10q10k10q10k.net

What changed in MacKenzie Realty Capital, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of MacKenzie Realty Capital, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+263 added−239 removedSource: 10-K (2024-09-27) vs 10-K (2023-09-28)

Top changes in MacKenzie Realty Capital, Inc.'s 2024 10-K

263 paragraphs added · 239 removed · 193 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

51 edited+18 added−15 removed31 unchanged
Biggest change(the “Parent Company,” together with its subsidiaries as discussed below, the “Company,” “we,” “us,” or “our”) is an externally managed non-diversified real estate investment trust (“REIT”), as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), that had elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”) until December 31, 2020, when we withdrew our election to be regulated as a BDC.
Biggest changeWe have elected to be treated as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
On June 1, 2022, the merger closed, and MacKenzie Satellite became our wholly owned subsidiary, which owns the Satellite Place building, a six-story Class “A” suburban office building containing approximately 134,785 rentable square feet of space located on approximately 10 acres of land in Duluth, GA.
On June 1, 2022, the merger closed, and MacKenzie Satellite became our wholly owned subsidiary, which owns the Satellite Place Office Building, a six-story Class “A” suburban office building containing approximately 134,785 rentable square feet of space located on approximately 10 acres of land in Duluth, GA.
Securities for which market data are not readily available or for which a pricing source does not accurately measure value may include the following: • private placements and restricted securities that do not have an active trading market; • securities whose trading has been suspended or for which market quotes are no longer available; • debt securities that have recently gone into default and for which there is no current market; • securities whose prices are stale; • securities affected by significant events; and • securities that the Investment Adviser believes were priced incorrectly.
Securities for which market data is not readily available or for which a pricing source does not accurately measure value may include the following: • private placements and restricted securities that do not have an active trading market; • securities whose trading has been suspended or for which market quotes are no longer available; • debt securities that have recently gone into default and for which there is no current market; • securities whose prices are stale; • securities affected by significant events; and • securities that the Investment Adviser believes were priced incorrectly.
We invest in well-located properties with strong and stable cash flows in demographically attractive knowledge economic growth markets where we believe there exists significant potential for medium-term capital appreciation through renovation or redevelopment, to reposition the asset and drive future rental growth. • Opportunistic .
We invest in well-located properties with strong and stable cash flows in demographically attractive economic growth markets where we believe there exists significant potential for medium-term capital appreciation through renovation or redevelopment, to reposition the asset and drive future rental growth. • Opportunistic .
As part of the purchase agreement, $4,650,000 of the purchase price was paid through the issuance of 206,666.67 Preferred Units of the Operating Partnership and $750,000 of the land purchase price was paid through the issuance of 77,881.62 Class A units of the Operating Partnership.
As part of the purchase agreement, $4,650,000 of the purchase price was paid through the issuance of 206,666.67 Series A Preferred Units of the Operating Partnership and $750,000 of the land purchase price was paid through the issuance of 77,881.62 Class A units of the Operating Partnership.
The Parent Company is the manager and the Operating Partnership is the sole common member of MRC Aurora. The Operating Partnership contributed the entitled land located at 5000 Wiseman Way, Fairfield, California in exchange for the common membership interest.
The Parent Company is the manager and the Operating Partnership is the sole common member of MRC Aurora. The Operating Partnership contributed the entitled land located at 5000 Wiseman Way, Fairfield, California to MRC Aurora in exchange for the common membership interest in MRC Aurora.
In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions.
In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must pay would reduce our ability to make distributions.
We also entered into the Administration Agreement with MacKenzie, under which we reimburse MacKenzie for our allocable portion of overhead and other expenses incurred by it in performing its obligations, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief financial officer, our chief compliance officer (or “CCO”), and any administrative support staff.
We also entered into the Administration Agreement with MacKenzie, under which we reimburse MacKenzie for our allocable portion of overhead and other expenses incurred by it in performing its obligations, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief financial officer, our chief compliance officer, and any administrative support staff.
On April 13, 2021, we filed a preliminary offering circular (the “Offering Circular”) pursuant to Regulation A with the SEC to sell up to $50,000,000 of shares of our Series A preferred stock at an initial offering price of $25.00 per share.
On April 13, 2021, we filed a preliminary offering circular (the “Offering Circular”) pursuant to Regulation A with the SEC to sell up to $50 million of shares of our Series A preferred stock at an initial offering price of $25.00 per share.
We intend to continue our historical activities related to tender offers for 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 intend to continue our historical activities related to tender offers for shares of non-traded REITs 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 filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of our common stock that was declared effective by the SEC on October 31, 2019. The third offering commenced shortly thereafter and ended on October 31, 2020.
We filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of our common stock that was declared effective by the SEC on October 31, 2019. The third offering commenced shortly thereafter and expired on October 31, 2020.
We invest in properties available at opportunistic prices (i.e., at prices we believe are below those available in an otherwise efficient market) that exhibit some characteristics of distress, such as operational inefficiencies, significant deferred capital maintenance or broken capital structures providing an opportunity for a substantial portion of total return attributable to appreciation in value. • Invest-to-Own .
We invest in properties available at opportunistic prices (i.e., at prices we believe are below those available in an otherwise efficient market) that exhibit some characteristics of distress, such as operational inefficiencies, significant deferred capital maintenance, or broken capital structures providing an opportunity for a substantial return from appreciation in value. • Invest-to-Own .
In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates.
In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings. 6 Table of Contents Some of these laws and regulations have been amended to require compliance with new or more stringent standards as of future dates.
The IPO commenced in January 2014 and concluded in October 2016. We filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of our common stock. The second offering commenced in December 2016 and concluded on October 28, 2019.
We filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of our common stock. The second offering commenced in December 2016 and concluded on October 28, 2019.
Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or Board of Directors, does not accurately measure fair value, which we expect will represent a substantial portion of our portfolio, are valued as follows: (i) the securities are initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors reviews these preliminary valuations and, where appropriate and necessary, valuations by third-party valuation firms, and uses such valuations, as adjusted by the Board if appropriate, to determine the fair value of the securities.
Securities for which reliable market data is not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or Board of Directors, does not accurately measure fair value, are valued as follows: (i) the securities are initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors reviews these preliminary valuations and, where appropriate and necessary, valuations by third-party valuation firms, and uses such valuations, as adjusted by the Board if appropriate, to determine the fair value of the securities.
In addition, any such assessment that we do obtain may not reveal all environmental liabilities or whether a prior owner of a property created a material environmental condition not known to us.
In addition, any assessment we obtain may not reveal all environmental liabilities or whether a prior owner of a property created a material environmental condition not known to us.
Compliance with governmental laws and regulations, including those relating to environmental matters Because we operate as a REIT and own real estate properties, we are required to comply with various governmental laws and regulations, including the Exchange Act and those relating to environmental matters.
Compliance with governmental laws and regulations, including those relating to environmental matters Because we operate as a REIT and own real estate properties, we are required to comply with various governmental laws and regulations, including those relating to environmental matters. Because we are a public company, we also must comply with the Exchange Act.
On May 6, 2022, the Operating Partnership purchased 100% of the membership interests in eight limited liability companies and one parcel of entitled land from The Wiseman Company, LLC (“Wiseman”) for $17,325,000 and $3,050,000, respectively.
On May 6, 2022, the Operating Partnership purchased 100% of the membership interests in eight limited liability companies (each a “Management Company”) and one parcel of entitled land from The Wiseman Company, LLC (“Wiseman”) for $18,333,000 and $3,050,000, respectively.
Board Approval of the Administration and Advisory Agreements Our advisory and administrative services agreements were approved by our Board of Directors in January 2021.
Board Approval of the Administration and Advisory Agreements Our advisory and administrative services agreements were approved by our Board of Directors in January 2021, and have been reviewed and approved annually since 2021.
We own 98.45% and 98.75% of equity units of Madison and PVT, respectively. The joint venture partners own the remaining 1.55% and 1.25% equity units of Madison and PVT, respectively, and also hold a carried interest in both companies.
The joint venture partners own the remaining 1.55% and 1.25% equity units of Madison and PVT, respectively, and also hold a carried interest in both companies. We are the controlling majority owner of both companies.
Investment Strategy Following withdrawal of our election to be regulated as a BDC in 2020, we have and intend to continue to invest in private companies that directly or indirectly own real property, and increase our control over our private investments, and to eventually consolidate those investments for financial reporting purposes.
Investment Strategy Following withdrawal of our election to be regulated as a BDC in 2020, we have continued to invest in private companies that directly or indirectly own real property, increased our control over our private investments, and consolidated those investments for financial reporting purposes when appropriate, and we intend to continue to do the same.
(“MacKenzie NY 2”), was formed for the purpose of making certain limited investments in New York companies. We terminated TRS effective December 31, 2022, after the sale of its sole investment and transferred the ownership of MacKenzie NY 2 to the Parent Company. The financial statements of MacKenzie NY 2 have been consolidated with the Parent Company.
MacKenzie NY Real Estate 2 Corp., (“MacKenzie NY 2”), a wholly owned subsidiary of TRS, was formed for the purpose of making certain limited investments in New York companies. We terminated TRS effective December 31, 2022, after the sale of its sole investment, and transferred the ownership of MacKenzie NY 2 to the Parent Company.
Any fees and expenses incurred by the Advisers to oversee due diligence investigations undertaken by third parties are subject to reimbursement by us, if not otherwise reimbursed, which reimbursements are in addition to any management or incentive fees payable by us under the advisory agreements. 5 Table of Contents Monitoring Our Advisers monitors our investments on an ongoing basis.
Any fees and expenses incurred by the Advisers to oversee due diligence investigations undertaken by third parties may be reimbursed by us, which are in addition to any management or incentive fees payable by us under the advisory agreements. Monitoring Our Advisers monitor our investments on an ongoing basis.
Our Advisers have several methods of evaluating and monitoring the performance and value of the assets in which we invest, which include the following: • Assessment of success in adhering to business plans and compliance with covenants; • Periodic and regular contact with property management, to discuss financial position, requirements and accomplishments; • Comparisons to other properties in the geographic area or sector, if any; • Attendance at and participation in our board meetings; and • Review of monthly and quarterly consolidated financial statements and financial projections for properties.
Our Advisers have several methods of evaluating and monitoring the performance and value of the assets in which we invest, which include the following: • Assessment of success in adhering to business plans and compliance with covenants; • Periodic and regular contact with property management to discuss financial position, requirements, and accomplishments; • Comparisons to other properties in the geographic area or sector; • Attendance at and participation in our board meetings; and • Review of monthly and quarterly consolidated financial statements and financial projections for properties. 5 Table of Contents Valuation of Investments Securities for which market quotations are readily available on an exchange will be valued at the closing price on the day closest to the valuation date.
We consolidated the financial statements of Woodland Corporate Center Two and Main Street West during the quarter ended March 31, 2023. 2 Table of Contents On February 6, 2023, we formed a new entity, MRC Aurora, LLC (the “MRC Aurora”) for the purpose of owning, developing, renovating, leasing, managing, renting, and potentially selling certain real property and building and improvements located at 5000 Wiseman Way, Fairfield, California (the “Aurora Project”).
On February 6, 2023, we formed a new entity, MRC Aurora, LLC (the “MRC Aurora”) for the purpose of owning, developing, renovating, leasing, managing, renting, and potentially selling certain real property and building and improvements located at 5000 Wiseman Way, Fairfield, California (the “Aurora Project”).
We have also retained MacKenzie as our transfer agent and have been reimbursing MacKenzie for certain software development costs.
We have also retained MacKenzie as our initial transfer agent and have been reimbursing MacKenzie for certain software development costs, although in conjunction with our listing, we have retained a third-party transfer agent.
We estimate future leasing and costs associated, generally over a ten-year period, to determine the fair value of the property. Once the fair value is determined, and reviewed by the Board of Directors, a determination of whether any impairment is required is made and documented.
We estimate future leasing and costs associated with the property, generally over a ten-year period, to determine the fair value of the property. Once the fair value is determined, a determination of whether any impairment is required is made and documented. In addition, we may obtain a third-party appraisal on directly owned properties.
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 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. 3 Table of Contents When evaluating opportunities to buy properties, we look for opportunistic and value-add situations similar to our approach to targeting real estate securities, including unique situations and value-added opportunities.
This strategy can boost cash-flow in two ways: (1) most such non-traded REITs pay regular cash distributions; and (2) when such non-traded REIT shares are liquidated or sold, we may realize a profit from having purchased the shares at a discount to the underlying net asset value. 4 Table of Contents Types of Investments We target real estate-related investments which may include equity interests in LLCs, tenancies-in-common, mortgages, loans, bonds, other real estate-related investment entities, or direct ownership of real property.
This strategy can boost cash-flow in two ways: (1) most such non-traded REITs pay regular cash distributions; and (2) when such non-traded REIT shares are liquidated or sold, we may realize a profit from having purchased the shares at a discount to the underlying net asset value.
The Investment Adviser advises us in our assessment, acquisition, and divestiture of securities under the advisory agreement amended and restated effective January 1, 2021 (the “Amended and Restated Investment Advisory Agreement”). The Real Estate Adviser advises us in our assessment, acquisition, and divestiture of real estate assets under the Advisory Management Agreement effective January 1, 2021 (the “Advisory Management Agreement”).
MCM Advisers, LP (the “Investment Adviser”), an affiliate of MacKenzie, advises us in our assessment, acquisition, and divestiture of securities under the advisory agreement amended and restated effective January 1, 2021 (the “Amended and Restated Investment Advisory Agreement”).
On October 4, 2021, we acquired a 90% economic interest in Hollywood Hillview Owner, LLC (“Hollywood Hillview”), a Delaware limited liability company through the Operating Partnership. The remaining 10% economic interest in Hollywood Hillview is owned by an unaffiliated third party, True USA, LLC. Hollywood Hillview owns 100% of the membership interests in PT Hillview GP, LLC (the “PT Hillview”).
The remaining 10% economic interest in Hollywood Hillview is owned by an unaffiliated third party, True USA, LLC. Hollywood Hillview owns 100% of the membership interests in PT Hillview GP, LLC (the “PT Hillview”).
Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements. 6 Table of Contents Staffing We do not currently have any employees. Our day-to-day investment operations are managed by the Advisers.
Determination of fair value involves subjective judgments and estimates, and is reviewed by the Board of Directors. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements. Staffing We do not currently have any employees.
As of June 30, 2023, we have issued common and preferred shares with gross proceeds of $14.19 million and $0.08 million, respectively, under our dividend reinvestment plan (“DRIP”). Of the total shares issued by us as of June 30, 2023, approximately $13.36 million worth of common and preferred stock shares have been repurchased under our share repurchase program.
Of the total shares issued by us as of June 30, 2024, approximately $14.28 million and $0.11 million, respectively, worth of common and Series A preferred shares have been repurchased under our share repurchase program.
The current members of the investment team are Glen Fuller, Chip Patterson, Robert Dixon, Angche Sherpa, and Christine Simpson. The investment strategy involves a team approach, whereby potential transactions are screened by various members of the investment team.
The investment strategy involves a team approach, whereby potential transactions are screened by various members of the investment team.
Concurrently with acquiring the general partnership interests in the Wiseman Properties, the Operating Partnership also negotiated the right to acquire the limited partnership interest in each Wiseman Property at pre-determined prices over the following two years.
Concurrently with acquiring the Management Companies and land from Wiseman, the Operating Partnership also negotiated the right to acquire the limited partnership interest in each Wiseman Partnership at pre-determined prices over a two-year period that expired in May 2024.
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. 3 Table of Contents Our Corporate Information Our offices are currently located at 89 Davis Road, Suite 100, Orinda, CA 94563 and our telephone number is (925) 631-9100 or (800) 854-8357.
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 do not invest in general partnerships or other entities that do not afford limited liability to their security owners. However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities. Investment Selection Our Advisers’ investment team is responsible for all aspects of our investment process.
However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities. 4 Table of Contents Investment Selection Our Advisers’ investment team is responsible for all aspects of our investment process. The current members of the investment team are Glen Fuller, Chip Patterson, Robert Dixon, Angche Sherpa, and Christine Simpson.
MacKenzie Capital Management, LP (“MacKenzie” or the “Administrator”) provides us with non-investment management services and administrative services necessary for us to operate. We filed our initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering (“IPO”) of 5,000,000 shares of our common stock.
We filed our initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of our common stock. The initial public offering commenced in January 2014 and concluded in October 2016.
Valuation of Investments Securities for which market quotations are readily available on an exchange will be valued at the closing price on the day closest to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days.
Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. To value securities that do not trade on a national exchange, we may use published secondary market trading information.
Our Advisers may hire additional investment professionals, based upon its needs.
Our day-to-day investment operations are managed by the Advisers. Our Advisers may hire additional investment professionals, based upon their needs.
The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016, and operates as a taxable REIT subsidiary.
These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, and limited liability companies. Our wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016 and operated as a taxable REIT subsidiary.
The former shareholders of FSP Satellite received cash with the exception of two shareholders who elected to receive common and preferred stock of the Company in the amount of $27,503 and $13,752, respectively. Subsequent to the completion of the merger, we have consolidated the financial statements of MacKenzie Satellite effective June 30, 2022.
The former shareholders of FSP Satellite received cash or shares of the Company, based upon their election. All former shareholders of FSP Satellite holders elected to be paid in cash with the exception of two shareholders who elected to receive common and preferred stocks in the amount of $27,503 and $13,752, respectively.
These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, and limited liability companies. As of June 30, 2023, we have raised approximately $119.10 million from our three common stock public offerings and $16.37 million from our Series A preferred stock offering pursuant to the Offering Circular.
As of June 30, 2024, we have raised approximately $119.10 million from our three common stock public offerings, $18.51 million from our Series A preferred stock offering and $1.26 million from our Series B preferred stock offering pursuant to the Offering Circular.
On June 14, 2023, we sold Addison Corporate Center to a third party and terminated Addison Property Owner, LLC (“Addison Property Owner”), which was wholly owned by the Operating Partnership. 1 Table of Contents In March 2021, we, together with our joint venture partners, formed two operating companies: Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential apartment buildings located in Oakland, California.
In March 2021, we, together with our joint venture partners, formed two operating companies: Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential apartment buildings located in Oakland, California. We own 98.45% and 98.75% of equity units of Madison and PVT, respectively.
Management believes this transaction is strategically important as it focuses the portfolio on our desired geographic area (Western United States) and creates a captive pipeline of properties which we can acquire when convenient over the next two years.
Management believed this transaction was strategically important as it focuses the portfolio on our desired geographic area (Western United States) and created a captive pipeline of properties. We completed the acquisition of all of the limited partnership interests in five of the eight partnerships prior to the expiration of the two-year window.
When evaluating opportunities to buy properties, we look for opportunistic and value-add situations similar to our approach to targeting real estate securities, including unique situations and value-added opportunities. We evaluate the broader market, the property’s position in the market, the needs our capital can address, and the track record of the sponsor or operator bringing the opportunity to us.
We evaluate the broader market, the property’s position in the market, the needs our capital can address, and the track record of the sponsor or operator bringing the opportunity to us. We do not generally engage brokers to search for or acquire properties, and the majority of our properties were acquired in “off market” transactions.
We are externally managed by MacKenzie under the administration agreement dated and effective as of January 1, 2021 (the “Administration Agreement”). MacKenzie manages all of our affairs except for providing investment advice.
On April 29, 2024, our common stock became eligible for trading on the OTCQX Best Market under the ticker symbol MKZR. We are externally managed by MacKenzie Capital Management, LP (“MacKenzie”) under a turnkey administration agreement dated and effective as of January 1, 2021 (the “Administration Agreement”).
The limited liability companies own the general partnership interests in eight limited partnerships, each of which own a Class A or B office property in Napa, Fairfield, or Woodland, California (the “Wiseman Properties”). The membership interest purchase price is subject to adjustments and holdbacks as provided in the membership interest purchase agreement.
Each Management Company is the sole general partner and owns all general partnership interest in a limited partnership (each a “Wiseman Partnership”) that owns a Class A or B office property in Napa, Fairfield, Suisun, or Woodland, California (the “Wiseman Properties”).
The Preferred Units of the Operating Partnership are meant to mimic our Series A Preferred Shares, and the terms of such Units are described in the Partnership Unit Designation of the Series A Preferred Limited Partnership Units (Exhibit 4.2). We consolidated the financial statements of the eight limited liability companies (but not the Wiseman Properties themselves) effective June 30, 2022.
The Series A Preferred Units of the Operating Partnership are meant to mimic our Series A Preferred Shares, and the terms of such Units are described in the Partnership Unit Designation of the Series A Preferred Limited Partnership Units. Wiseman is a full-service real estate syndicator, developer, broker, and property manager founded in 1979.
Since the withdrawal of our BDC status, we intend to purchase primarily majority interests in properties or companies that own properties so that we can consolidate them into our financial statements. We may purchase non-controlling interests, but we intend that such investments will constitute less than 20% of our portfolio.
We may purchase non-controlling interests, but we intend that such investments will constitute less than 20% of our portfolio. We do not invest in general partnerships or other entities that do not afford limited liability to their security owners.
We are advised by MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”) as to our real estate investments and by MCM Advisers, LP (the “Investment Adviser”) as to our securities portfolio (together the “Real Estate Adviser” and the “Investment Adviser” are referred to as the “Advisers”).
Another affiliate of MacKenzie, MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”; together, the “Investment Adviser” and the “Real Estate Adviser” may be referred to as “Adviser” or “Advisers” as appropriate) advises us in our assessment, acquisition, and divestiture of real estate assets.
Removed
Item 1. BUSINESS Organization MacKenzie Realty Capital, Inc.
Added
Item 1. BUSINESS Organization MacKenzie Realty Capital, Inc. (the “Parent Company” together with its subsidiaries as discussed below, collectively, the “Company,” “we,” “us,” or “our”) was incorporated under the general corporation laws of the State of Maryland on January 27, 2012.
Removed
As a result of the withdrawal of our election to be regulated as a BDC, we are no longer treated as an investment company for purposes of applying accounting principles generally accepted in the United States of America (“GAAP”).
Added
We are authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as common stock, with a $0.0001 par value per share; and (ii) 20,000,000 are designated as preferred stock, with a $0.0001 par value per share. We commenced our operations on February 28, 2013, and our fiscal year-end is June 30.
Removed
The sale of shares pursuant to this offering began in November 2021 after the definitive version of the Offering Circular was qualified by the SEC on November 2, 2021, which was re-qualified again on November 8, 2022.
Added
The financial statements of TRS (through its termination date) and MacKenzie NY 2 have been consolidated with the Parent Company. Effective tax year 2023, MacKenzie NY 2 has elected to be treated as a taxable REIT subsidiary.
Removed
TRS started its operation on January 1, 2017, and the financial statements of TRS have been consolidated with the Parent Company’s consolidated financial statements beginning with the quarter ended March 31, 2017. On December 20, 2017, a wholly owned subsidiary of TRS, MacKenzie NY Real Estate 2 Corp.
Added
We filed a post-effective amendment to the Offering Circular on October 14, 2022, and increased the offering to sell up to $75 million of shares of our Series A preferred stock. The post-effective amendment to this Offering Circular was declared effective on November 13, 2022.
Removed
Wiseman is a full-service real estate syndicator, developer, broker, and property manager. It was founded in 1979 and serves as the general partner for nine currently active partnerships owning the Wiseman Properties.
Added
We filed a second post-effective amendment to the Offering Circular on November 1, 2023, which amended the offering to sell an aggregate of up to $75 million of shares of either our Series A preferred stock or our Series B preferred stock.
Removed
Subsequently, on July 23, 2022, the Operating Partnership completed the acquisition of the limited partnership interest in First & Main, LP (“First & Main”) for total purchase price of $3,376,322, of which $2,711,377 was paid through issuance of 120,505.66 Preferred Units of the Operating Partnership.
Added
This post-effective amendment to the Offering Circular was qualified by the SEC on November 14, 2023. 1 Table of Contents On October 4, 2021, through the Operating Partnership, we acquired a 90% economic interest in Hollywood Hillview Owner, LLC (“Hollywood Hillview”), a Delaware limited liability company, to acquire and operate a multifamily building (“Hollywood Apartments”) located in Los Angeles, California.
Removed
We consolidated the financial statements of First & Main during the quarter ended September 30, 2022. On October 1, 2022, in addition to the general partnership interest in 1300 Main, LP (“1300 Main”), the Operating Partnership completed the acquisition of 100% of the limited partnership interest in 1300 Main for total purchase price of $6,480,582.
Added
We may acquire the remaining limited partnership interests via separate agreements in the future, but there is no agreement or obligation to do so.
Removed
We consolidated the financial statements of 1300 Main during the quarter ended December 31, 2022.
Added
We acquired all the limited partnership interests in, and therefore all the equity in, the following partnership on the following dates: First & Main, LP (“First and Main”) in July 2022, 1300 Main, LP (“1300 Main”) in October 2022, Woodland Corporate Center Two, LP (“Woodland Corporate Center Two”) in January 2023, Main Street West, LP (“Main Street West”) in February 2023, and One Harbor Center, LP (“One Harbor Center”) in May 2024.
Removed
On January 3, 2023, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in Woodland Corporate Center Two, LP (“Woodland Corporate Center Two”) for total purchase price of $5,636,966, of which $3,242,557 was paid through the issuance of 144,113.63 Preferred Units of the Operating Partnership.
Added
Some of these acquisitions were paid in all cash, and some were purchased through issuance of 339,078.39 and 43,212.86 of the Operating Partnership’s Series A and Series B preferred units, respectively.
Removed
On February 1, 2023, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in Main Street West, LP (“Main Street West”) for total purchase price of $8,277,016.
Added
MRC Aurora commenced selling its preferred units in February 2024 with the goal of raising $10 million in preferred capital and closed on a construction loan of $17.15 million on February 21, 2024 to fund the development of the Aurora Project. 2 Table of Contents On September 1, 2023, we formed 220 Campus Lane, LLC (“220 Campus Lane”) to acquire, lease and operate a vacant office building located at 220 Campus Lane, Fairfield, CA (“220 Campus Lane Office Building”) and Campus Lane Residential, LLC (“Campus Lane Residential”) to acquire and develop a parcel of vacant land adjacent to 220 Campus Lane Office Building into a multi-family residential community. 220 Campus Lane acquired the 220 Campus Lane Office Building and Campus Lane Residential acquired the vacant land in September 2023.
Removed
MRC Aurora plans to raise $10 million in preferred capital and also obtain a construction loan to fund the development of the Aurora Project. As of June 30, 2023, MRC Aurora has not commenced selling the preferred units, making the Operating Partnership the sole equity holder of MRC Aurora. Therefore, we have consolidated the financial statements of MRC Aurora.
Added
The entitlement process for the vacant land is currently underway, but our goal of commencing construction in late 2025 will be dependent upon the City’s response to our development application that was submitted in April 2024 and securing the necessary financial resources. We own 100% of both of these companies.
Removed
On February 27, 2023, we have announced the updated net asset value (“NAV”) of our common shares as of December 31, 2022. As a result, our Board of Directors has lowered the price of the common shares issued under DRIP to $7.38 per share, the new NAV.
Added
On January 1, 2024, the Operating Partnership acquired 100% membership interest in GV Executive Center, LLC (“GVEC”), which owns an office building located in Fairfield, California known as “Green Valley Executive Center” from an affiliate of our Advisers for a total purchase price of $8,703,127, which was paid through issuance of 386,805.64 Series A Preferred Units of the Operating Partnership.
Removed
We do not generally engage brokers, and the majority of our properties were acquired in “off market” transactions. We invest in mid-market properties that may be overlooked by institutions.
Added
The acquisition price was determined based on the price paid for the building by the affiliate in August 2022 adjusted for the company’s other current assets and liabilities as of the acquisition date. The acquisition of GVEC was approved by our Independent Directors.
Removed
To value securities that do not trade on a national exchange, we may use published secondary market trading information.
Added
On August 26, 2024, the Company entered into a letter agreement with Maxim Group LLC (“Maxim”) to provide general financial advisory and investment banking services to the Company in connection with, among other things, strategic planning, potential uplisting to a U.S. exchange (NASDAQ, New York Stock Exchange), and potential rights offering, equity issuance or other mechanisms to enhance corporate and shareholder value.
Removed
In addition, once per year, in preparation of net asset value, we obtain a third-party appraisal on directly owned properties. Determination of fair value involves subjective judgments and estimates.

… 4 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+6 added−4 removed230 unchanged
Biggest changeBecause we are dependent upon our Advisers and its affiliates to conduct our operations, any adverse changes in the financial or operational condition of our Advisers or its affiliates, or our relationship with them, could hinder our operating performance and the return on your investment.
Biggest changeBecause stockholders will be unable to evaluate the merits of these operational and investment guidelines, they will have to rely entirely on the ability of our Advisers and Board of Directors to formulate and follow these operational and investment guidelines. 17 Table of Contents Because we are dependent upon our Advisers and its affiliates to conduct our operations, any adverse changes in the financial or operational condition of our Advisers or its affiliates, or our relationship with them, could hinder our operating performance and the return on your investment.
Risks Related to Investing in Real Estate • Real property investments are subject to various risks, many of which are beyond our control, which could cause declines in our operating revenues and/or the underlying value of one or more of our properties. • The market for real estate investments is highly competitive and investments in real estate-related assets can be speculative. • Illiquidity of real estate investments could significantly affect our ability to respond to adverse changes in the performance of our properties and harm our financial condition. • We could be exposed to environmental liabilities, which could impact the value of real properties that we may acquire or underlying our investments. • We will likely receive limited representations and warranties from sellers, and may not obtain audited results of prior operations for certain properties in which we have invested in. • We may not obtain independent third-party appraisals or valuation reports on all of our investments. • We may be adversely affected by unfavorable economic conditions, particularly in the specific geographic areas where our investments are concentrated. • Inflation may adversely affect our financial condition and results of operations. • Our success is materially dependent on attracting qualified tenants and, when vacancies occur, we may not be able to re-lease or renew leases at the investments held by us on terms favorable to us, or at all. • The bankruptcy, insolvency or diminished creditworthiness of our tenants under their leases or delays by our tenants in making rental payments could seriously harm our operating results and financial condition. • Significant restrictions on transfer and encumbrance of investments subject to mortgage or other debt financing are expected, and we may experience delays in the sale of an investment. • We face possible risks associated with climate change.
Risks Related to Investing in Real Estate • Real property investments are subject to various risks, many of which are beyond our control, which could cause declines in our operating revenues and/or the underlying value of one or more of our properties. • The market for real estate investments is highly competitive and investments in real estate-related assets can be speculative. • Illiquidity of real estate investments could significantly affect our ability to respond to adverse changes in the performance of our properties and harm our financial condition. • We could be exposed to environmental liabilities, which could impact the value of real properties that we may acquire or underlying our investments. • We will likely receive limited representations and warranties from sellers, and may not obtain audited results of prior operations for certain properties in which we have invested. • We may not obtain independent third-party appraisals or valuation reports on all of our investments. • We may be adversely affected by unfavorable economic conditions, particularly in the specific geographic areas where our investments are concentrated. • Inflation may adversely affect our financial condition and results of operations. • Our success is materially dependent on attracting qualified tenants and, when vacancies occur, we may not be able to re-lease or renew leases at the properties held by us on terms favorable to us, or at all. • The bankruptcy, insolvency, or diminished creditworthiness of our tenants under their leases or delays by our tenants in making rental payments could seriously harm our operating results and financial condition. • Significant restrictions on transfer and encumbrance of investments subject to mortgage or other debt financing are expected, and we may experience delays in the sale of an investment. • We face possible risks associated with climate change.
Because of the recent growth in demand for real estate investments, there may be increased competition among investors to invest in the same asset classes as we do. This competition may lead to an increase in the investment prices or otherwise less favorable investment terms.
Because of the recent growth in demand for real estate investments, there may be increased competition among investors to invest in the same asset classes as we do. This competition may lead to an increase in investment prices or otherwise less favorable investment terms.
Risk Related to COVID-19 and Other Infectious Diseases COVID-19, or the future outbreak of other highly infectious or contagious diseases, has and could continue to materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance, as well as adversely affect our and our tenants’ financial condition and results of operations.
Risk Related to COVID-19 and Other Infectious Diseases COVID-19, or the future outbreak of other highly infectious or contagious diseases, has and could continue to materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance, as well as adversely affect our and our tenants’ financial condition and results of operations.
Risks Related to Our Taxation as a REIT • Failure to remain qualified as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders. • Complying with minimum required distributions and other REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. • Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flows. • The stock ownership limit imposed by the Internal Revenue Code for REITs and in our Charter may inhibit market activity in our stock and may restrict our business combination opportunities. 9 Table of Contents • Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, and a failure to make required distributions would subject us to U.S. federal corporate income tax. • The prohibited transactions tax may subject us to tax on our gain from sales of property and limit our ability to dispose of our properties. • We may be unable to generate sufficient revenue from operations, operating cash flow or portfolio income to pay our operating expenses, and our operating expenses could rise, diminishing our ability and to pay distributions to our stockholders. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares.
Risks Related to Our Taxation as a REIT • Failure to remain qualified as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders. • Complying with minimum required distributions and other REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. • Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flows. 9 Table of Contents • The stock ownership limit imposed by the Code for REITs and in our Charter may inhibit market activity in our stock and may restrict our business combination opportunities. • Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, and a failure to make required distributions would subject us to U.S. federal corporate income tax. • The prohibited transactions tax may subject us to tax on our gain from sales of property and limit our ability to dispose of our properties. • We may be unable to generate sufficient revenue from operations, operating cash flow or portfolio income to pay our operating expenses, and our operating expenses could rise, diminishing our ability and to pay distributions to our stockholders. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares.
Risks Related to Conflicts of Interest • The Advisory Agreements with our Advisers were not negotiated on an arm’s-length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party. • We may have conflicts of interest with our Adviser and other affiliates, which may result in investment decisions that are not in the best interest of our stockholders. • Our Adviser, its officers and their respective affiliates will face conflicts of interest relating to the purchase and leasing of real estate investments, and such conflicts may not be resolved in our favor. • We have not adopted any specific conflicts of interest policies, and, therefore, other than in respect of the restrictions placed on our Advisers in the Advisory Agreements, we will be reliant upon the good faith of our Adviser, officers and directors in the resolution of any conflict.
Risks Related to Conflicts of Interest • The Advisory Agreements with our Advisers were not negotiated on an arm’s-length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party. • We may have conflicts of interest with our Adviser and other affiliates, which may result in investment decisions that are not in the best interest of our stockholders. • Our Advisers, their officers and their respective affiliates will face conflicts of interest relating to the purchase and leasing of real estate investments, and such conflicts may not be resolved in our favor. • We have not adopted any specific conflicts of interest policies, and, therefore, other than in respect of the restrictions placed on our Advisers in the Advisory Agreements, we will be reliant upon the good faith of our Advisers, officers, and directors in the resolution of any conflict.
Risks Related to Our Business Operations and Strategy • We may change our targeted investment and operational policies without stockholder consent. • Our Board of Directors can revoke our REIT qualification without stockholder approval. • Our future growth will depend on our ability to acquire real estate investments in several competitive real estate markets, and lack of diversification in numbers or types of investments increases our dependence on individual investments. 8 Table of Contents • We may experience difficulty in ultimately selling any property or groups of properties which no longer fit our investment criteria or are impractical to lease and maintain, which could force us to sell a property at a price that reduces the return to our investors. • Subject to broad investment guidelines approved by our Board of Directors, we are dependent on the investment analysis and management services provided by our Advisers and their key personnel for our success. • Our investments will be carried at estimated fair value as determined by our Investment Adviser and there may be uncertainty as to the value of these investments. • We, through our Advisers, are often required to make a number of judgments in applying accounting policies, and different estimates and assumptions in the application of these policies could result in changes to our reporting of financial condition and results of operations. • The occurrence of cyber incidents, or a deficiency in our cybersecurity, could cause a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
Risks Related to Our Business Operations and Strategy • We may change our targeted investment and operational policies without stockholder consent. • Our Board of Directors can revoke our REIT qualification without stockholder approval. • Our future growth will depend on our ability to acquire real estate investments in several competitive real estate markets, and lack of diversification in numbers or types of investments increases our dependence on individual investments. 8 Table of Contents • We may experience difficulty in ultimately selling properties which no longer fit our investment criteria or are impractical to lease and maintain, which could force us to sell a property at a price that reduces the return to our investors. • Subject to broad investment guidelines approved by our Board of Directors, we are dependent on the investment analysis and management services provided by our Advisers and their key personnel for our success. • Our investments will be carried at estimated fair value as determined by our Advisers and there may be uncertainty as to the value of these investments. • We, through our Advisers, are often required to make a number of judgments in applying accounting policies, and different estimates and assumptions in the application of these policies could result in changes to our reporting of financial condition and results of operations. • The occurrence of cyber incidents, or a deficiency in our cybersecurity, could cause a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
The occurrence of any of the following risks might have a material adverse effect on our business, financial condition and results of operations, which could cause the price of our common stock and preferred stock to decline and could result in our stockholders losing some or all of their investment.
The occurrence of any of the following risks might have a material adverse effect on our business, financial condition, and results of operations, which could cause the price or value of our common stock or preferred stock to decline and could result in our stockholders losing some or all of their investment.
REITs are excluded from the definition of an “applicable corporation” and therefore are not subject to the corporate alternative minimum tax. Additionally, stock repurchases by REITs are specifically excepted from the 1% excise tax. The impact of tax reform and any potential tax changes on our shares is uncertain.
However, REITs are excluded from the definition of an “applicable corporation” and therefore are not subject to the corporate alternative minimum tax. Additionally, stock repurchases by REITs are specifically excepted from the 1% excise tax. The impact of tax reform and any potential tax changes on our shares is uncertain.
Even if we remain qualified as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. 23 Table of Contents The stock ownership limit imposed by the Internal Revenue Code for REITs and in our Charter may inhibit market activity in our stock and may restrict our business combination opportunities.
Even if we remain qualified as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. 23 Table of Contents The stock ownership limit imposed by the Code for REITs and in our Charter may inhibit market activity in our stock and may restrict our business combination opportunities.
In order for us to maintain our qualification as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of each taxable year.
In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution. Unless entitled to relief under certain Internal Revenue Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution. Unless entitled to relief under certain Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
Conflicts created by our Advisers’ relationships with us and with other investment entities affiliated with our Advisers or their affiliates, as described above, may severely curtail our investment opportunities, impair our ability to make distributions and reduce the value of stockholders’ investment in us. Our Advisers also advises other clients and such clients may compete with us for investments.
Conflicts created by our Advisers’ relationships with us and with other investment entities affiliated with our Advisers or their affiliates, as described above, may severely curtail our investment opportunities, impair our ability to make distributions and reduce the value of stockholders’ investment in us. Our Advisers also advise other clients and such clients may compete with us for investments.
Numerous state, local, federal, and industry-initiated efforts may also affect property owners’ ability to collect rent or enforce remedies for the failure to pay rent. This may lead to reduction or cancellation of distributions, which will in turn effect our ability to pay our expenses and to pay distributions to our shareholders. 25 Table of Contents Item 1B.
Numerous state, local, federal, and industry-initiated efforts may also affect property owners’ ability to collect rent or enforce remedies for the failure to pay rent. This may lead to reduction or cancellation of distributions, which will in turn effect our ability to pay our expenses and to pay distributions to our shareholders. 25 Table of Contents
Risks Associated with Debt Financing • We expect to use mortgage and other debt financing to acquire properties or interests in properties and otherwise incur other indebtedness, which could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments and reduce the cash available for distribution to stockholders. • High levels of debt or increases in interest rates could increase the amount of our loan payments, which could reduce the cash available for distribution to stockholders. • High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and the amount of cash distributions we can make. • If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected. • Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders. • Rising interest rates could increase our borrowing costs, adversely affecting our cash flows and reducing the amounts available for distributions to our stockholders. • We may use floating rate, interest-only or short-term loans to acquire investments.
Risks Associated with Debt Financing • We expect to use mortgage and other debt financing to acquire properties or interests in properties and otherwise incur other indebtedness, which could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments and reduce the cash available for distribution to stockholders. • High levels of debt or increases in interest rates could increase the amount of our loan payments, which could reduce the cash available for distribution to stockholders. • High mortgage rates may make it difficult for us to finance or refinance properties, may require us to pay down loans with investment capital, which could reduce the number of properties we can acquire, our cash flow from operations, and the amount of cash distributions we can make. • If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected. • Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders. • Rising interest rates could increase our borrowing costs, adversely affecting our cash flows and reducing the amounts available for distributions to our stockholders. • We may use floating rate, interest-only or short-term loans to acquire investments.
If the competing demands for the time of our Advisers, its key personnel, its affiliates and our officers result in them spending insufficient time on our business, we may miss investment opportunities or have less efficient operations, which could reduce our profitability and result in lower distributions to stockholders.
If the competing demands for the time of our Advisers, their key personnel, their affiliates and our officers result in them spending insufficient time on our business, we may miss investment opportunities or have less efficient operations, which could reduce our profitability and result in lower distributions to stockholders.
Item 1A. RISK FACTORS An investment in our common stock and preferred stock involves substantial risks. You should specifically consider the following material risks in addition to the other information contained in this Annual Report on Form 10-K.
Item 1A. RISK FACTORS An investment in our common stock or preferred stock involves substantial risks. You should specifically consider the following material risks in addition to the other information contained in this annual report on Form 10-K.
We believe that we have and will continue to operate in a manner qualifying us as a REIT for our taxable year ended December 31, 2023 and intend to continue to so operate. However, we cannot assure the stockholders that we will remain qualified as a REIT.
We believe that we have and will continue to operate in a manner qualifying us as a REIT for our taxable year ended December 31, 2024 and intend to continue to so operate. However, we cannot assure the stockholders that we will remain qualified as a REIT.
The risks and uncertainties discussed below are not the only ones we face, but do represent those risks and uncertainties that we believe are most significant to our business, operating results, financial condition, prospects and forward-looking statements. As used herein, the term “you” refers to our current stockholders or potential investors in our common or preferred stock, as applicable.
The risks and uncertainties discussed below are not the only ones we face, but they represent those risks and uncertainties that we believe are most significant to our business, operating results, financial condition, prospects and forward-looking statements. As used herein, the term “you” refers to our current stockholders or potential investors in our common or preferred stock.
Additionally, substantial inflationary pressures and increased costs may have an adverse impact on our tenants, which may adversely affect the ability of our tenants to pay rent. Our Hollywood Apartment building has variable interest rate debt but has an interest rate cap which has mitigated and we believe will continue to mitigate the effect of rising interest rates.
Additionally, substantial inflationary pressures and increased costs may have an adverse impact on our tenants, which may adversely affect the ability of our tenants to pay rent. 12 Table of Contents Our Hollywood Apartment building has variable interest rate debt but has an interest rate cap which has mitigated and we believe will continue to mitigate the effect of rising interest rates.
We intend to make distributions to our stockholders to comply with the requirements of the Internal Revenue Code for REITs and to minimize or eliminate our corporate income tax obligation to the extent consistent with our business objectives.
We intend to make distributions to our stockholders to comply with the requirements of the Code for REITs and to minimize or eliminate our corporate income tax obligation to the extent consistent with our business objectives.
The initial term of our Agreements with our Advisers only extends until December 31, 2022, with automatic one-year renewals thereafter, and may be terminated earlier under certain circumstances.
The initial term of our Agreements with our Advisers only extends until December 31, 2024, with automatic one-year renewals thereafter, and may be terminated earlier under certain circumstances.
Currently, our investments are concentrated in five commercial real estate properties and four multi-family residential apartment properties, located primarily in the Oakland-San Francisco Bay area in California.
Currently, our investments are concentrated in eight commercial real estate properties and four multi-family residential apartment properties, located primarily in the Oakland-San Francisco Bay area in California.
We have other loans that become floating rate loans after an initial period of years. If interest rates do not decrease before the initial period ends our interest costs on those loans will increase after the initial period. 12 Table of Contents Our success is materially dependent on attracting qualified tenants.
We have other loans that become floating rate loans after an initial period of years. If interest rates do not decrease before the initial period ends our interest costs on those loans will increase after the initial period. Our success is materially dependent on attracting qualified tenants.
We will likely receive limited representations and warranties from sellers. Investments will likely be acquired with limited representations and warranties from the seller regarding the condition of the investment, the status of leases, the presence of hazardous substances, the status of governmental approvals and entitlements and other significant matters affecting the use, ownership and enjoyment of the investment.
Investments will likely be acquired with limited representations and warranties from the seller regarding the condition of the investment, the status of leases, the presence of hazardous substances, the status of governmental approvals and entitlements and other significant matters affecting the use, ownership and enjoyment of the investment.
These may include changes to global weather patterns, which could include local changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperature averages or extremes. These impacts may adversely affect our properties, our business, financial condition and results of operations.
Additionally, the potential physical impacts of climate change on our operations are highly uncertain and may include changes to global weather patterns, which could include local changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperature averages or extremes. These impacts may adversely affect our properties, our business, financial condition and results of operations.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “IRA”), The IRA includes numerous tax provisions that impact corporations, including the implementation of a corporate alternative minimum tax as well as a 1% excise tax on certain stock repurchases and economically similar transactions. However.
The Inflation Reduction Act of 2022 (the “IRA”) includes numerous tax provisions that impact corporations, including the implementation of a corporate alternative minimum tax as well as a 1% excise tax on certain stock repurchases and economically similar transactions.
We may be adversely affected by unfavorable economic changes in the specific geographic areas where our investments are concentrated. We expect to diversify our investments, and expect that our real estate investments will be located throughout the United States.
We may be adversely affected by unfavorable economic changes in the specific geographic areas where our investments are concentrated. We expect to diversify our investments and expect that our real estate investments will be located throughout the United States. However, our investments may nonetheless result in significant concentration in one or more target markets.
If this situation occurs with a particular investment, our return on that investment is likely to be less than the return we could have achieved if we had invested at a time of less investor competition for the investment. For this and other reasons, the Real Estate Adviser is under no restrictions concerning the timing of investments.
If this situation occurs with a particular investment, our return on that investment is likely to be less than the return we could have achieved if we had invested at a time of less investor competition for the investment.
We may in the future distribute taxable dividends that are payable in cash and our preferred shares at the election of each stockholder. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for United States federal income tax purposes.
Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for United States federal income tax purposes.
The market for the sale of real estate properties can vary greatly and it may take a significant amount of time for us to sell any particular property on favorable terms, if at all.
The market for the sale of real estate properties can vary greatly and it may take a significant amount of time for us to sell any particular property on favorable terms, if at all. As a result, our ability to sell under-performing assets in our portfolio or respond to changes in economic and other conditions may be relatively limited.
As a result, a U.S. stockholder may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend.
As a result, a U.S. stockholder may be required to pay income taxes with respect to such dividends in excess of the cash dividends received.
No assurance can be given that the Advisers will be able to execute the investment strategy or that stockholders in the company will realize their investment objectives. No assurance can be given that our stockholders will realize a substantial return (if any) on their investment or that they will not lose their entire investment in us.
No assurance can be given that our stockholders will realize a substantial return (if any) on their investment or that they will not lose their entire investment in us. We will likely receive limited representations and warranties from sellers.
We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations and financial condition. Additionally, the potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate.
We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations and financial condition.
Real estate investments are not as liquid as other types of assets, which may reduce economic returns to our stockholders. Real estate investments are not as liquid as other types of investments.
For this and other reasons, the Real Estate Adviser is under no restrictions concerning the timing of investments. 10 Table of Contents Real estate investments are not as liquid as other types of assets, which may reduce economic returns to our stockholders. Real estate investments are not as liquid as some other types of investments.
Transactions entered into by our Advisers may be costly, difficult or impossible to unwind by the time they are reviewed by our Board of Directors. 17 Table of Contents Because stockholders will be unable to evaluate the merits of these operational and investment guidelines, they will have to rely entirely on the ability of our Advisers and Board of Directors to formulate and follow these operational and investment guidelines.
Transactions entered into by our Advisers may be costly, difficult or impossible to unwind by the time they are reviewed by our Board of Directors.
In addition, if a significant number of our stockholders determine to sell our preferred shares in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our preferred shares. Risks Related to Our Business Operations and Strategy We may change our targeted investment and operational policies without stockholder consent.
Risks Related to Our Business Operations and Strategy We may change our targeted investment and operational policies without stockholder consent.
Removed
As a result, our ability to sell under-performing assets in our portfolio or respond to changes in economic and other conditions may be relatively limited. 10 Table of Contents Investments in real estate-related assets can be speculative. Investments in real estate-related assets can involve speculative risks and always involve substantial risks.
Added
Investments in real estate-related assets can be speculative. Investments in real estate-related assets can involve speculative risks and always involve substantial risks. No assurance can be given that the Advisers will be able to execute the investment strategy or that stockholders in the company will realize their investment objectives.
Removed
However, our investments may nonetheless result in significant concentration in an investment or group of investments in one or more target markets. Our largest concentration of investments are in California, Arizona, and Connecticut.
Added
Our largest concentrations of investments are in California and Georgia.
Removed
Further, there is likely to be no active trading market for our stock, and the shareholder will have find a buyer and negotiate with the found buyer as to the purchase price of the stock.
Added
We may in the future distribute taxable dividends that are payable in a combination of cash and shares of our equity securities at the election of each stockholder.
Removed
Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.
Added
The IRS has issued guidance authorizing elective cash/stock dividends to be made by public REITs where a cap of at least 20% is placed on the amount of cash that may be paid as part of the dividend, provided that certain requirements are met.
Added
It is unclear whether and to what extent we would be able to or choose to pay taxable distributions in cash and stock.
Added
In addition, no assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeItem 2. PROPERTIES We currently own and manage five commercial real estate properties: Satellite Place located in Duluth, GA, 1300 Main, First & Main and Main Street West in Napa, CA, and Woodland Corporate Center Two in Woodland, CA.
Biggest changeItem 2. PROPERTIES We currently own and manage eight commercial real estate properties: Satellite Place located in Duluth, GA, 1300 Main, First & Main and Main Street West located in Napa, CA, Woodland Corporate Center Two located in Woodland, CA, 220 Campus Lane and Green Valley Executive Center located in Fairfield, CA and One Harbor Center located in Suisun, CA.
We also own and manage four residential apartments: Commodore Apartments and The Park View Apartments (f/k/a as Pon De Leo Apartments), located in Oakland, CA, Hollywood Property located in Los Angeles, CA, and Shoreline Apartment Homes located in Concord, CA.
We also own and manage four residential apartments: Commodore Apartments and The Park View Apartments (f/k/a as Pon De Leo Apartments), located in Oakland, CA, Hollywood Apartments located in Los Angeles, CA, and Shoreline Apartment Homes located in Concord, CA.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+13 added−5 removed3 unchanged
Biggest changeThese private placements of our common and preferred shares were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D thereunder. 28 Table of Contents Issuer Purchases of Equity Securities The following table presents information with respect to our purchases of our common stock and preferred stock during the years ended June 30, 2023 and 2022: Execution Date Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans During the year ended June 30, 2023 Common stocks September 1, 2022 through September 30, 2022 40,817.06 $ 9.47 40,817.06 - December 1, 2022 through December 31, 2022 44,048.79 $ 9.44 44,048.79 - March 1, 2023 through March 31, 2023 58,896.00 $ 7.38 58,896.00 - June 1, 2023 through June 30, 2023 60,298.00 $ 7.38 60,298.00 - 204,059.85 204,059.85 - Preferred stocks April 1, 2023 through April 30, 2023 1,400.00 $ 22.75 1,400.00 During the year ended June 30, 2022: December 1, 2021 through December 31, 2021 5,607.89 $ 9.84 5,608 - January 1, 2022 through February 28, 2022 14,951.24 * $ 7.20 - - March 1, 2022 through March 31, 2022 110,725.92 $ 9.41 110,726 - June 1, 2022 through June 30, 2022 63,695.00 * $ 8.96 - - 194,980.05 116,334 - *Purchased through third-party auction as the highest bidder. 29 Table of Contents Item 6. [RESERVED]
Biggest changeThe common stock does not have any conversion rights. 29 Table of Contents Issuer Purchases of Equity Securities The following table presents information with respect to our purchases of our common stock and preferred stock during the years ended June 30, 2024 and 2023: Execution Date Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans During the year ended June 30, 2024 Common stock September 1, 2023 through September 30, 2023 64,092.00 $ 7.38 64,092.00 - December 1, 2023 through December 31, 2023 64,497.30 7.38 64,497.30 - June 1, 2024 through June 30, 2024 948.76 5.50 948.76 * - 129,538.06 129,538.06 - Series A Preferred stock December 1, 2023 through December 31, 2023 400.00 $ 22.75 400.00 - March 1, 2024 through March 31, 2024 2,000.00 22.00 2,000.00 - June 1, 2024 through June 30, 2024 999.50 22.75 999.50 - 3,399.50 3,399.50 - *Cash in-lieu of fractional shares payout.
We have a dividend reinvestment plan (“DRIP”) that 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 reside.
We have a DRIP that 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 reside.
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.
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.
Recent Sale of Unregistered Securities During the year ended June 30, 2023, we issued 552,587.88 Series A preferred shares with total gross proceeds of $13,408,089, as well as 735.56 Series A preferred shares with total gross proceeds of $75,379 under the DRIP related to the Series A preferred, pursuant to the Company’s Regulation A Series A preferred stock offering.
During the year ended June 30, 2023, we issued 549,973.38 Series A preferred shares with total gross proceeds of $13,408,089, as well as 3,350.16 Series A preferred shares with total gross proceeds of $75,379 under the DRIP related to the Series A preferred, pursuant to the Company’s Regulation A Series A preferred stock offering.
In no event are we permitted to borrow money to make distributions if the amount of such distribution 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.
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 distribution would exceed our annual accrued and received revenues, less operating costs. Distributions in kind are not permitted, except as provided in our Charter.
Effective March 1, 2022, we issued 212 shares of common stock at a stated value of $10.25 per share to Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common stock.
Recent Sale of Unregistered Securities During the year ended June 30, 2024, we issued 3,011.35 common shares at $10.25 per share to the Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common shares.
During the years ended June 30, 2023 and 2022, we issued 189,289.44 and 128,740.66 shares of our common stock, respectively, in connection with the DRIP. During the years ended June 30, 2023 and 2022, we issued 735.66 and 36.70 shares of our Series A preferred stock, respectively, in connection with the DRIP.
During the years ended June 30, 2024 and 2023, we issued 7,741.20 and 3,350.16 shares of our Series A preferred stock, respectively, in connection with the DRIP. During the year ended June 30, 2024, we issued 2.11 shares of our Series B preferred stock, in connection with the DRIP.
We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. 27 Table of Contents The following tables reflect the dividends per share that we have declared during the years ended June 30, 2023 and 2022: Dividends Common Stock Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2022 $ 0.105 $ 1,390,290 $ 0.375 $ 87,884 December 31, 2022 0.110 1,456,391 0.375 155,909 March 31, 2023 0.115 1,520,985 0.375 209,620 June 30, 2023 0.120 1,586,864 0.375 242,188 $ 0.450 $ 5,954,530 $ 1.500 $ 695,601 Dividends Common stock Preferred stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2021 $ 0.130 * $ 1,731,482 $ - $ - December 31, 2021 0.080 1,068,612 0.125 440 March 31, 2022 0.090 1,193,841 0.375 18,507 June 30, 2022 0.100 1,323,888 0.375 37,982 $ 0.400 $ 5,317,823 $ 0.875 $ 56,929 *$0.06 per share of dividend for the quarter ended June 30, 2021 was declared subsequently in July 2021; therefore, it is included in the dividend declared during the quarter ended September 30, 2021.
Dividends Common Stock Series A Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2022 $ 0.105 $ 1,390,290 $ 0.375 $ 87,884 December 31, 2022 0.110 1,456,391 0.375 155,909 March 31, 2023 0.115 1,520,985 0.375 209,620 June 30, 2023 0.120 1,586,863 0.375 242,188 $ 0.450 $ 5,954,529 $ 1.500 $ 695,601 During the years ended June 30, 2024 and 2023, we issued 185,819.74 and 189,289.44 shares of our common stock, respectively, in connection with the DRIP.
Holders As of September 28, 2023, we had 13,305,608.63 shares of our common stock and 727,506.11 shares of our Series A preferred stock outstanding, held by a total of 3,137 common stockholders and 373 Series A preferred stockholders, respectively. Distributions to Stockholders We pay quarterly distributions to stockholders to the extent that we have income from operations available.
Holders As of September 27, 2024, we had 13,435,656.80 shares of our common stock, 765,429.60 shares of our Series A preferred stock, 63,909.52 shares of our Series B preferred stock outstanding, held by a total of 1,857 common stockholders, 403 Series A preferred stockholders and 35 Series B preferred stockholders, respectively.
During the year ended June 30, 2022, we issued 119,380 Series A preferred shares with gross proceeds of $2,957,530, as well as 36.70 Series A preferred shares with total gross proceeds of $826 under the DRIP related to the Series A preferred, pursuant to the Company’s Regulation A Series A preferred stock offering.
We also issued 7,741.20 Series A preferred shares with total gross proceeds of $174,179 under the DRIP related to the Series A preferred, and 2.11 Series B preferred shares with total gross proceeds of $48 under the DRIP related to the Series B preferred.
Removed
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our securities are currently not listed on any exchange, and we do not intend to list our securities on any securities exchange until at least 2024. Therefore, we do not expect a public market for them to develop in the foreseeable future.
Added
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information On April 29, 2024, our common stock became eligible for trading on the OTCQX Best Market under the ticker symbol MKZR. The OTCQX Best Market is the highest market tier of OTC Markets on which 10,000 U.S. and global securities trade.
Removed
Therefore, a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, if at all. Our public offering to sell our shares of common stock terminated in October 2020.
Added
Trading on OTCQX will enhance the visibility and accessibility of our common stock to U.S. investors. We have also secured Depository Trust Company (“DTC”) eligibility for our common shares. Trading through DTC allows for cost-effective clearing and guaranteed settlement, simplifying and accelerating the settlement process of daily trades.
Removed
As part of the merger agreement between our wholly owned subsidiary, Merger Sub, and FSP Satellite, the former shareholders of FSP Satellite received cash or shares of the Company, based upon their election.
Added
In addition, on August 26, 2024, we entered into a letter agreement with Maxim to provide general financial advisory and investment banking services to the Company in connection with, among other things, strategic planning, potential uplisting to a U.S. exchange (NASDAQ, New York Stock Exchange), and potential rights offering, equity issuance or other mechanisms to enhance corporate and shareholder value.
Removed
Upon closing of the merger on June 1, 2022, 3,172 shares of common stock and 550 shares of Series A preferred stock of the Company were issued at a stated value of $10.25 and $25 per share, respectively.
Added
The timing of any up-list process will be dependent on a multitude of factors including, but not limited to, overall market conditions.
Removed
Effective April 1, 2023 and July 1, 2022, we issued 4,309.17 and 169.67 shares of common stock, respectively, at a stated value of $10.25 per share to Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common stock.
Added
We have elected to be treated as a REIT under the Code.
Added
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 DRIP in connection with trading of its common stock on the OTCQX Best Market.
Added
Since 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 DRIP. 28 Table of Contents The following tables reflect the dividends per share that we have declared during the years ended June 30, 2024 and 2023: Dividends Common Stock Series A Preferred Stock Series B Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount Per Share Amount September 30, 2023 $ 0.125 $ 1,652,688 $ 0.375 $ 268,383 $ - $ - December 31, 2023 0.125 1,652,367 0.375 276,600 0.750 2,222 March 31, 2024 0.125 1,660,225 0.375 281,770 0.750 8,078 June 30, 2024 0.125 1,662,826 0.375 284,737 0.750 31,696 $ 0.500 $ 6,628,106 $ 1.500 $ 1,111,490 $ 2.250 $ 41,996 * * Of the total dividends declared for Series B during the year ended June 30, 2024, $31,497 was an increase in liquidation preference and $10,451 was the cash dividend.
Added
During the year ended June 30, 2024, we issued 85,688.31 of Series A preferred shares with total gross proceeds of $2,140,949, 49,562.45 of Series B preferred shares with total gross proceeds of $1,227,950.
Added
All such issuances were pursuant to our Regulation A Series A and Series B preferred stock offering.
Added
These private placements of our common and preferred shares were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 3(b)(2) and Regulation A thereunder (in the case of our Regulation A offering of preferred shares) or Section 4(a)(2) and Regulation D thereunder (in the case of Operating Partnership unit conversions).
Added
On August 26, 2024, in connection with our agreement with Maxim, the Company has issued in a private placement an aggregate amount of 133,000 shares of common stock to Maxim’s affiliate, approximately of 1% of the Company’s outstanding stock. The private placement is exempt from registration under the Section 4(a)(2) of the Securities Act, and Regulation D thereunder.
Added
The Company is relying, in part, upon representations of the Maxim that it is an accredited investor as defined in Regulation D under the Securities Act.
Added
During the year ended June 30, 2023 Common stock September 1, 2022 through September 30, 2022 40,817.06 $ 9.47 40,817.06 - December 1, 2022 through December 31, 2022 44,048.79 9.44 44,048.79 - March 1, 2023 through March 31, 2023 58,896.00 7.38 58,896.00 - June 1, 2023 through June 30, 2023 60,298.00 60,298.00 - 204,059.85 204,059.85 - - Series A Preferred stock - April 1, 2023 through April 30, 2023 1,400.00 $ 22.75 1,400.00 - 30 Table of Contents Item 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

90 edited+33 added−22 removed67 unchanged
Biggest changeWe 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 financial statements of such entities with our own; these are listed below as “Unconsolidated investments (non-securities), at fair value.” The following table summarizes the composition of our investments at fair value as of June 30, 2023 and 2022: Fair Value Investments, at fair value June 30, 2023 June 30, 2022 3100 Airport Way South LP $ - $ 330,000 5210 Fountaingate 6,820 6,820 American Healthcare REIT, Inc. – Class I - 416,115 Capitol Hill Partners, LLC 1,107,795 1,518,100 Citrus Park Hotel Holdings, LLC 4,100,000 5,000,000 Coastal Realty Business Trust, REEP, Inc. - A - 49,178 Corporate Property Associates 18 Global A Inc. - 42,256 Healthcare Trust, Inc. 1,554,693 3,866,394 HGR Liquidating Trust - 732 Highlands REIT Inc. 2,794,926 3,750,385 KBS Real Estate Investment Trust II, Inc. - 1,010,350 Lakemont Partners, LLC 829,381 806,290 Moody National REIT II, Inc. 13,853 15,969 Secured Income, LP - 520,594 SmartStop Self Storage REIT, Inc Class A 1,878,092 120,922 SmartStop Self Storage REIT, Inc Class T - 9,885 Strategic Realty Trust, Inc. 216,068 311,007 Summit Healthcare REIT, Inc. 930,852 1,973,211 Total $ 13,432,480 $ 19,748,208 Fair Value Unconsolidated investments (non-securities), at fair value June 30, 2023 June 30, 2022 1300 Main, LP $ - $ 1,688,000 Dimensions28 LLP - 19,512,036 First & Main, LP - 2,237,000 Green Valley Medical Center, LP 2,363,000 3,010,000 Main Street West, LP - 4,708,000 Martin Plaza Associates, LP 493,000 725,000 One Harbor Center, LP 4,076,500 4,162,000 Westside Professional Center I, LP 1,784,000 1,803,000 Woodland Corporate Center Two, LP - - Total $ 8,716,500 $ 37,845,036 32 Table of Contents Properties In addition to our investment securities, we currently own and manage five commercial real estate properties: Satellite Place in Duluth, GA, 1300 Main, First & Main and Main Street West in Napa, CA, and Woodland Corporate Center Two in Woodland, CA and four residential apartments: Commodore Apartments and The Park View (f/k/a as Pon De Leo Apartments), located in Oakland, CA, the Hollywood Property located in Los Angeles, CA, and the Shoreline Apartments in Concord, CA. 1300 Main, First & Main, Main Street West, Woodland Corporate Center Two, and the Hollywood Property are owned through our subsidiary, the Operating Partnership; the Commodore Apartments are owned through our subsidiary Madison; The Park View (f/k/a as Pon De Leo Apartments) are owned through our subsidiary PVT; and the Shoreline Apartments are owned through our subsidiary BAA-Shoreline..
Biggest changeWe 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 financial statements of such entities with our own; these are listed below as “Unconsolidated investments (non-securities), at fair value.” The following table summarizes the composition of our investments at fair value as of June 30, 2024 and 2023: Fair Value Investments, at fair value June 30, 2024 June 30, 2023 5210 Fountaingate, LP $ 4,950 $ 6,820 Blackstone Real Estate Income Trust, Inc. - Class S 330,828 - Capitol Hill Partners, LLC - 1,107,795 Citrus Park Hotel Holdings, LLC - 4,100,000 Healthcare Trust, Inc. 856,285 1,554,693 Highlands REIT, Inc. 69,322 2,794,926 Lakemont Partners, LLC 791,990 829,381 Moody National REIT II, Inc. 18,759 13,853 SmartStop Self Storage REIT, Inc. - Class A 41,149 1,878,092 Starwood Real Estate Income Trust, Inc. - Class S 24,821 - Strategic Realty Trust, Inc. - 216,068 Summit Healthcare REIT, Inc. - 930,852 Total $ 2,138,104 $ 13,432,480 Fair Value Unconsolidated investments (non-securities), at fair value June 30, 2024 June 30, 2023 Green Valley Medical Center, LP $ 2,005,102 $ 2,363,000 Martin Plaza Associates, LP 465,053 493,000 One Harbor Center, LP - 4,076,500 Westside Professional Center I, LP 1,436,171 1,784,000 Total $ 3,906,326 $ 8,716,500 Properties In addition to our investment securities, we currently own and manage eight commercial real estate properties: Satellite Place located in Duluth, GA, 1300 Main, First & Main and Main Street West located in Napa, CA, Woodland Corporate Center located in Woodland, CA, 220 Campus Lane and Green Valley Executive Center located in Fairfield, CA and One Harbor Center located in Suisun, CA and four residential apartments: Commodore Apartments and The Park View (f/k/a as Pon De Leo Apartments), located in Oakland, CA, Hollywood Apartments located in Los Angeles, CA, and the Shoreline Apartments in Concord, CA. 1300 Main, First & Main, Main Street West, Woodland Corporate Center, and the Hollywood Apartments are owned through our subsidiary, the Operating Partnership; the Commodore Apartments are owned through our subsidiary Madison; The Park View (f/k/a as Pon De Leo Apartments) are owned through our subsidiary PVT; and the Shoreline Apartments are owned through our subsidiary BAA-Shoreline.
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.
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 stockholders and meet certain other conditions.
Other income: During the year ended June 30, 2023, we recognized net other income of $14.49 million, of which $14.84 million was gain on extinguishment of debt income resulting from the sale of Addison Property Owner offset by $0.35 million of loss on disposal of real estate of Addison Corporate Center.
During the year ended June 30, 2023, we recognized net other income of $14.49 million, of which $14.84 million was gain on extinguishment of debt income resulting from the sale of Addison Property Owner offset by $0.35 million of loss on disposal of real estate of Addison Corporate Center.
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, long distance telephone and staff; 31 Table of Contents • 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.
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, long distance telephone and staff; 32 Table of Contents • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1934 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.
We consider the period of future benefit of an asset to determine its appropriate useful life and anticipate the estimated useful lives of assets by class to be generally as follows: Buildings 16 - 45 years Building improvements 1 - 15 years Land improvements 5 - 15 years Furniture, fixtures and equipment 3 - 11 years In-place leases 1 - 10 years 45 Table of Contents Impairment of Real Estate Assets We continually monitor events and changes in circumstances that could indicate that the carrying value of our real estate and related intangible assets may not be recoverable.
We consider the period of future benefit of an asset to determine its appropriate useful life and anticipate the estimated useful lives of assets by class to be generally as follows: Buildings 16 – 45 years Building improvements 1 – 15 years Land improvements 5 – 15 years Furniture, fixtures and equipment 3 – 11 years In-place leases 1 – 10 years Impairment of Real Estate Assets We continually monitor events and changes in circumstances that could indicate that the carrying value of our real estate and related intangible assets may not be recoverable.
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. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2022.
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. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2023.
Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates. 42 Table of Contents Fair Value Measurements GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value.
Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates. 44 Table of Contents Fair Value Measurements GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring investments at fair value.
Therefore, no income tax provisions are recorded for these entities. 39 Table of Contents 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.
Therefore, no income tax provisions are recorded for these entities. 41 Table of Contents 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.
The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. 46 Table of Contents
The investment properties and liabilities associated with those investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. 48 Table of Contents
Total realized gains for the year ended June 30, 2023, were realized from the sale of three limited partnership interest with net realized gain of $0.43, nine non-traded REIT securities with net realized gain of $0.17 million, one investment trust with net realized gain of $0.05 million, and one publicly traded REIT securities with total realized gains of $0.01 million.
The total net realized gain for the year ended June 30, 2023, was realized from the sale of three limited partnership interest with net realized gain of $0.43, nine non-traded REIT securities with net realized gain of $0.17 million, one investment trust with net realized gain of $0.05 million, and one publicly traded REIT securities with total realized gains of $0.01 million.
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 estimates to be the actual or potential value of the real estate.
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.
Further, 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.
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.
In November 2021, the SEC qualified our offering statement 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 $25.00 per share.
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 $25.00 per share.
Portfolio Investment Composition As of June 30, 2023, we owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below.
Portfolio Investment Composition As of June 30, 2024, we owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below.
Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2022. In addition, for the tax year 2023, we intend to pay the requisite amounts of dividends during the year and meet other REIT requirements such that it will not owe any income taxes.
Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2023. In addition, for the tax year 2024, we intend 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.
Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or Board of Directors, does not represent fair value, which we expect will represent a substantial portion of our portfolio of securities investments, shall each be valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate and necessary, the respective third‑party valuation firms.
Securities for which reliable market data is not readily available or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or Board of Directors, does not represent fair value, are valued as follows: (i) each portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser and, where appropriate and necessary, the respective third‑party valuation firms.
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 since we are no longer subject to the restrictions of the 1940 Act.
We also 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.
In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates.
We 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.
In addition, from time to time, we may draw on the Company’s margin line of credit on a temporary basis to bridge our investment purchases and sales or capital raising. For additional information concerning our margin borrowing activity, please see Note 9 - Margin Loans in the financial statements included in this report.
In addition, from time to time, we may draw on the Company’s margin line of credit on a temporary basis to bridge our investment purchases and sales or capital raising. Additional information concerning our margin borrowing activity is discussed in Note 9 - Margin Loans in the financial statements included in this report.
Net unrealized gain (loss) on investments: During the year ended June 30, 2023, we recorded net unrealized loss on investments of $10.28 million, which were net of $8.30 million of unrealized gain reclassification adjustments. 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.
During the year ended June 30, 2023, we recorded a net unrealized loss of $10.28 million, which was net of a $8.30 million unrealized gain reclassification adjustments. 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.
Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.
Operational dividends or distributions received from portfolio investments are recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as appropriate.
As of June 30, 2023, the property is 100% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2024, the property is 100% occupied by 9 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2023, the property is 98% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2024, the property is 89% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2023, the property is 84% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2024, the property is 95% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
These include, without limitation, the risk that 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; the risk that a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and the risk that interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy.
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.
Assets and Liabilities Held for Sale We classify long-lived assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met: • Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group); • The asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal groups); • An active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated; • The sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; • The asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
Based on this assessment, if we do not believe that we will recover the carrying value of the real estate and related intangible assets, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets. 47 Table of Contents Assets and Liabilities Held for Sale We classify long-lived assets or disposal groups to be sold as held for sale in the period in which all of the following criteria are met: • Management, having the authority to approve the action, commits to a plan to sell the asset (disposal group); • The asset (disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (disposal groups); • An active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated; • The sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell the asset or disposal group beyond one year; • The asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
As of June 30, 2023, the property is approximately 56% occupied by 2 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2024, the property is approximately 71% occupied by 4 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
As of June 30, 2023, 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.
As of June 30, 2024, the property is 100% occupied by 17 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
We estimate future leasing and costs associated, generally over a ten-year period, to determine the fair value of the property. Once the fair value is determined, and reviewed by the board of directors, a determination of whether any impairment is required is made and documented.
We estimate future leasing and costs associated, generally over a ten-year period, to determine the fair value of the property. Once the fair value is determined, and reviewed by the Board of Directors, a determination of whether any impairment is required is made and documented. In addition, we may obtain a third-party appraisal on directly owned properties.
First & Main Office Building First & Main, LP 1300 Main Office Building 1300 Main, LP Woodland Corporate Center Office Building Woodland Corporate Center Two, LP Main Street West Office Building Main Street West, LP 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.
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 Office Building One Harbor Center, LP 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.
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.
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. 31 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.
Net realized gain on sale of investments: During the year ended June 30, 2023, we had a realized gain of $0.66 million as compared to $7.35 million during the year ended June 30, 2022.
Net realized gain (loss) on sale of investments: During the year ended June 30, 2024, we recorded a net realized loss of $3.02 million as compared to $0.66 million net realized gain during the year ended June 30, 2023.
Property: Property Owners Commodore Apartments Madison-PVT Partners LLC The Park View (fka as Pon De Leo Apartments) PVT-Madison Partners LLC Hollywood Apartments PT Hillview GP, LLC Shoreline Apartments MacKenzie BAA IG Shoreline LLC Satellite Place Office Building MacKenzie Satellite Place Corp.
In August 2024, we have listed Hollywood Apartments for sale. 33 Table of Contents Property: Property Owners Commodore Apartments Madison-PVT Partners LLC The Park View (fka as Pon De Leo Apartments) PVT-Madison Partners LLC Hollywood Apartments PT Hillview GP, LLC Shoreline Apartments MacKenzie BAA IG Shoreline LLC Satellite Place Office Building MacKenzie Satellite Place Corp.
Accordingly, the net unrealized loss on investments for the year ended June 30, 2023 was $1.98 million, which resulted from fair value depreciations of $1.80 million from non-traded REIT securities and $0.67 million from limited partnership interests, offset by a net fair value appreciation of $0.49 million from general partnership interests. 38 Table of Contents During the year ended June 30, 2022, we recorded net unrealized gains of $8.87 million, which were net of $0.38 million of unrealized gain reclassification adjustments.
Accordingly, the net unrealized loss excluding the reclassification adjustment for the year ended June 30, 2023 was $1.98 million, which resulted from fair value depreciations of $1.80 million from non-traded REIT securities and $0.67 million from limited partnership interests, offset by a net fair value appreciation of $0.49 million from general partnership interests.
Therefore, we did not record any tax provisions for tax year 2023. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return. The Operating Partnership is a limited partnership. Hollywood Hillview, MacKenzie Shoreline, Madison, and PVT are limited liability companies.
Therefore, we did not record any tax provisions during any fiscal periods within the tax year 2023 and 2024. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return. The Operating Partnership is a limited partnership.
For additional information concerning the terms of these agreements and related fees paid, see Note 8 – Related Party Transactions in the consolidated financial statements included in this report. Borrowings We do not have any current plans to borrow money at the Parent Company level.
For additional information concerning the terms of these agreements and related fees paid, see Note 8 – Related Party Transactions in the consolidated financial statements included in this report. Borrowings In August 2024, we have applied for a new line of credit at the Parent Company level.
Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2023. TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on their taxable income at regular statutory rates. However, these subsidiaries did not have material taxable income for tax year 2022.
Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2024. MacKenzie NY 2 is subject to corporate federal and state income tax on its taxable income at regular statutory rates. As of June 30, 2024, it did not have any taxable income for tax year 2023 and 2024.
Our consolidated office properties, 1300 Main, First and Main, Main Street West, Satellite Place, and Woodland Corporate Center Two, are all Class A suburban office properties and are located in Napa, California, Napa, California, Napa, California, Duluth, Georgia, and Woodland, California, respectively.
Our consolidated office properties, 1300 Main, First and Main, Main Street West, One Harbor Center, Satellite Place, Woodland Corporate Center, 220 Campus Lane, 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.
First & Main, 1300 Main, Woodland Corporate Center Two, and Main Street West are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company.
Hollywood Hillview, MacKenzie Shoreline, Madison, PVT, 220 Campus Lane, Campus Lane Residential, GV Executive Center and One Harbor Center are limited liability companies. First & Main, 1300 Main, Woodland Corporate Center Two, and Main Street West are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company.
On October 14, 2022, we amended our offering statement and increased the offering to sell up to $75 million of shares of our Series A preferred stock. We had raised $16.37 million through the sale of our Series A preferred stock pursuant to the Offering Circular as of June 30, 2023.
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.
The slight increase was due to an increase in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to June 30, 2022, as a result of the increase in our capital raising activities.
The slight increase was due to an increase in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to June 30, 2023, as a result of the increase in the number of real estate assets owned by us since June 2023.
We did not incur any incentive management fee for the years ended June 30, 2023 and 2022. Administrative cost and transfer agent reimbursements: Costs reimbursed to MacKenzie for the year ended June 30, 2023 were $0.73 million as compared to $0.61 million for the year ended June 30, 2022.
Administrative cost and transfer agent reimbursements: Costs reimbursed to MacKenzie for the year ended June 30, 2024 were $0.76 million as compared to $0.73 million for the year ended June 30, 2023.
Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period.
While management determined these to be not critical, they are still considered to be significant and relevant for understanding and evaluating our reported financial results. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period.
When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of rental revenue over the lease term. 44 Table of Contents Tenant improvement ownership is determined based on various factors including, but not limited to: • whether the lease stipulates how a tenant improvement allowance may be spent; • whether the lessee or lessor supervises the construction and bears the risk of cost overruns; • whether the amount of a tenant improvement allowance is in excess of market rates; • whether the tenant or landlord retains legal title to the improvements at the end of the lease term; • whether the tenant improvements are unique to the tenant or general purpose in nature; and • whether the tenant improvements are expected to have any residual value at the end of the lease.
Tenant improvement ownership is determined based on various factors including, but not limited to: • whether the lease stipulates how a tenant improvement allowance may be spent; • whether the lessee or lessor supervises the construction and bears the risk of cost overruns; • whether the amount of a tenant improvement allowance is in excess of market rates; • whether the tenant or landlord retains legal title to the improvements at the end of the lease term; • whether the tenant improvements are unique to the tenant or general purpose in nature; and • whether the tenant improvements are expected to have any residual value at the end of the lease. 46 Table of Contents In accordance with ASC Topic 842, we determine whether collectability of lease payments in an operating lease is probable.
During the year ended June 30, 2023, we received dividends, interest, and other investment income of $0.49 million as compared to $1.24 million received during the year ended June 30, 2022.
Total investment income for the years ended June 30, 2024 and 2023 was $0.85 million and $11.31 million, respectively. During the year ended June 30, 2024, we received dividends, interest, and other investment income of $0.58 million as compared to $0.49 million received during the year ended June 30, 2023.
There was no such other income (loss) during the year ended June 30, 2022. Expenses: 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 years ended June 30, 2023 and 2022 were $3.00 million and $2.73 million, respectively.
Expenses: Our asset management and incentive management fees are based on the advisory agreements that were effective January 1, 2021. 39 Table of Contents Asset management fee: The asset management fees for the years ended June 30, 2024 and 2023 were $3.22 million and $3.00 million, respectively.
Occupied Rent per annum Lease Expiration Renewal options GVM Law Legal Services 9,470 $ 486,027 9/20/26 2, 5 years Brotlemarkle Accounting Services 4,366 $ 236,013 7/31/30 2, 5 years Napa Palisades Restaurant 3,462 $ 186,837 8/31/40 No Moss Adams Accounting Services 3,428 $ 164,544 6/30/25 No The following information pertains to lease expirations at First & Main Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 1 1,135 $ 70,127 5 % 2025 2 5,648 $ 304,385 21 % 2026 1 9,470 $ 486,027 34 % Thereafter 4 10,550 $ 565,058 40 % Main Street West Office Building contains 38,136 square feet, of which approximately 32,500 square feet is office space and the remainder is designated as retail space.
Occupied Annual Base Rent Lease Expiration Renewal options GVM Law Legal Services 9,470 $ 499,982 09/20/2026 2, 5 years Brotlemarkle Accounting Services 4,366 $ 242,736 07/31/2030 2, 5 years Napa Palisades Restaurant 3,462 $ 192,446 08/31/2040 No Moss Adams Accounting Services 3,428 $ 164,544 06/30/2025 No 34 Table of Contents 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 2024 1 1,135 $ 71,280 5% 2025 2 5,648 $ 309,986 21% 2026 1 9,470 $ 499,982 33% Thereafter 5 11,122 $ 614,094 41% Main Street West Office Building contains 38,136 square feet, of which approximately 32,700 square feet is office space and the remainder is designated as retail space.
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.
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.
The rise in overall interest rates has caused an increase in our variable rate borrowing costs resulting in an increase in interest expense. The higher interest rates imposed by the Federal Reserve to address inflation may also adversely impact real estate asset values. In addition, a prolonged period of high and persistent inflation could cause an increase in our expenses.
The higher interest rates imposed by the Federal Reserve to address inflation may also 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.
During this year, net cash used in our operating activities totaled $6.62 million, while we generated net cash of $15.31 million from our investing activities and $0.45 million from our financing activities.
Fiscal 2023: For the year ended June 30, 2023, we experienced a net increase in cash of $9.14 million. During this year, we used cash of $6.62 million in our operating activities and generated $15.31 million in our investing activities and $0.45 million in our financing activities.
Occupied Rent per annum Lease Expiration Renewal options AUL Corporation Insurance 13,806 $ 801,983 2/3/26 No State of California Medical 4,697 $ 259,721 4/30/28 No Strategies To Empower Medical 4,875 $ 213,229 12/31/27 No Azzurro Pizzeria Restaurant 2,935 $ 201,144 7/31/24 No The following information pertains to lease expirations at Main Street West Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 3 6,613 $ 371,792 21 % 2026 1 13,806 $ 801,983 45 % 2027 2 7,010 $ 331,263 19 % Thereafter 1 4,697 $ 259,721 15 % Satellite Place Office Building contains 143,785 square feet, all of which is office space.
Occupied Annual Base Rent Lease Expiration Renewal options AUL Corporation Insurance 13,806 $ 818,603 02/03/2026 No State of California Medical 4,697 $ 259,721 04/30/2028 No Strategies To Empower People Medical 4,875 $ 219,396 12/31/2027 No Azzurro Pizzeria Restaurant 2,735 $ 144,000 03/31/2029 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 2024 2 3,678 $ 171,080 9% 2026 1 13,806 $ 818,603 44% 2027 2 7,010 $ 341,417 19% Thereafter 3 9,373 $ 512,699 28% Satellite Place Office Building contains 134,785 square feet, all of which is office space.
The slight increase was due to an increase in the Invested Capital since June 30, 2022. 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 Agreement.
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 Agreement. We did not incur any incentive management fee for the years ended June 30, 2024 and 2023.
As of June 30, 2023, Commodore Apartment building is approximately 97.9% occupied. The Park View (f/k/a as Pon De Leo Apartments) is also a mid-rise apartment building built in 1929 and has 39 units. As of June 30, 2023, The Park View (f/k/a as Pon De Leo Apartments) building is approximately 92.3% occupied.
As of June 30, 2024, Commodore Apartment building is approximately 87.5% occupied. The Park View is also a mid-rise apartment building built in 1929 and has 39 units. As of June 30, 2024, The Park View building is approximately 92.3% occupied. Hollywood Apartments, located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 54 units.
Securities for which market data is not readily available or for which a pricing source is not sufficient may include the following: • private placements and restricted securities that do not have an active trading market; • securities whose trading has been suspended or for which market quotes are no longer available; • debt securities that have recently gone into default and for which there is no current market; • securities whose prices are stale; • securities affected by significant events; and • securities that the Investment Adviser believes were priced incorrectly.
The recommendation of fair value will generally be based on the following factors, as relevant: • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments; • the portfolio company’s earnings and discounted cash flow; • the markets in which the issuer does business; and • comparisons to publicly traded securities. 45 Table of Contents Securities for which market data is not readily available or for which a pricing source is not sufficient may include the following: • private placements and restricted securities that do not have an active trading market; • securities whose trading has been suspended or for which market quotes are no longer available; • debt securities that have recently gone into default and for which there is no current market; • securities whose prices are stale; • securities affected by significant events; and • securities that the Investment Adviser believes were priced incorrectly.
Each such determination and the basis thereof are contained in the minutes of our Board of Directors meetings. 30 Table of Contents We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value.
We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value. We intend to expand our investment strategy to include acquisition of distressed real properties.
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.
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.
Interest expense: Interest expense for the year ended June 30, 2023 was $7.10 million, of which $4.14 million was incurred on the mortgage notes payable associated with our five commercial properties (Addison Corporate Center, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $2.96 million was incurred on the mortgage notes payable associated with our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments).
Interest expense for the year ended June 30, 2023 was $7.10 million, of which $4.14 million was incurred on the mortgage notes payable associated with our five commercial properties, excluding Satellite Place Office Building and $2.96 million was incurred on the mortgage notes payable associated with our four residential properties.
Occupied Rent per annum Lease Expiration Renewal options OS National, LLC Title Services 71,085 $ 1,356,657 12/31/29 2, 5 years Sun Taiyang Consumer Products 4,373 $ 92,273 11/30/29 No 34 Table of Contents The following information pertains to lease expirations at Satellite Place Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2029 2 75,468 $ 1,448,930 100% Woodland Corporate Center Office Building contains 37,034 square feet, all of which is office space.
Occupied Annual Base Rent Lease Expiration Renewal options OS National, LLC Title Services 71,085 $ 1,390,423 12/31/2029 2, 5 years Polytron Title Services 10,737 $ 210,955 04/30/2031 2, 5 years Ampirical Engineering Consulting 9,790 $ 202,522 09/30/2030 2, 5 years Sun Taiyang Consumer Products 4,383 $ 95,042 11/30/2029 1, 5 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 2029 2 75,468 $ 1,485,464 78% 2030 1 9,790 $ 202,522 11% 2031 1 10,737 $ 210,955 11% 35 Table of Contents Woodland Corporate Center contains 37,034 square feet, of which 7,797 square feet are laboratories and the rest is office space.
The net cash inflow of $15.31 million from investing activities resulted from (i) the sale of investments, and distributions received from investments of $15.24 million, (ii) the sale of real estate of $8.69 million of and (iii) distributions received from our investments that are considered return of capital of $12.96 million, offset by cash outflow from (i) real estate acquisitions through our subsidiaries of $18.70 million, (ii) purchases of equity investments of $1.62 million, (iii) payment on the contingent liability of $1.16 million and (iv) payment of investment acquisition advance of $0.10 million. 40 Table of Contents The net cash inflow of $0.45 million from financing activities resulted from (i) the issuance of preferred stock of $13.42 million, (ii) additional mortgage borrowings of $3.24 million, and (iv) proceeds from capital pending acceptance $0.45 million, offset by (i) payments on existing mortgage note payables of $8.86 million, (ii) payments of dividends of $4.47 million, (iii) redemption of common stock of $1.59 million, (iv) payments of syndication cost amounting to $1.21 million, (v) capital distributions to non-controlling interests holders amounting to $0.45 million, (vi) redemption of preferred stock of $0.03 million, (vii) payments of finance lease liabilities of $0.03 million, and (viii) payment on note payable of $0.02 million.
The net cash inflow of $0.45 million from financing activities resulted from $13.42 million issuance of preferred stock, $3.24 million additional mortgage borrowings, and $0.45 million proceeds from capital pending acceptance, offset by $8.86 million payments on existing mortgage note payables, $4.47 million payments of dividends, $1.59 million redemption of common stock, $1.21 million payments of syndication cost, $0.45 million capital distributions to non-controlling interests holders, $0.03 million redemption of preferred stock, $0.03 million payments of finance lease liabilities, and $0.02 million payment on note payable.
Hollywood Hillview Apartments (“Hollywood Property”), located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 53 units. The property contains approximately 37,000 square feet of net rentable apartment area and 8,560 square feet of retail space. All of the retail space is currently occupied by restaurants and nightclubs.
The property contains approximately 37,000 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. The apartment units are 88.9% occupied as of June 30, 2024. Shoreline Apartments is a mid-rise apartment building built in 1967 and renovated in 2015 which has 84 units.
Transfer agent cost reimbursements paid to MacKenzie for the years ended June 30, 2023 and 2022 were $0.09 million and $0.11 million, respectively. 37 Table of Contents 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.
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.
Each property is being held for income production and increased occupancy and/or rental rates. We have property and liability insurance policies on all properties which we believe are adequate.
Each property is being held for income production and increased occupancy and/or rental rates. We have property and liability insurance policies on all properties which we believe are adequate. 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.
In addition, we have raised $14.19 million from the issuance of common shares under the DRIP. Of the total capital raised from the public offerings of our common stock as of June 30, 2023, we have used $13.36 million to repurchase shares under our share repurchase program.
In addition, we have raised $15.56 million from the issuance of common shares under the DRIP as of June 30, 2024. Out of the total proceeds from DRIP, we have utilized a total of $14.28 million to repurchase common shares under the Share Repurchase Program.
Depreciation and amortization: During the year ended June 30, 2023, we recorded depreciation and amortization of $5.27 million, of which $3.01 million was attributable to the depreciation and amortization of real estate and intangible assets of our five commercial properties (Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $2.26 million was attributable to our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments).
During the year ended June 30, 2023, we recorded depreciation and amortization of $5.27 million, of which $3.01 million was attributable to the depreciation and amortization of real estate and intangible assets of our five commercial properties, which exclude Addison Corporate Center as it was held for sale and not depreciated, and $2.26 million was attributable to our four residential properties.
Other operating expenses: Other operating expenses include professional fees, directors’ fees, printing and mailing expense, and other general and administrative expenses. Other operating expenses for the years ended June 30, 2023 and 2022, were $1.63 million and $1.35 million, respectively.
Other operating expenses for the years ended June 30, 2024 and 2023, were $1.80 million and $1.63 million, respectively.
During the year ended June 30, 2023, we generated $15.11 million in rental and reimbursements revenues, of which $9.10 million was generated from our six commercial properties (Addison Corporate Center, Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Main Street West Office Building and Woodland Corporate Center Office Building), and $6.01 million was generated from our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments).
During the year ended June 30, 2023, we generated $15.11 million in rental and reimbursements revenues, of which $9.10 million was generated from our six commercial properties and $6.01 million was generated from our four residential properties.
During the year ended June 30, 2023, we incurred operating and maintenance expenses of $9.03 million, of which $6.51 million were incurred in the operation of our six commercial properties (Addison Corporate Center, Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $2.52 million were incurred in the operation of our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments).
During the year ended June 30, 2023, we incurred operating and maintenance expenses of $9.03 million, of which $6.51 million were incurred in the operation of our six commercial properties and $2.52 million were incurred in the operation of our four residential properties.
Occupied Rent per annum Lease Expiration Renewal options Wilson Daniels Wine Wholesaler 6,712 $ 417,002 3/15/25 1, 5 years Hal Yamashita Restaurant 3,212 $ 186,852 7/31/26 No Norcal Gold Real Estate 2,896 $ 172,171 3/31/26 1, 5 years Shackford’s Kitchen Retail 2,409 $ 134,028 6/30/32 No The following information pertains to lease expirations at 1300 Main Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 1 1,088 $ 74,232 6 % 2025 2 8,898 $ 550,602 45 % 2026 2 6,108 $ 359,023 30 % Thereafter 3 4,051 $ 233,103 19 % 33 Table of Contents First and Main Office Building contains 27,396 square feet, of which approximately 19.000 square feet is office space and the remainder is designated as retail space.
Occupied Annual Base Rent Lease Expiration Renewal options Wilson Daniels Wine Wholesaler 6,712 $ 431,676 03/15/2025 1, 5 years NorCal Gold Real Estate 2,896 $ 177,336 03/31/2026 No Bao Ling Li Restaurant 3,212 $ 164,960 11/30/2030 No Whole Health Medical 2,186 $ 136,940 07/31/2025 No 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 2025 2 8,898 $ 568,616 51% 2026 1 2,896 $ 177,336 16% 2029 1 1,059 $ 67,649 6% Thereafter 3 6,204 $ 299,846 27% First and Main Office Building contains 27,396 square feet, of which approximately 19,000 square feet is office space and the remainder is designated as retail space.
During the year ended June 30, 2023 we received $10.82 million of distributions from operations, sales, and liquidations as compared to $3.67 million during the year ended June 30, 2022.
This increase was mainly due to increase in interest income from our cash deposits in money market funds during the year ended June 30, 2024. During the year ended June 30, 2024 we received $0.27 million of distributions from operations, sales, and liquidations as compared to $10.82 million during the year ended June 30, 2023.
Fiscal 2022: For the year ended June 30, 2022, we experienced a net increase in cash of $1.24 million. During this year, we generated cash of $4.62 million from our operating activities and $28.79 million from our financing activities, partially offset by the use of $32.17 million in our investing activities.
Cash Flows: Fiscal 2024: For the year ended June 30, 2024, we experienced a net decrease in cash of $5.06 million. During this year, we used cash of $0.59 million in our operating activities, $1.30 million in our investing activities and $3.17 million in our financing activities.
In addition, once per year, in preparation of net asset value, we obtain a third-party appraisal on directly owned properties. Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements will express the uncertainty of such valuations, and any change in such valuations, on our consolidated financial statements.
Determination of fair value involves subjective judgments and estimates and is reviewed by the Board of Directors. Accordingly, the notes to our consolidated financial statements will express the uncertainty of such valuations, and any change in such valuations, on our consolidated financial statements. Below is a discussion of additional accounting policies and estimates.
Total realized gains for the year ended June 30, 2022, were realized from the sale of three publicly traded REIT securities with total realized gains of $0.11 million and sixteen non-traded REIT securities with net realized gain of $9.13 million offset by a realized loss of $1.89 million from four limited partnership interest.
Total net realized loss for the year ended June 30, 2024, was realized from the write-off of two limited partnership interests (BP3 Affiliate, LLC and Capitol Hill Partners, LLC) with a realized loss of $3.06 million offset by the sale of four non-traded REIT securities with a net realized gain of $0.04 million.
The net cash outflow of $32.17 million from investing activities resulted from real estate acquisitions through our subsidiaries of $63.24 million and purchases of equity investments of $24.87 million, partially offset by cash inflows of $33.69 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 $15.31 million from investing activities resulted from $15.24 million sale of investments and distributions received from investments, $8.69 million sale of real estate and $12.96 million distributions received from our investments that are considered return of capital, offset by $18.70 million real estate acquisitions through our subsidiaries, $1.62 million purchases of equity investments , $1.16 million payment on the contingent liability and $0.10 million payment of investment acquisition advance.
In accordance with ASC Topic 842, we determine whether collectability of lease payments in an operating lease is probable. If we determine the lease payments are not probable of collection, we fully reserve for rent and reimbursement receivables, including deferred rent receivable, and recognize rental income on a cash basis.
If we determine the lease payments are not probable of collection, we fully reserve for rent and reimbursement receivables, including deferred rent receivable, and recognize rental income on a cash basis. Distributions received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date.
Accordingly, the net unrealized gains for the year ended June 30, 2022 were $9.25 million, resulted from fair value appreciations of $7.19 million from limited partnership interests, $2.04 million from non-traded REIT securities, $0.01 million from investment trust, and $0.01 million from publicly traded securities.
Accordingly, the net unrealized loss excluding the reclassification adjustment for the year ended June 30, 2024 was $1.46 million, which resulted from fair value depreciations of $1.06 million from non-traded REIT securities, $0.36 million from general partnership interests and $0.04 million from limited partnership interest.
The increase in investment income is due to the increase in distributions from liquidated investments offset by the decrease in dividend income due to decrease in our investment portfolio since June 30, 2022. The majority of the sales distributions received during the year ended June 30, 2023, was from Dimension 28, LLP (“Dimension 28”).
The decrease was mainly due to the liquidation of Dimension 28, LP in December 2022, which had provided $10.08 of sales distributions during the year ended June 30, 2023. The remaining decrease was due to the decrease in our investment portfolio since June 30, 2023.
The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period.
Net unrealized gain (loss) on investments: During the year ended June 30, 2024, we recorded a net unrealized gain of $0.86 million, which was net of a $2.32 million unrealized loss reclassification adjustments. 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.
During the year ended June 30, 2022, we recorded depreciation and amortization of $4.54 million, of which $3.39 million was attributable to the depreciation and amortization of real estate and intangible assets of our two commercial properties (Addison Corporate Center and Satellite Place Office Building) and $1.15 million was attributable to our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments).
Depreciation and amortization: During the year ended June 30, 2024, we recorded depreciation and amortization of $7.15 million, of which $4.98 million was attributable to the depreciation and amortization of real estate and intangible assets of our eight commercial properties and $2.17 million was attributable to our four residential properties.
The below table presents the total loan outstanding at the underlying companies as of June 30, 2023 and the fiscal years those loans mature: Fiscal Year Ending June 30, : Debt Maturing 2024 $ 19,743,039 2025 22,237,498 2026 11,024,219 Thereafter 40,770,297 Total $ 93,775,053 Critical Accounting Policies and Estimates Below is a discussion of the accounting policies and estimates that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results.
Critical Accounting Policies and Estimates Below is a discussion of the accounting policies and estimates that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results.
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.
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.

… 65 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed4 unchanged
Biggest changeWe seek to manage our exposure to interest rate risk by utilizing a mix of fixed and floating rate financing, and through interest rate hedging agreements to fix or cap our variable rate debt. As of June 30, 2023, the outstanding principal balance of our variable rate indebtedness was $17.5 million, which is the mortgage debt on Hollywood Property.
Biggest changeWe seek to manage our exposure to interest rate risk by utilizing a mix of fixed and floating rate financing, and through interest rate hedging agreements to fix or cap our variable rate debt. As of June 30, 2024, the outstanding principal balance of our variable rate indebtedness was $17.5 million, which is the mortgage debt on Hollywood Apartments.
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. At June 30, 2023, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 10% of our total assets as of that date.
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. At June 30, 2024, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 10% of our total assets as of that date.
The debt is indexed to Secured Overnight Financing Rate (“SOFR”). In order to mitigate the raising interest rate risk, we have executed an interest rate cap. For the year ended June 30, 2023, a 10% increase in SOFR would have resulted in no change in interest expense, net of the impact of our interest rate cap.
The debt is indexed to Secured Overnight Financing Rate (“SOFR”). In order to mitigate the raising interest rate risk, we have executed an interest rate cap. For the year ended June 30, 2024, a 10% increase in SOFR would have resulted in no change in interest expense, net of the impact of our interest rate cap.

Other MKZR 10-K year-over-year comparisons