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., together with its subsidiaries as discussed in Note 1 of the financial statements included in this report (collectively, 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. An economic downturn could impair our ability to continue to operate, which could lead to the loss of some or all of our investments, 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, as updated by the Company’s subsequent filings with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Further, we may experience fluctuations in our operating results due to a number of factors, including the effect of 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 Investment Company Act of 1940 (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 generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) 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 REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our wholly owned subsidiary, MacKenzie NY Real Estate 2 Corp. (“MacKenzie NY 2”), 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. Investment Plan 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. 38 Table of Contents 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 Advisers’ 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 Advisers estimate to be the actual or potential value of the real estate. We intend to continue our historical activities related to launching tender offers to purchase shares of non-traded REITs in order to boost our short-term cash flow and to support our distributions, subject to the constraint that such securities will not exceed 20% of our portfolio. We believe this niche strategy will allow us 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, Reimbursement and Other Property Income We generate rental revenue by leasing office space and apartment units to a building’s tenants. These tenant leases fall under the scope of ASC Topic 842 and are classified as operating leases. Revenues from such leases are recognized on a straight-line basis over the terms of the lease agreements. Investment Income We generate revenues in the form of 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 real estate properties operating expenses, including interest expenses on debt obtained to finance our property acquisitions, as detailed below. Our investment advisory fees compensate our Investment Adviser and Real Estate Adviser for their 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; 39 Table of Contents • 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, long distance telephone and staff; • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the Exchange 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. Portfolio Investment Composition As of September 30, 2025, we owned interests in various real estate limited partnerships and REITs. We also had short positions in certain publicly traded REITs, which are presented as “Securities sold, not yet purchased, at fair value.” In addition, we held investments in entities that own real estate where we have sufficient control for the investments to be considered non-securities for purposes of the Investment Company Act of 1940, but not enough control to require consolidation of their financial statements with ours. These investments are reported as “Equity method investments, at fair value.” The following table summarizes the composition of our investments at fair value as of September 30, 2025, and June 30, 2025: Fair Value Investments, at fair value September 30, 2025 June 30, 2025 Highlands REIT, Inc. $ 210,854 $ 37,403 Moody National REIT II, Inc. 789 2,963 National Healthcare Properties, Inc. 214,125 740,894 SmartStop Self Storage REIT, Inc. - Class A 626,217 29,154 SmartStop Self Storage REIT, Inc. - Class T 17,465 - Starwood Real Estate Income Trust, Inc. - Class S 884,267 939,114 Total $ 1,953,717 $ 1,749,528 Fair Value Securities sold, not yet purchased, at fair value September 30, 2025 June 30, 2025 SmartStop Self Storage REIT, Inc. - Class A $ 301,120 $ - Fair Value Equity method investments, at fair value September 30, 2025 June 30, 2025 Lakemont Partners, LLC $ 706,520 $ 711,740 Martin Plaza Associates, LP 538,933 531,544 Westside Professional Center I, LP 852,912 882,167 Total $ 2,098,365 $ 2,125,451 Properties In addition to our investment securities, we currently own and manage nine commercial real estate properties: Satellite Place Office Building located in Duluth, GA, 1300 Main Office Building, First & Main Office Building and Main Street West Office Building located in Napa, CA, Woodland Corporate Center located in Woodland, CA, 220 Campus Lane Office Building, Green Valley Medical Center and Green Valley Executive Center located in Fairfield, CA and One Harbor Center located in Suisun, CA and five residential apartments: Aurora at Green Valley located in Fairfield, CA, Commodore Apartments and The Park View Apartments, located in Oakland, CA, Hollywood Apartments located in Los Angeles, CA, and the Shoreline Apartments located in Concord, CA. Aurora at Green Valley is owned through our subsidiary MRC Aurora, LLC. 1300 Main Office Building, First & Main Office Building, Main Street West Office Building, Woodland Corporate Center, Hollywood Apartments, Shoreline Apartments and Green Valley Medical Center are owned through our subsidiary, the Operating Partnership; the Commodore Apartments are owned through our subsidiary, Madison; The Park View Apartments is owned through our subsidiary, PVT and Satellite Place Office Building is owned through our subsidiary, MacKenzie Satellite Place Corp. 40 Table of Contents We own our properties through our subsidiaries, which are listed in the table below. Property: Property Owners Commodore Apartments Madison-PVT Partners LLC The Park View Apartments PVT-Madison Partners LLC Hollywood Apartments PT Hillview GP, LLC Shoreline Apartments MacKenzie-BAA IG Shoreline LLC Aurora at Green Valley MRC Aurora, LLC Satellite Place Office Building MacKenzie Satellite Place Corp. First & Main Office Building First & Main, LP 1300 Main Office Building 1300 Main, LP Woodland Corporate Center Woodland Corporate Center Two, LP Main Street West Office Building Main Street West, LP 220 Campus Lane Office Building 220 Campus Lane, LLC Green Valley Executive Center GV Executive Center, LLC One Harbor Center One Harbor Center, LP Green Valley Medical Center Green Valley Medical Center, LP Commercial Properties: 1300 Main Office Building contains 20,145 square feet, of which approximately 13,900 square feet is office space and the remainder is designated as retail space. As of September 30, 2025, the property is 85% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Wilson Daniels Wine Wholesaler 6,712 $ 375,555 06/15/2031 1, 5 years Norcal Gold Real Estate 2,896 $ 181,297 03/31/2026 No Bao Ling Li Restaurant 3,212 $ 174,960 11/30/2030 No Catered With Class Restaurant 2,409 $ 104,618 03/02/2031 1, 3 years The following information pertains to lease expirations at 1300 Main Office Building: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2026 1 2,896 $ 181,297 19% 2028 1 266 $ 6,000 1% 2029 1 1,059 $ 70,409 7% Thereafter 4 12,916 $ 690,795 73% 41 Table of Contents First & Main Office Building contains 27,398 square feet, of which approximately 19,000 square feet is office space and the remainder is designated as retail space. As of September 30, 2025, the property is 79% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options GVM Law Legal Services 9,470 $ 518,242 09/20/2026 2, 5 years Brotlemarkle Accounting Services 4,366 $ 251,420 07/31/2030 2, 5 years Napa Palisades Restaurant 3,462 $ 199,684 08/31/2040 No Bazan Cellars , LLC Retail 1,415 $ 82,447 10/29/2032 No The following information pertains to lease expirations at First & Main Office Building: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2026 1 9,470 $ 518,242 42% 2027 1 1,135 $ 75,376 6% 2029 1 1,307 $ 72,480 6% Thereafter 4 9,815 $ 561,092 46% Main Street West Office Building contains 38,135 square feet, of which approximately 32,700 square feet is office space and the remainder is designated as retail space. As of September 30, 2025, the property is 53% occupied by 8 tenants. AUL Corporation elected to terminate its lease as of February 3, 2025. During the year ended June 30, 2025, we recorded an impairment loss of $9,500,167 on Main Street West Office Building due to the early lease termination of AUL Corporation, and the foreclosure proceedings due to maturity default of the debt secured by the property. On March 25, 2025, the Company entered into the Forbearance Agreement with the Prior Lender and as part of the Forbearance Agreement, the Company paid down $5 million on the loan and took control of the property from the receiver in April 2025. The loan from the Prior Lender was paid off on June 6, 2025, with the proceeds from a new loan from EverTrust Bank. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options State of California Health Care 4,697 $ 259,721 10/31/2028 No Strategies To Empower People Health Care 4,875 $ 228,216 01/28/2028 No Azzurro Pizzeria Restaurant 2,735 $ 147,888 03/31/2029 1, 5 years Bay Area Legal Aid Legal Services 2,135 $ 126,610 12/15/2027 1, 5 years The following information pertains to lease expirations at Main Street West Office Building: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2025 1 938 $ 62,544 6% 2026 2 2,940 $ 122,000 11% 2027 1 2,135 $ 126,610 12% Thereafter 4 14,231 $ 747,712 71% 42 Table of Contents Satellite Place Office Building contains 134,785 square feet, all of which is office space. As of September 30, 2025, the property is approximately 33% occupied by 5 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Codoxo Healthcare Software 13,956 $ 298,468 06/30/2030 No Polytron Title Services 10,737 $ 218,878 04/30/2031 2, 5 years Ampirical Engineering Consulting 9,790 $ 209,490 09/30/2030 2, 5 years OS National LLC Title Services 6,188 $ 122,522 11/30/2028 1, 3 years The following information pertains to lease expirations at Satellite Place Office Building: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2028 1 6,188 $ 122,522 13% 2029 1 4,383 $ 98,632 10% 2030 2 23,746 $ 507,958 54% Thereafter 1 10,737 $ 218,878 23% Woodland Corporate Center contains 37,034 square feet, of which 7,797 square feet are laboratories and the rest is office space. All of the laboratory space is occupied by Agtech Innovation. As of September 30, 2025, the property is 91% occupied by 12 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Agtech Innovation Research and Development 12,940 $ 340,365 04/09/2031 08/31/2032 12/21/2032 No Children’s Home Society Non-Profit Education 4,042 $ 152,399 10/31/2028 No Burger Rehab Physical Therapy 4,013 $ 124,635 09/22/2028 No California Dept of Rehabilitation Rehabilitation Services 3,057 $ 94,788 10/31/2025 No The following information pertains to lease expirations at Woodland Corporate Center: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2025 1 3,057 $ 94,788 9% 2026 1 1,433 $ 47,450 5% 2027 2 2,160 $ 85,892 8% Thereafter 9 26,996 $ 830,698 78% 43 Table of Contents Green Valley Executive Center contains 46,101 square feet, of which approximately 41,600 square feet is office space and the remainder is designated as retail space. As of September 30, 2025, the property is 98% occupied by 15 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Community Housing Opportunities Real Estate 8,510 $ 349,164 08/31/2026 No Arkshire Financial, LLC Insurance 7,016 $ 310,135 02/28/2027 No Larsen & Toubro Limited, Inc. Multinational Conglomerate 5,130 $ 277,014 02/13/2028 No Sticky Rice Restaurant 4,388 $ 189,475 08/17/2034 No The following information pertains to lease expirations at Green Valley Executive Center: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2026 3 13,567 $ 569,950 28% 2027 3 9,147 $ 418,339 21% 2028 2 6,975 $ 364,242 18% Thereafter 7 15,320 $ 677,993 33% One Harbor Center contains 49,569 square feet, all of which is office space. As of September 30, 2025, the property is 74% occupied by 12 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Shimmick Construction Company, Inc. Construction 10,221 $ 346,332 05/15/2027 No Equiventure Health Care 6,446 $ 232,200 11/16/2033 4, 5 years Wiseman Company Mgt. Real Estate 4,883 $ 172,008 06/01/2028 No Dwight Davenport Financial Services 2,592 $ 105,525 07/31/2028 No The following information pertains to lease expirations at One Harbor Center: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2025 1 953 $ 36,960 3% 2026 6 9,662 $ 362,100 27% 2027 1 10,221 $ 346,332 26% Thereafter 4 15,882 $ 586,223 44% 44 Table of Contents Green Valley Medical Center contains 31,590 square feet, of which approximately 20,100 square feet is office space, approximately 8,300 square feet is health care space, and the remainder is designated as retail space. As of September 30, 2025, the property is 94% occupied by 14 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Annual Base Rent Lease Expiration Renewal options Cal OES State Emergency Services 7,605 $ 294,021 08/31/2031 No California Forever Real Estate 3,341 $ 152,400 10/17/2028 No Jethro Nicolas et al Health Care 3,409 $ 143,700 04/14/2035 No Green Valley Oral Surgery Health Care 2,179 $ 102,429 05/07/2029 2, 10 years The following information pertains to lease expirations at Green Valley Medical Center: Year Number of Leases Expiring Total Area Annual Base Rent Percentage of Gross Rent 2025 1 889 $ 32,076 3% 2026 1 1,332 $ 69,664 6% 2027 1 1,515 $ 65,724 5% Thereafter 11 25,898 $ 1,035,276 86% 220 Campus Lane Office Building was purchased in September 2023. The property was vacant at the time of acquisition. Following the acquisition, we renovated the building and commenced leasing activities. As of September 30, 2025, the building was approximately 29% leased, with seven tenants occupying an aggregate of 12,526 square feet. The annualized base rent from these tenants totals approximately $420,648. Residential Properties: Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units. As of September 30, 2025, Commodore Apartments is approximately 93.8% occupied. The Park View Apartments is also a mid-rise apartment building built in 1929 and has 39 units. As of September 30, 2025, The Park View Apartments is approximately 97.4% occupied. Hollywood Apartments, located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 54 units. The property contains approximately 38,000 square feet of net rentable apartment area and 8,610 square feet of retail space. All of the retail space is currently occupied by restaurants and nightclubs. As of September 30, 2025, the apartments units are 87% occupied. Shoreline Apartments is a mid-rise apartment building built in 1967 and renovated in 2015 which has 84 units. As of September 30, 2025, Shoreline Apartments building is approximately 92.9% occupied. Aurora at Green Valley is a newly constructed multi-family residential community consisting of 72 units across three buildings, along with a clubhouse. The project was financed through $10.0 million of preferred equity capital (including $7.23 million from outside investors) and a $17.15 million construction loan from Valley Strong Credit Union. The clubhouse opened in mid-June 2025 for pre-leasing activity. The first residential building was completed in July 2025, with leasing commencing in August 2025. The remaining two buildings were completed in August and September 2025, with leasing commencing shortly thereafter. As of September 30, 2025, the property was approximately 19.4% occupied. As of the date of this report, the property is 48.61% leased. 45 Table of Contents The following table provides information regarding each of the residential properties: Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit The Park View Apartments Multi-Family Residential Oakland, CA 31,020 39 97.4% $ 1,104,837 $ 2,423 Commodore Apartments Multi-Family Residential Oakland, CA 26,635 48 93.8% $ 862,293 $ 1,597 Hollywood Apartments Multi-Family Residential Los Angeles, CA 37,971 54 87.0% $ 1,197,722 $ 2,124 Hollywood Apartments (Retail Space) Retail Los Angeles, CA 8,610 1 100.0% $ 343,357 $ 28,613 Shoreline Apartments Multi-Family Residential Concord, CA 68,350 84 92.9% $ 1,989,391 $ 2,125 Aurora at Green Valley Multi-Family Residential Fairfield, CA 54,936 72 19.4% $ 421,920 $ 2,511 In addition to our commercial and residential real estate properties, we own a vacant parcel adjacent to the 220 Campus Lane Office Building in Fairfield, California (the “Campus Lane Land”). This parcel of land was acquired with the objective of developing multi-family residential community and is owned by the Operating Partnership through its subsidiary, Campus Lane Residential, LLC (“Campus Lane Residential”) . Campus Lane Land Development (known as Blue Ridge) We acquired the Campus Lane Land in September 2023 with the long-term objective of developing it into a multi-family residential community. We are preparing to launch this project, known as Blue Ridge, which will consist of 84 luxury multi-family units in Solano County, one of the fastest-growing counties in California. The entitlement process for the vacant land is currently underway. Our goal is to commence construction in spring 2026; however, this is subject to the city’s approval of our development application submitted in April 2024 and to securing the necessary financial resources . We are currently evaluating financing alternatives to fund the development of this project. We currently do not have plans for any other major renovation or development of any properties except for our 220 Campus Lane Office Building and Blue Ridge, as discussed above. Each property is being held for income generation and potential value appreciation through increased occupancy and/or rental rates. We maintain property and liability insurance policies on all properties, which we believe are adequate and in line with industry standards. Current Market and Economic Conditions The markets in which our properties operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors. Our West coast multi-family residential properties are generally restricted from raising rents significantly by local rent control laws. 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 properties, 1300 Main Office Building, First & Main Office Building, Main Street West Office Building, One Harbor Center, Satellite Place Office Building, Woodland Corporate Center, 220 Campus Lane Office Building and Green Valley Executive Center are all Class A suburban office properties and are located in Napa, Woodland, Suisun City and Fairfield, California and Duluth, Georgia. Available office space is plentiful in each market in which our office properties are located, which magnifies the competitive challenges that we face in these markets. 46 Table of Contents The broader economy has been experiencing increased levels of inflation, higher interest rates and tightening monetary and fiscal policies. The Federal Reserve increased the federal funds rate multiple times in 2022 and 2023 then paused hikes in the earlier part of 2024 before implementing rate cuts in the fourth quarter. We currently have fixed and variable interest rates for our loans. The rise in overall interest rates caused an increase in our variable-rate borrowing costs resulting in an increase in interest expense. The cumulative effect of the prior rate increases may adversely impact real estate asset values. In addition, a prolonged period of high and persistent inflation could cause an increase in our expenses. The current market and economic conditions could have a material impact on our business, cash flow and results of operations. It could also impact our ability to find suitable acquisitions, sell properties, and raise equity and debt capital. Results of Operations Comparison of the Three Months Ended September 30, 2025 and 2024. The commercial and residential properties owned by us during the three months ended September2025 and 2024 are as follows: Three Months Ended September 30, 2025 2024 Commercial properties Commercial properties Satellite Place Office Building Satellite Place Office Building First & Main Office Building First & Main Office Building 1300 Main Office Building 1300 Main Office Building Main Street West Office Building Main Street West Office Building Woodland Corporate Center Woodland Corporate Center 220 Campus Lane Office Building 220 Campus Lane Office Building Green Valley Executive Center Green Valley Executive Center One Harbor Center One Harbor Center Green Valley Medical Center Residential properties Residential properties Commodore Apartments Commodore Apartments The Park View Apartments The Park View Apartments Hollywood Apartments Hollywood Apartments Shoreline Apartments Shoreline Apartments Aurora at Green Valley Rental, reimbursements and other property income: Rental and reimbursement revenues are generated from our commercial and residential real estate properties. During the three months ended September 30, 2025, we generated $4.54 million in rental and reimbursements revenues, of which $3.01 million was generated from our nine commercial properties and $1.53 million was generated from our five residential properties. During the three months ended September 30, 2024, we generated $4.95 million in rental and reimbursements revenues, of which $3.47 million was generated from our nine commercial properties, and $1.48 million was generated from our four residential properties. The total decrease in rental revenues was mainly due to the early lease termination by one tenant at our Satellite Place Office Building in December 2024 and another tenant at our Main Street West property in February 2025. The decrease was partly offset by an increase in rental income from our acquisition of Green Valley Medical Center in August 2024. Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the three months ended September 30, 2025 and 2024, were $0.06 million and $0.02 million, respectively. During the three months ended September 30, 2025, we did not receive any distributions from operations, sales, and liquidations. During the three months ended September 30, 2024, we received minimal distributions from operations, sales, and liquidations. During the three months ended September 30, 2025, we received dividends, interest, and other investment income of $0.06 million as compared to $0.02 million received during the three months ended September 30, 2024. The increase was mainly due to the increase in our investment portfolio since September 30, 2024. The remaining increase was due to the interest income from the note receivable from the non-controlling interest holder of PT Hillview, True USA. 47 Table of Contents Expenses: Property operating and maintenance expenses: Operating and maintenance expenses mainly consist 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 our commercial and residential real estate assets. During the three months ended September 30, 2025, we incurred operating and maintenance expenses of $1.89 million, of which $1.16 million were incurred in the operation of our nine commercial properties and $0.73 million were incurred in the operation of our five residential properties. During the three months ended September 30, 2024, we incurred operating and maintenance expenses of $1.88 million, of which $1.19 million were incurred in the operation of our nine commercial properties and $0.69 million were incurred in the operation of our four residential properties. The increase in the operating expenses was mainly due to the completion of the Aurora at Green Valley which consists of three residential buildings and a clubhouse in July 2025. Depreciation and amortization: During the three months ended September 30, 2025, we recorded depreciation and amortization of $2.20 million, of which $1.54 million was attributable to the depreciation and amortization of real estate and intangible assets of our nine commercial properties and $0.66 million was attributable to our five residential properties. During the three months ended September 30, 2024, we recorded depreciation and amortization of $2.28 million, of which $1.79 million was attributable to the depreciation and amortization of real estate and intangible assets of our nine commercial properties and $0.49 million was attributable to our four residential properties. The decrease in total depreciation and amortization of $0.08 million during the three months ended September 30, 2025, was due to the write-off of tenant improvements, leasehold improvements, lease commissions, and in-place lease related to our Satellite Place Office Building due to an early lease termination of its anchor tenant in December 2024. Interest expense: Interest expense for the three months ended September 30, 2025, was $2.02 million, of which $1.16 million was incurred on the mortgage notes payable associated with our nine commercial properties, $0.50 million was incurred on the mortgage notes payable associated with our five residential properties and the debt on the Campus Lane Land, and $0.36 million was incurred on the line of credit agreement and note purchase agreement of the Company. Interest expense for the three months ended September 30, 2024, was $1.89 million, of which $1.14 million was incurred on the mortgage notes payable associated with our nine and $0.75 million was incurred on the mortgage notes payable associated with our four residential properties and the debt on the Campus Lane Land. The total increase of $0.13 million in interest expense during the three months ended September 30, 2025, was due to the Parent Company’s borrowing under the new line of credit with PRES and the Parent Company’s note purchase agreement with Streeterville Capital, LLC during the period ended September 30, 2025, offset by a decrease in the interest expense of Hollywood Apartments, a residential property, due to refinancing in March 2025, Main Street West, a commercial property, due to refinancing in May 2025 and 1300 Main, a commercial property, due to refinancing in November 2024. Unallocated corporate expenses: Unallocated corporate expenses include corporate overhead expenses that are not directly attributable to one of our business segments and include interest expense, asset management fees to related party, general and administrative, professional fees, administrative cost reimbursements to related party, directors’ fees, and transfer agent cost reimbursements to related party. Our asset management and incentive management fees are based on the advisory agreements that were effective January 1, 2021. Asset management fee: The asset management fees for the three months ended September 30, 2025 and 2024, were $0.88 million and $0.85 million, respectively. The slight increase was due to total increase of $8.53 million in total invested capital from $181.93 million as of September 30, 2024 to $190.46 million as of September 30, 2025. 48 Table of Contents Incentive management fee: Under the Advisory Management Agreement, we pay 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 Advisory Management Agreement. We did not incur any incentive management fee for the three months ended September 30, 2025 and 2024. Administrative cost and transfer agent reimbursements: Costs reimbursed to MacKenzie for the three months ended September 30, 2025 were $0.22 million as compared to $0.17 million for the three months ended September 30, 2024. The increase was due to an increase in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to September 30, 2024, as a result of the increase in the number of real estate assets owned by us since September 30, 2024. During the three months ended September 30, 2025, there was no transfer agent cost reimbursement paid to MacKenzie as compared to minimal transfer agent cost reimbursement paid to MacKenzie during the three months ended September 30, 2024. Other corporate operating expenses: Other corporate operating expenses include professional fees, directors’ fees, printing and mailing expense, and other general and administrative expenses. Other operating expenses for the three months ended September 30, 2025 and 2024, were $0.82 million and $0.92 million, respectively. The decrease in other operating expenses was mainly due to the decrease in transfer agent fees since September 30, 2024. Net realized gain (loss) on sale of investments: During the three months ended September 30, 2025, we recorded a net realized loss of $0.70 million as compared to $0.15 million net realized gain during the three months ended September 30, 2024. Total net realized loss for the three months ended September 30, 2025, was realized from the sale of four non-traded REIT securities. Total net realized gain for the three months ended September 30, 2024, was realized from sales of two non-traded REIT securities. Net unrealized gain (loss) on investments: During the three months ended September 30, 2025, we recorded a net unrealized gain of $1.08 million, which was net of $1.22 million of unrealized loss reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of the prior period that are realized during the current period. Accordingly, the net unrealized losses excluding the reclassification adjustment for the three months ended September 30, 2025, were $0.14 million, which resulted from fair value depreciations of $0.03 million from general partnership interests and $0.11 million from non-traded REIT securities. During the three months ended September 30, 2024, we recorded a net unrealized loss of $0.14 million, which was net of $0.10 million of unrealized gain reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized losses excluding the reclassification adjustment for the three months ended September 30, 2024 were $0.04 million, which resulted from fair value depreciations of $0.12 million from general partnership interests, $0.02 million from limited partnership interests and fair value appreciations of $0.10 million from non-traded REIT securities. 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 generally distributes at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and excluding any capital gain) 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 REIT taxable income, it will be subject to U.S. federal corporate income tax on its undistributed taxable income. In addition, it will be subject to a 4% excise tax if the actual amount that it pays to its stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. 49 Table of Contents The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2024. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2024. In addition, for the tax year 2025, the Parent Company intends to pay the requisite amounts of dividends during the year and meet other REIT requirements such that the Parent Company 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 2025. MacKenzie NY 2 and MRC QRS are subject to corporate federal and state income tax on their taxable income at regular statutory rates. As of September 30, 2025, they did not have any taxable income for tax year 2024 and 2025. Therefore, we did not record any tax provisions during any fiscal periods within the tax year 2024 and 2025. MacKenzie Satellite and MRC QRS are qualified REIT subsidiaries of the Parent Company. Therefore, they do not file a separate tax return. The Operating Partnership is a limited partnership. Hollywood Hillview, MacKenzie Shoreline, Madison, PVT, 220 Campus Lane, Campus Lane Residential, GVEC and Innovate Napa are limited liability companies. First & Main, 1300 Main, Woodland Corporate Center Two, Main Street West, One Harbor Center, LP and Green Valley Medical Center, LP are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which, subject to the minority exceptions described in this document, ultimately is the Company. Therefore, no income tax provisions are recorded for these entities. Liquidity and Capital Resources Capital Resources: We offered to sell up to 5 million shares of common stock in our first public offering and up to 15 million shares of common stock in each of our second and third public offerings. We have raised total gross proceeds of $119.10 million from the issuance of common stock under the 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 $15.56 million from the issuance of shares of common stock under the common stock DRIP as of September 30, 2025. Out of the total proceeds from DRIPs, we have utilized a total of $14.28 million to repurchase shares of common stock under the share repurchase program. In November 2021, the SEC qualified our Offering Circular pursuant to Regulation A to sell up to $50,000,000 of shares of our Series A preferred stock at an initial offering price of $25 per share. On October 14, 2022, we amended our Offering Circular and increased the offering to sell up to $75 million of shares of our Series A preferred stock. On November 1, 2023, we further amended our Offering Circular to sell an aggregate of up to $75 million of shares of either our Series A preferred stock or our Series B preferred stock. This post-effective amendment to the Offering Circular was declared effective on November 14, 2023, and terminated on November 1, 2024. We have raised $18.77 million through the sale of our Series A preferred stock, $3.28 million Series B preferred stock and $0.69 million Series C preferred stock pursuant to the Offering Circular as of September 30, 2025. In addition, we have raised $0.06 million from the issuance of shares of Series A and Series B preferred stock under the preferred stock DRIP. In January 2025, the Second Offering Circular was qualified by the SEC for the sale of 1,286,638.62 shares of Series A and 1,267,216.17 shares of Series B preferred stock. The Second Offering Circular was amended in June 2025 to offer up to 647,991 shares of Series A Preferred Stock, 1,166,383 shares of Series B Preferred Stock, and 1,166,383 shares of Series C Preferred Stock. Of these amounts, 150,000 shares of each are reserved for the preferred stock DRIP. On January 15, 2025, our shelf registration statement on Form S-3 for the sale of up to $75 million in common stock, preferred stock, warrants, and units was declared effective by the SEC, and we entered into an equity distribution agreement with Maxim to issue and sell our common stock for an aggregate gross sales price of $20 million pursuant to the at-the-market offering described in the ATM Prospectus, subject to maintaining compliance with General Instruction I.B.6 of Form S-3 which requires that in no event will we sell securities in a public primary offering with a value exceeding more than one-third of our public float in any 12-month period so long as our public float remains below $75 million. As of September 30, 2025, under the ATM offering, we sold 106,316.30 shares with gross proceeds of approximately $1.66 million. In addition, on February 28, 2025, the Company offered and sold 153,403.40 shares of the Company’s common stock, pre-funded warrants to purchase up to 129,226.50 shares of common stock and warrants to purchase up to an aggregate of 423,944.85 shares of common stock. The gross proceeds to the Company from this transaction were approximately $4.80 million before deducting the placement agent’s fees and other offering expenses payable by the Company. In July and August 2025, 129,226.50 common shares were issued upon exercise of all of the pre-funded warrants. All share amounts are presented after giving effect to the Reverse Stock Split. 50 Table of Contents 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. However, we have not raised as much from our preferred equity offering in the past fiscal year as we did in previous years, at least in part due to rising interest rates making the preferred return less attractive. Thus, there is no guarantee that we can raise sufficient funds to meet our goals in terms of growth, strategic or necessary loan rebalancing, and additional investments. We also may fund a portion of our investments through borrowings from banks and issuances of senior securities. We also may borrow money within the underlying companies in which we have majority ownership. We intend to utilize leverage to enhance the total returns of our portfolio. Historically, we were only able to access leverage at attractive costs through a credit facility, but the termination of our BDC status effective December 31, 2020 provided us with greater flexibility in choosing among different alternatives for raising capital through debt, equity participation features (such as warrants and convertible notes) and/or additional classes of stock (such as preferred) in order to facilitate capital formation. 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. We used the funds raised from our public offerings to invest in portfolio companies and to pay operating expenses. We finished the three months ended September 30, 2025, with cash and cash equivalents, and restricted cash of approximately $5.28 million. Our principal demands for cash are to fund operating and administrative expenses, debt service obligations, and dividends on our common and Series A, B and C preferred stock. In addition, we may also use cash to purchase additional properties. We expect to fund our material cash requirements over the next year through a combination of cash on hand, net cash provided by our property operations, new capital raised from our Series A, B and C preferred stock, and new borrowings at the underlying companies. Cash Flows: Three months ended September 30, 2025: For the three months ended September 30, 2025, we experienced a net increase in cash of $1.16 million. During this period, we used net cash of $2.02 million in our operating activities, $4.22 million in our investing activities and generated net cash of $7.40 million in our financing activities. The net cash outflow of $2.02 million from operating activities resulted from $6.46 million used in operating expenses, offset by cash inflows of $4.38 million of rental revenues and $0.06 million of investment income. The net cash outflow of $4.22 million from investing activities resulted from $4.73 million of real estate acquisitions through our subsidiaries, and $0.50 million purchases of equity investments, offset by cash inflow of $0.70 million from sale of investments and $0.31 million from proceeds from investment securities sold, not yet purchased. The net cash inflow of $7.40 million from financing activities resulted from $6.71 million of additional mortgage borrowings, $0.69 million of issuance of Series C preferred stock, $0.63 million of additional notes payable, $0.41 million proceeds from borrowings under the affiliated party line of credit, $0.17 million of issuance of common stock, $0.10 million of issuance of Series B preferred stock and $0.03 million of issuance of Series A preferred stock, offset by cash outflows of $0.38 million capital distributions to non-controlling interests holders, $0.37 million payments on existing mortgage notes payables, $0.23 million payment of dividends to Series A preferred stockholders, $0.14 million payment of financing fees, $0.12 million payment of selling commissions and fees, $0.07 million repayment of finance lease liabilities, $0.01 million payment of dividends to Series B preferred stockholders, $0.01 million change in capital pending acceptance and $0.01 million payment on existing notes payables. Three months ended September 30, 2024: For the three months ended September 30, 2024, we experienced a net decrease in cash of $1.11 million. During this period, we generated cash of $1.32 million in our operating activities, used cash of $6.00 million in our investing activities and generated cash of $3.57 million in our financing activities. The net cash inflow of $1.32 million from operating activities resulted from $4.62 million of rental revenues and $0.03 million of investment income offset by cash outflow of $3.33 million used in operating expenses. 51 Table of Contents The net cash outflow of $6.00 million from investing activities resulted from $6.50 million of real estate acquisitions through our subsidiaries, $0.17 million purchases of equity investments, offset by cash inflow of $0.67 million from sale of investments. The net cash inflow of $3.57 million from financing activities resulted from $5.89 million additional mortgage borrowings, $0.36 million capital contributions by non-controlling interests holders, $0.36 million issuance of Series B preferred stock and $0.05 million issuance of Series A preferred stock, offset by $1.66 million payment of dividends to common stockholders, $0.41 million payment on existing mortgage notes payables, $0.34 million capital distributions to non-controlling interests holders, $0.24 million payment of dividends to Series A preferred stockholders, $0.20 million change in capital pending acceptance, $0.17 million payment of selling commissions and fees, $0.06 million repayment of finance lease liabilities and $0.01 million payment of dividends to Series B preferred stockholders. Material Cash Obligations We have entered into two contracts under which we have material future commitments: (i) the Advisory Management Agreement and the Amended and Restated Investment Advisory Agreement, under which the Advisers serves as our advisers, 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 Management 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. For additional information concerning the terms of these agreements and related fees paid, see Note 7 in the consolidated financial statements included in this report. Borrowings On January 22, 2025, we entered into a revolving line of credit agreement with PRES, an affiliate of the Adviser, of up to $10,000,000. Interest will accrue on any unpaid principal balance on the note at a fixed annual interest rate of 10%. In addition, an origination fee of 2% will be charged on each advance and the sum will be added to the principal balance. The original maturity date of the loan was June 1, 2026. On September 24, 2025, the maturity date was extended to December 31, 2027. The loan requires monthly interest beginning on March 1, 2025, with the remaining principal balance due at maturity. As of September 30, 2025, the Company has borrowed $10 million in entirety, which includes $196,078 of loan origination fees, under the line of credit. We used the proceeds from this credit facility on a short-term basis to bridge the gap between our asset acquisition expenditures and debt refinancing. We expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates. We also borrow money within the underlying companies in which we have majority ownership. The below table presents the total loans outstanding at the underlying companies as of September 30, 2025 and the fiscal years those loans mature: Fiscal Year Ending June 30, : Principal 2026 (remainder) $ 25,586,381 2027 12,348,883 2028 29,048,218 2029 4,805,243 2030 27,428,566 Thereafter 43,495,259 Total $ 142,712,550 52 Table of Contents Three of our underlying companies (Hollywood Hillview, Woodland Corporate Center Two, and Main Street West) had debts that matured during the fiscal year ending June 30, 2025. The Woodland Corporate Center Two loan was refinanced in October 2024, the Hollywood Hillview loan was refinanced in March 2025, and the Main Street West loan was refinanced in May 2025. 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 generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) 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 REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We have DRIPs that provide for reinvestment of our dividends and other distributions on behalf of stockholders for any individual stockholder who elects to participate in the DRIPs, provided that the applicable DRIP is permitted by the state in which the stockholders reside. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. On March 4, 2024, the Board of Directors suspended the common stock share repurchase program and common stock DRIP in connection with trading of its common stock on the OTCQX Best Market. When our common stock became eligible for trading on OTC Markets in April 2024, the share repurchase program automatically terminated, and the Board of Directors will decide whether, and when, to reinstate the common stock DRIP. During the three months ended September 30, 2025, the Board approved the following quarterly dividends: Dividends Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount Per Share Amount September 30, 2025 $ 0.375 $ 285,758 $ 0.750 $ 88,878 * $ 0.563 $ 6,465 *Of the total dividends declared for Series B during the three months ended September 30, 2025, $66,658 was an increase in liquidation preference and $22,220 was the cash dividend. On May 19, 2025, following a review of the Company’s financials, the current economic climate, the potential impact of new tariffs on demand for office and retail space, and the increased likelihood of a near-term recession, the Board of Directors approved the suspension of the regular quarterly dividend on the Company’s common stock effective immediately. This decision was made to preserve liquidity, enable the Company to make further investments in its own properties and developments where prudent, and to provide financial flexibility as to near-term commitments; the suspension will remain in effect until further notice. 53 Table of Contents Critical Accounting Estimates Our consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting estimates, are disclosed in our annual report on Form 10-K for the year ended June 30, 2025. We have not made any material changes to our critical accounting policies and estimates during the period covered by this report.