03 million, and approximately $3.43 million of current liabilities. Because of its strong liquidity and the liquidity preservation measures taken by the board, the Company is currently capable of meeting all of its obligations and continue its operations for the foreseeable future. The Company intends to continue to qualify as a REIT and to meet the associated testing requirements, including paying out at least 90% of its taxable income. 45 Table of Contents Cash Flows: Nine months ended March 31, 2022 (Successor basis): For the nine months ended March 31, 2022, we experienced a net increase in cash of $32.03 million. During this period, we generated cash of $2.74 million from our operating activities, $15.04 million from our investing activities and $14.25 million in our financing activities. The net cash inflow of $2.74 million from operating activities resulted from $7.58 million of rental revenues and $4.52 million of investment income offset by $9.36 million of cash used in operating expenses and $0.04 million of other expenses. The net cash inflow of $15.04 million from investing activities resulted from real estate acquisitions through our subsidiaries of $22.85 million, investment acquisition deposit of $0.90 million and purchases of equity investments of $13.79 million offset by cash inflows of $30.33 million from sale of investments and $22.25 million from distributions received from our investments that are considered return of capital. The net cash inflow of $14.25 million from financing activities resulted from payment of dividends of $1.96 million, $0.16 million redemption of common stocks, payment of deferred finance cost amounting to $0.78 million, payment of syndication cost amounting $0.52 million, capital distributions to non-controlling interests holders amounting to $0.01 million and payment on existing note payables of $1.29 million offset by cash inflows of contributions by non-controlling interests holders amounting to $0.86 million, $1.98 million proceeds from the issuance of preferred stock, $0.01 million change in capital pending acceptance, and $16.12 million proceeds from note payables. Three months ended March 31, 2021 (Successor basis): For the three months ended March 31, 2021, we experienced a net decrease in cash of $10.15 million. During this period, we generated cash of $0.54 million from our operating activities and $15.10 million from our financing activities and used $25.80 million in our investing activities. The net cash inflow of $0.54 million from operating activities resulted from $2.18 million of rental revenues and $1.48 million of investment income offset by $3.12 million of cash used in operating expenses. The net cash outflow of $25.80 million from investing activities resulted from real estate acquisitions through our subsidiaries of $28.62 million and purchases of equity investments of $7.38 million offset by cash inflows of $8.58 million from sale of investments and $1.62 million from distributions received from our investments that are considered return of capital. The net cash inflow of $15.11 million from financing activities resulted from note payable proceeds of $15.13 million received for financing the real estate acquisitions and $0.20 million of capital contributions received from the non-controlling interest holders offset by payments on existing note payable of $0.22 million. Six months ended December 31, 2020 (Predecessor basis): For the six months ended December 31, 2020, we experienced a net increase in cash of $5.20 million. During this period, we generated cash of $3.14 million from our operating activities, $1.93 million from investing activities and $0.13 million from our financing activities. The net cash inflow of $3.14 million from operating activities resulted from $10.94 million from distributions received from our investments that are considered return of capital and $5.26 million from sales and liquidations of investments offset by $12.69 million of cash used in purchasing investments and $0.37 million used in operating expenses, net of investment income. The net cash inflow of $1.93 million from investing activities resulted from the consolidation of the Operating Partnership as of December 31, 2020. The net cash inflow of $0.13 million from financing activities resulted from the sale of shares under our third public offering with gross proceeds of $0.14 million (net of $0.09 million of decrease in capital pending acceptance) offset by cash outflows of $0.01 million from payments of selling commissions and fees. 46 Table of Contents Contractual Obligations We have entered into two contracts under which we have material future commitments: (i) the Advisory Agreement, under which the Real Estate Adviser serves as our adviser, and (ii) the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Advisory Agreement in future periods will be (i) a percentage of the value of our Invested Capital, (ii) Acquisition Fees, and (iii) incentive fees based on our performance above specified hurdles. Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However, if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal. Borrowings We do not have any current plans to borrow money at the Company level. In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates. While we do not have any plans to borrow money at the Parent Company level, we borrow money within the underlying companies in which we have majority ownership. As of March 31, 2022, total loan outstanding at the underlying companies amounted to $52,758,133. Critical Accounting Policies The financial statements included in this report are based on the selection and application of critical accounting policies, which require management to make significant estimates and assumptions. Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments. There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2021, included in the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2021. Distributions to Stockholders We pay quarterly distributions to stockholders to the extent that we have income from operations available. Our quarterly distributions, if any, will be determined by our board of directors after a review and distributed pro-rata to holders of our shares; we declare distributions on a monthly basis, but pay each quarter. Any distributions to our stockholders will be declared out of assets legally available for distribution. In no event are we permitted to borrow money to make distributions if the amount of such distributions would exceed our annual accrued and received revenues, less operating costs. Distributions in kind are not permitted, except as provided in our Charter. We have elected to be treated as a REIT under the Code. As a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. We are also subject to tax on built-in gains we realize during the first five years following REIT election. Our DRIP provides for reinvestment of our dividends and other distributions on behalf of stockholders for any individual stockholder who elects to participate in the DRIP, provided that the DRIP is permitted by the state in which the stockholders resides. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, the Company’s board of directors suspended regular quarterly distributions to the Company’s stockholders. However, on May 10, 2021, the board of directors reinstated the quarterly distributions after reassessing the cash flow of the Company and intends to continue such distribution so long as it is supported by the previous quarter’s income, but may increase or decrease the distribution accordingly . 47 Table of Contents For the quarter ended March 31, 2022, the Board approved a quarterly dividend of $0.375 per Series A preferred share payable at the rate of $0.125 per month. The Board also approved a quarterly dividend of $0.09 per common share to the holders of record as of March 31, 2022. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our current securities portfolio, as well as our future investments in securities, primarily consists of equity and debt securities issued by smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments in these securities are considered speculative in nature. Our investments often include securities that are subject to legal or contractual restrictions on resale that adversely affect the liquidity and marketability of such securities. As a result, we are subject to risk of loss which may prevent our stockholders from achieving price appreciation, dividend distributions and a return of their capital. However, now that we are no longer a BDC, most of our investments will be investments in real estate or interests in real estate that are not subject to the same market risks, but are instead subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions. At March 31, 2022, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 28 % of our total assets as of that date. As discussed in Note 4 – Investments, to our consolidated financial statements, these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment portfolio also includes shares of publicly traded REITs, which are valued at recently quoted trading prices. Our investment strategy represents a high degree of business and financial risk due primarily to the general illiquidity of our investments. We may make short-term investments in cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less, pending investments in portfolio companies made according to our principal investment strategy. Item 4. CONTROLS AND PROCEDURES Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting (identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the 1934 Act) during the fiscal quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 48 Table of Contents PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 1A. RISK FACTORS There have been no material changes to our risk factors discussed in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended June 30, 2021.