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What changed in MacKenzie Realty Capital, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MacKenzie Realty Capital, Inc.'s 2022 and 2023 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 2023 report.

+420 added−344 removedSource: 10-K (2023-09-28) vs 10-K (2022-09-28)

Top changes in MacKenzie Realty Capital, Inc.'s 2023 10-K

420 paragraphs added · 344 removed · 235 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

36 edited+15 added−6 removed46 unchanged
Biggest changeWhere 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.
Biggest changeValuation 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.
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”; together the “Real Estate Adviser” and the “Investment Adviser” are referred to as the “Advisers”) as to our securities portfolio.
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”).
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 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 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 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 Adviser believes were priced incorrectly.
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.
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. 2 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. 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.
Our Adviser’s due diligence typically includes: • review of operating history, appraisals, market reports, vacancies, deferred maintenance; • review of historical and prospective financial information and regulatory disclosures; • research relating to the property’s management, industry, markets, products and services and competitors; • verification of collateral; and • appraisals or opinions of value by third party advisers.
Our Advisers’ due diligence typically includes: • review of operating history, appraisals, market reports, vacancies, deferred maintenance; • review of historical and prospective financial information and regulatory disclosures; • research relating to the property’s management, industry, markets, products and services and competitors; • verification of collateral; and • appraisals or opinions of value by third party advisers.
Our Adviser’s goal is to establish relationships with successful operators with proven track records in each region in which we operate, and to grow and deepen those relationships as they prove successful. Screening In screening potential investments, the Adviser’s investment team utilizes a value-oriented investment philosophy and commits resources to managing downside exposure.
Our Advisers’ goal is to establish relationships with successful operators with proven track records in each region in which we operate, and to grow and deepen those relationships as they prove successful. Screening In screening potential investments, the Advisers’ investment team utilizes a value-oriented investment philosophy and commits resources to managing downside exposure.
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 Adviser’s investment team is responsible for all aspects of our investment process.
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.
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.
The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims would materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution.
The cost of defending against claims of liability, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution.
We also entered into an administration agreement with MacKenzie (the “Administration Agreement”), 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 (or “CCO”), and any administrative support staff.
Our Adviser has 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, if any; • Attendance at and participation in our board meetings; and • Review of monthly and quarterly consolidated financial statements and financial projections for properties.
On June 1, 2022, the merger closed, and MacKenzie Satellite became a wholly owned subsidiary of the Company, which in turn 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 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.
Upon the completion of due diligence and a decision to proceed with an investment, the investment professionals leading the investment present the investment opportunity to the Adviser’s investment team, which then determines whether to pursue the potential investment.
Upon the completion of due diligence and a decision to proceed with an investment, the investment professionals leading the investment present the investment opportunity to the Advisers’ investment team, which then determines whether to pursue the potential investment.
Since dropping 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.
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.
Any fees and expenses incurred by the Adviser 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. 4 Table of Contents Monitoring Our Adviser monitors our investments on an ongoing basis.
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.
It will conduct many of our operations through the Operating Partnership. The withdrawal of our BDC election has also allowed us to expand our investment pool to include real, physical assets, as opposed to only investment securities.
We conduct many of our operations through the Operating Partnership. The withdrawal of our BDC election has also allowed us to expand our investment pool to include real, physical assets, as opposed to only investment securities.
Subsequently, on July 29, 2022, the Operating Partnership completed the acquisition of the limited partnership interest in First & Main, LP 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.
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.
Due Diligence In conducting due diligence, the Adviser uses publicly available information as well as information from its relationships with former and current management teams, investors, consultants, competitors and investment bankers.
Due Diligence In conducting due diligence, the Advisers use publicly available information as well as information from its relationships with former and current management teams, investors, consultants, competitors and investment bankers.
This strategy can boost cash-flow in two ways: (1) most such non-traded REITs pay regular cash distributions (even though COVID-19 prompted some to temporarily stop or cut back the 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. 3 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. 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.
Our internet address is www.mackenzierealty.com 6 Table of Contents
Our internet address is www.mackenzierealty.com 7 Table of Contents
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.
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.
(the “Parent Company,” together with its subsidiaries as discussed below, the “Company,” “we,” “us,” or “our”) was 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”).
(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.
Hollywood Hillview owns 100% of the membership interests in PT Hillview GP, LLC (the “PT Hillview”). On January 25, 2022, through the Operating Partnership, we acquired a 98% limited liability company interest in MacKenzie BAA IG Shoreline LLC (“MacKenzie Shoreline”), formed to acquire, renovate, and own the 84-unit multifamily building located at 1841 Laguna Street, Concord, CA.
On January 25, 2022, through the Operating Partnership, we acquired a 98% limited liability company interest in MacKenzie BAA IG Shoreline LLC (“MacKenzie Shoreline”), formed to acquire, renovate, and own the 84-unit multifamily building located at 1841 Laguna Street, Concord, CA.
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 for approximately $7.78 million. The remaining 10% economic interest in Hollywood Hillview is owned by an unaffiliated third party, True USA, LLC.
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”).
Withdrawal of our election to be regulated as a BDC did not affect our registration under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will continue to file periodic reports on Form 10-K, Form 10-Q, and Form 8-K, as well as file proxy statements and other reports required under the Exchange Act.
We remain registered under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), and we will continue to file periodic reports on Form 10-K, Form 10-Q, and Form 8-K, as well as file proxy statements and other reports required under the Exchange Act.
Thus, we are no longer regulated as a BDC and are no longer subject to the regulatory provisions of the 1940 Act. However, as 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 the Exchange Act and those relating to environmental matters.
Determination of fair value involves subjective judgments and estimates. 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. 5 Table of Contents Staffing We do not currently have any employees.
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.
We have consolidated the financial statements of the eight limited liability companies (but not the Wiseman Properties themselves) effective June 30, 2022. 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.
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.
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, a determination of impairment is made and documented. In addition, once per year, in preparation of net asset value, we obtain a third-party appraisal on directly owned properties.
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.
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).
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.
Board Approval of the Investment Advisory Agreement Our investment advisory, advisory management, and administrative services agreements were approved by our Board of Directors in January 2021 (the “Investment Advisory Agreement,” the “Advisory Management Agreement,” and the “Administration Agreement,” respectively, or, collectively, the “Advisory Agreements”).
Board Approval of the Administration and Advisory Agreements Our advisory and administrative services agreements were approved by our Board of Directors in January 2021.
(“MacKenzie NY 2”), was formed for the purpose of making certain limited investments in New York companies, and its financial statements have been consolidated with the Parent Company beginning with the quarter ended March 31, 2021.
(“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.
Our day-to-day investment operations are managed by the Adviser. Our Adviser may hire additional investment professionals, based upon its needs.
Our Advisers may hire additional investment professionals, based upon its needs.
Subsequent to the acquisition date, we redeemed substantially all of the remaining Class A Limited Partnership units by issuing to each Class A Limited Partner one share of our common stock for each Class A Unit. 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.
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.
We have also retained MacKenzie as our transfer agent and have been reimbursing MacKenzie for certain software development costs. Compliance with governmental laws and regulations, including those relating to environmental matters On December 31, 2020, we withdrew our election to be regulated as a BDC under the 1940 Act.
We have also retained MacKenzie as our transfer agent and have been reimbursing MacKenzie for certain software development costs.
Removed
As of December 31, 2020, we withdrew our election to be regulated as a BDC while continuing our REIT election for U.S. federal income tax purposes.
Added
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.
Removed
The Operating Partnership first entered into a Contribution Agreement with a group of entities referred to as the Addison Group, owners of Addison Property Owner, LLC (“Property Owner”). We own 100% of the Class B Limited Partnership units of the Operating Partnership. Property Owner owns a property known as Addison Corporate Center.
Added
We consolidated the financial statements of 1300 Main during the quarter ended December 31, 2022.
Removed
On June 8, 2020, Addison Group exchanged its ownership in Property Owner for Class A Limited Partnership units of the Operating Partnership.
Added
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.
Removed
Our investment strategies since our inception have included making loans to or investments in previously syndicated projects that had encountered difficulties with occupancy, financing, tenant improvements or other cash needs. Since entering the recent recession, certain of our portfolio companies have encountered additional cash shortfalls, and, in one case so far, we have provided additional capital (Addison Corporate Center).
Added
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.
Removed
We may encounter future opportunities to provide needed cash, and, in such cases, we will seek to consolidate the portfolio company into our financial statements, which is a key reason for dropping our BDC status.
Added
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”).
Removed
Valuation Procedures Valuation of Investments: We determine our net asset value consistent with GAAP. 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.
Added
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.
Added
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
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.
Added
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”).
Added
We pursue a strategy focused on investing primarily in real estate assets, and to a lesser extent (intended to be less than 20% of our portfolio) in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate.
Added
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.
Added
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.
Added
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
To value securities that do not trade on a national exchange, we may use published secondary market trading information.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

92 edited+124 added−34 removed55 unchanged
Biggest changeIf we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because: • we would not be able to deduct distributions paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; • we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
Biggest changeIf we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because: • we would be taxed as a regular domestic corporation, which under current law, among other things, means being unable to deduct distributions paid to stockholders in computing our taxable income and being subject to U.S. federal income tax on our taxable income at corporate income tax rates; • we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; • we would be required to pay taxes and, therefore, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT and for which we had taxable income; and • unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
We are permitted to acquire real properties and other real estate-related investments, including entity acquisitions, by assuming either existing financing secured by the asset or by borrowing new funds.
We are permitted to acquire real properties and other real estate-related investments, including entity acquisitions, by either assuming existing financing secured by the asset or borrowing new funds.
The Board of Directors may not grant such an exemption to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares or more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding our preferred shares, would result in the termination of our status as a REIT.
The Board of Directors may not grant such an exemption to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares or more than 9.8% in value or in number of shares, whichever is more restrictive, would result in the termination of our status as a REIT.
Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable year for each taxable year. Our Charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.
Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of each taxable year. Our Charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT.
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.
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.
If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. We may be unable to refinance properties.
If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced.
There are numerous conflicts of interest between our interests and the interests of our Adviser and its respective affiliates, including conflicts arising out of allocation of personnel to our activities, allocation of investment opportunities between us and investment vehicles affiliated with our Adviser, purchase or sale of properties, including from or to investment entities affiliated with our Adviser, and fee arrangements with our Adviser that might induce our Adviser to make investment decisions that are not in our best interests.
There are numerous conflicts of interest between our interests and the interests of our Advisers and its respective affiliates, including conflicts arising out of allocation of personnel to our activities, allocation of investment opportunities between us and investment vehicles affiliated with our Advisers, purchase or sale of properties, including from or to investment entities affiliated with our Advisers, and fee arrangements with our Advisers that might induce our Advisers to make investment decisions that are not in our best interests.
Such indebtedness could result in important consequences to holders of our preferred shares, including subjecting us to covenants restricting our operating flexibility, increasing our vulnerability to general adverse economic and industry conditions, limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements, requiring the use of a portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures and general corporate requirements, and limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
Such indebtedness could result in important consequences to holders of our common and preferred shares, including subjecting us to covenants restricting our operating flexibility, increasing our vulnerability to general adverse economic and industry conditions, limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements, requiring the use of a portion of our cash flow from operations for the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund working capital, acquisitions, capital expenditures, distributions to our stockholders and general corporate requirements, and limiting our flexibility in planning for, or reacting to, changes in our business and our industry.
To qualify for the tax benefits accorded to REITs, we intend to continue to make distributions to our stockholders in amounts such that we distribute all or substantially all our net taxable income each year, subject to certain adjustments. However, our ability to make distributions may be adversely affected by the risk factors described herein.
To qualify for the tax benefits accorded to REITs, we intend to continue to make distributions to our stockholders in amounts such that we distribute all or substantially all our REIT taxable income each year, subject to certain adjustments. However, our ability to make distributions may be adversely affected by the risk factors described herein.
If the competing demands for the time of our Adviser, 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, 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.
To determine our net asset value, our Adviser estimates the fair value of our assets in conjunction with our external valuation experts.
To determine our net asset value, our Investment Adviser estimates the fair value of our assets in conjunction with our external valuation experts.
In order to remain qualified as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the distributions paid deduction and excluding any net capital gain, each year to our stockholders.
In order to remain qualified as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders.
In the event such a claim were made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loan, and such claim were successful, our business and financial results could be materially adversely affected. 14 Table of Contents Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.
In the event such a claim were made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loan, and such claim were successful, 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.
The terms of any mortgage or other debt financing for an investment are expected to prohibit the transfer or further encumbrance of that investment or any interest in that investment except with the lender’s prior consent, which consent each lender is expected to be able to withhold.
The terms of any mortgage or other debt financing applicable to an investment are expected to prohibit the transfer or further encumbrance of that investment or any interest in that investment except with the lender’s prior consent, which consent each lender is expected to be able to withhold.
These ownership limits could delay or prevent a transaction or a change in our control that might be in the best interest of our stockholders. Distributions payable by REITs do not qualify for the reduced tax rates available for some distributions.
These ownership limits could delay or prevent a transaction or a change in our control that might be in the best interest of our stockholders. Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
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, 2021 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, 2023 and intend to continue to so operate. However, we cannot assure the stockholders that we will remain qualified as a REIT.
We, through our Adviser, 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.
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.
Our Advisory Agreements were negotiated between related parties and their terms, including fees payable to our Adviser, may not be as favorable to us as if it had been negotiated with an unaffiliated third party.
Our Advisory Agreements were negotiated between related parties and their terms, including fees payable to our Advisers, may not be as favorable to us as if it had been negotiated with an unaffiliated third party.
Any of these and other conflicts of interest between us and our Adviser could have a material adverse effect on the returns on our investments, our ability to make distributions to stockholders and the trading price of our stock.
Any of these and other conflicts of interest between us and our Advisers could have a material adverse effect on the returns on our investments, our ability to make distributions to stockholders and the trading price of our stock.
Unless exempted by the Board of Directors, no person may own more than 9.8% of the aggregate value of the outstanding shares of our stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding our preferred shares.
Unless exempted by the Board of Directors, no person may own more than 9.8% of the aggregate value of the outstanding shares of our stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of the aggregate outstanding common or preferred shares of the Company.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this Annual Report. The ability of our Board of Directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.
Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this Annual Report. 15 Table of Contents The ability of our Board of Directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.
Our Adviser has great latitude within the broad parameters of our investment guidelines in determining the types and amounts of assets in which to invest on our behalf, including making investments that may result in returns that are substantially below expectations or result in losses, which would materially and adversely affect our business and results of operations, or may otherwise not be in the best interests of our stockholders.
Our Advisers have great latitude within the broad parameters of our investment guidelines in determining the types and amounts of assets in which to invest on our behalf, including making investments that may result in returns that are substantially below expectations or result in losses, which would materially and adversely affect our business and results of operations, or may otherwise not be in the best interests of our stockholders.
Alternatively, property sales may reduce the aggregate amount of our property investment portfolio in value or number. As a result, our portfolio could become more concentrated, thereby reducing the benefits of diversification by factors such as geography, property type, tenancy, or other measures.
Additionally, property sales may reduce the aggregate amount of our property investment portfolio in value or number. As a result, our portfolio could become more concentrated, thereby further reducing the benefits of diversification by factors such as geography, property type, tenancy, or other measures.
Examples of these potential conflicts of interest include, but are not limited to: • Competition for the time and services of personnel that work for us and our affiliates; • Compensation payable by us to our Adviser and its affiliates for their various services, which may not be on market terms and is payable, in some cases, whether or not our stockholders receive distributions; • The possibility that our Adviser, its officers and their respective affiliates will face conflicts of interest relating to the purchase and leasing of properties and other investments, and that such conflicts may not be resolved in our favor, thus potentially limiting our investment opportunities, impairing our ability to make distributions and adversely affecting the trading price of our stock; • The possibility that if we acquire properties from investment entities affiliated with our Adviser or its affiliates, the price may be higher than we would pay if the transaction were the result of arm’s-length negotiations with a third party; • The possibility that our Adviser will face conflicts of interest, some of whose officers are also our officers and two of whom are directors of ours, resulting in actions that may not be in the long-term best interests of our stockholders; • Our Adviser has considerable discretion with respect to the terms and timing of our acquisition, disposition and leasing transactions; • The possibility that we may acquire or merge with our Adviser, resulting in an internalization of our management functions; and • The possibility that the competing demands for the time of our Adviser, its affiliates and our officers may result in them spending insufficient time on our business, which may result in our missing investment opportunities or having less efficient operations, which could reduce our profitability and result in lower distributions to stockholders.
Examples of these potential conflicts of interest include, but are not limited to: • Competition for the time and services of personnel that work for us and our affiliates; • Compensation payable by us to our Advisers and their affiliates for their various services, which may not be on market terms and is payable, in some cases, whether or not our stockholders receive distributions; • The possibility that our Advisers, their officers and their respective affiliates will face conflicts of interest relating to the purchase and leasing of properties and other investments, and that such conflicts may not be resolved in our favor, thus potentially limiting our investment opportunities, impairing our ability to make distributions and adversely affecting the trading price of our stock; 19 Table of Contents • The possibility that if we acquire properties from investment entities affiliated with our Advisers or their affiliates, the price may be higher than we would pay if the transaction were the result of arm’s-length negotiations with a third party; • The possibility that our Advisers will face conflicts of interest, since some of their officers are also our officers and two serve as directors of ours, resulting in actions that may not be in the long-term best interests of our stockholders; • Our Advisers have considerable discretion with respect to the terms and timing of our acquisition, disposition and leasing transactions; • The possibility that we may acquire or merge with our Advisers, resulting in an internalization of our management functions; and • The possibility that the competing demands for the time of our Advisers, their affiliates and our officers may result in them spending insufficient time on our business, which may result in our missing investment opportunities or having less efficient operations, which could reduce our profitability and result in lower distributions to stockholders.
The maximum tax rate applicable to “qualified distribution income” payable to U.S. stockholders that are taxed at individual rates is 20%. Distributions payable by REITs, however, generally are not eligible for the reduced rates on qualified distribution income.
The maximum tax rate applicable to “qualified dividend income” payable to U.S. stockholders that are taxed at individual rates is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income.
Risks Related to Conflicts of Interest The Advisory Agreements with our Adviser and MacKenzie were not negotiated on an arm’s-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party. Our executive officers, including one of our directors, are executives of our Adviser and MacKenzie.
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. Our executive officers, including one of our directors, are executives of our Advisers.
The more favorable rates applicable to regular corporate qualified distributions could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions, which could adversely affect the value of the shares of REITs.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our preferred shares.
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.
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.
Risks Related to Investing in Real Estate Real estate investments are subject to risks particular to real property, including: • Adverse changes in national and local economic and market conditions, including the credit and securitization markets; • Changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • Takings by condemnation or eminent domain; • Real estate conditions, such as an oversupply of or a reduction in demand for real estate space in the area; • The perceptions of tenants and prospective tenants of the convenience, attractiveness and safety of our properties; • Competition from comparable properties; • The occupancy rate of our properties; • The ability to collect all rent from tenants on a timely basis; • The effects of any bankruptcies or insolvencies of major tenants; • The expense of re-leasing space; • Changes in interest rates and in the availability, cost and terms of mortgage funding; • The impact of present or future environmental legislation and compliance with environmental laws; • Acts of war or terrorism, including the consequences of terrorist attacks; • Acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; and • Cost of compliance with the Americans with Disabilities Act.
Risks Related to Investing in Real Estate Real estate investments are subject to risks particular to real property, including: • Adverse changes in national and local economic and market conditions, including the credit and securitization markets; • Impacts from governmental laws and regulations, fiscal policies and zoning ordinances, including the impact of environmental laws and regulations, and related compliance costs, including costs to comply with future changes; • Takings by condemnation or eminent domain; • Real estate conditions, such as an oversupply of or a reduction in demand for real estate space in the area, which could adversely affect market rental rates; • The perceptions of tenants and prospective tenants of the convenience, attractiveness and safety of our properties; • Competition from comparable properties; • The occupancy rate of our properties; • The ability to collect all rent from tenants on a timely basis; • The effects of any bankruptcies or insolvencies of major tenants; • The expense of re-leasing space; • Changes in interest rates and in the availability, cost and terms of mortgage funding; • Economic or physical decline of the areas where our investments are located • Deterioration in the physical condition of our investments and resulting maintenance expenses; • Acts of war or terrorism, including the consequences of terrorist attacks; • Acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; and • Cost of compliance with the Americans with Disabilities Act.
Risks Related to Our Organization and Corporate Structure Our Charter permits our Board of Directors to issue stock with terms that may subordinate the rights of common stockholders or preferred shareholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders.
Risks Related to Our Organization and Corporate Structure • Our Charter permits our Board of Directors to issue stock with terms that may subordinate the rights of common stockholders or preferred shareholders or discourage a third party from acquiring us in a manner that might result in a premium price to our stockholders. • Our rights and the rights of our shareholders to recover claims against our officers, directors and our Advisers are limited.
We may recover substantially less than the full value of any unsecured claims, which would harm our financial condition. We may not obtain audited results of operation of individual investments. In some cases, we will not obtain audited operating statements regarding the prior operations of an investment.
We may recover substantially less than the full value of any unsecured claims, which would harm our financial condition. We may not obtain audited results of prior operations for certain properties in which we investment. In some cases, we will not obtain audited operating statements regarding the prior operations of an investment.
In such case, we will rely on unaudited financial information provided by the sellers of the investments. Thus, it is possible that information relied upon by us with respect to the acquisition of some of the investments may not be accurate at the time that we acquire such investment. Significant restrictions on transfer and encumbrance of investments are expected.
In such case, we will rely on unaudited financial information provided by the sellers of the investments. Thus, it is possible that information relied upon by us with respect to the acquisition of some of the investments may not be accurate at the time that we acquire such investment.
Risk Related to the Current COVID-19 Pandemic The current COVID-19 pandemic, 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.
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.
If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders. Our Business Strategy has, as of yet, had limited testing.
If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.
If we do not obtain such third-party appraisals or valuations, there can be no assurance that an investment’s value will exceed its cost or that any sale or other disposition of such investment will result in a profit.
We typically may not obtain independent third-party appraisals or valuations, or other reports concerning an investment, before we invest in such investment. If we do not obtain such third-party appraisals or valuations, there can be no assurance that an investment’s value will exceed its cost or that any sale or other disposition of such investment will result in a profit.
If we were to raise additional capital through the issuance of equity securities, we could dilute the interests of holders of shares of our current outstanding securities. 9 Table of Contents Further, we may incur indebtedness in the future to finance our operations.
Whenever we raise additional capital through the issuance of equity securities, we could dilute the interests of holders of shares of our current outstanding securities. Further, we may incur indebtedness in the future to finance our operations.
A local, regional, national or international outbreak of a contagious disease, including COVID-19, MERS, SARS, H1N1 influenza virus, avian flu or any other similar illness, could decrease the willingness of customers to patronize our tenants’ retail facilities, discourage residents from renting in our multi-family communities, cause shortages of employees to staff our tenants’ operations, interrupt supplies from third parties upon which our tenants rely, cause us or our tenants to temporarily close one or more of our properties, result in governmental regulation adversely impacting our or our tenants’ businesses and otherwise have a material adverse effect on our business, financial condition and results of operations.
Any future local, regional, national or international outbreak of a contagious disease, including COVID-19 and its variants, MERS, SARS, H1N1 influenza virus, avian flu or any other similar illness, could result in further increases in unemployment, decrease the willingness of customers to patronize our tenants’ retail facilities, discourage residents from renting in our multi-family communities, cause shortages of employees to staff our tenants’ operations, interrupt supplies from third parties upon which our tenants rely, cause us or our tenants to temporarily close one or more of our properties, result in governmental regulation adversely impacting our or our tenants’ businesses and otherwise have a material adverse effect on our business, financial condition and results of operations, especially where a tenant may be unwilling or unable to pay rent in full on a timely basis.
If we were forced to immediately liquidate some or all of our investments, the proceeds are likely to result in a significant loss, if such a liquidation is possible at all. We may not obtain appraisals or reports.
If we were forced to immediately liquidate some or all of our investments, the proceeds are likely to result in a significant loss, if such a liquidation is possible at all. 13 Table of Contents We may not obtain independent third-party appraisals or valuation reports on all of our investments.
If, due to factors such as lack of adequate capital, or the unavailability of suitable investment opportunities, we acquire relatively few properties or acquire properties or investments that are significant (in terms of capital invested) to our overall asset size, our portfolio could become concentrated, increasing the risk of loss to stockholders if a default or other problem arises.
If, due to factors such as lack of adequate capital, or the unavailability of suitable investment opportunities, we acquire relatively few properties or acquire properties or investments that are significant (in terms of capital invested) to our overall asset size, we may be unable to reduce the degree of concentration of our portfolio, which could increase the risk of loss to stockholders if a default or other problem arises.
In the case of some of our fixed-rate debt, after the initial fixed rate period, the interest rate may increase. If any of these events occurs, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to stockholders and may hinder our ability to raise capital by issuing more stock or borrowing more money.
The interest rate may increase on some of our fixed-rate debt after the initial fixed rate period. If any of these events occurs, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to stockholders and may hinder our ability to raise additional capital.
If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
If we fail to comply with these requirements at the end of any calendar quarter, we generally must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.
Our Adviser is authorized to follow very broad investment guidelines established by our Board of Directors. Our Board of Directors will periodically review our investment guidelines and our portfolio of assets but will not, and will not be required to, review all of our proposed investments, except in limited circumstances as set forth in our investment policies.
Our Board of Directors will periodically review our investment guidelines and our portfolio of assets but will not, and will not be required to, review all of our proposed investments, except in limited circumstances as set forth in our investment policies.
As a REIT, we are generally required to distribute at least 90% of our REIT taxable income, determined without regard to the distributions paid deduction and not including net capital gains, each year to our stockholders.
As a REIT, we are generally required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, not all of our prior property dispositions qualified for the safe harbor and we cannot assure the stockholders that we can comply with the safe harbor in the future or that we have avoided, or will avoid, owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. 17 Table of Contents Failure to make required distributions would subject us to U.S. federal corporate income tax.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, not all of our prior property dispositions qualified for the safe harbor and we cannot assure the stockholders that we can comply with the safe harbor in the future or that we have avoided, or will avoid, owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
If we are unable to re-lease or renew leases for all or substantially all of our investments, or if the rental rates upon such renewal or re-leasing are significantly lower than expected, and if our reserves for these purposes prove inadequate, or if we are required to make significant renovations or concessions to tenants as part of the renewal or re-leasing process, we will experience a reduction in net income and may be required to reduce or eliminate distributions to our stockholders. 8 Table of Contents 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.
If we are unable to re-lease or renew leases for all or substantially all of our investments, or if the rental rates upon such renewal or re-leasing are significantly lower than expected, and if our reserves for these purposes prove inadequate, or if we are required to make significant renovations or concessions to tenants as part of the renewal or re-leasing process, we will experience a reduction in net income and may be required to reduce or eliminate distributions to our stockholders.
If any of these or similar events occur, it may reduce our return from an affected property or investment and reduce or eliminate our ability to make distributions to stockholders. The market for real estate investments is highly competitive.
Any of these or similar events may reduce our return from an affected property or investment and reduce or eliminate our ability to make distributions to stockholders. The market for real estate investments is highly competitive. Identifying attractive real estate investment opportunities is difficult and involves a high degree of uncertainty.
We also may borrow funds if necessary to satisfy the requirement that we distribute at least 90% of our annual “REIT taxable income,” or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.
We also may borrow funds if necessary to satisfy the requirement that we distribute at least 90% of our annual “REIT taxable income” (determined without regard to the dividends paid deduction and excluding any net capital gain), or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.
In general, prohibited transactions are sales or other dispositions of property other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
Should improper investment actions be taken by our Adviser, the value of our shares will likely decline. Our investments will be carried at estimated fair value as determined by our Adviser and there may be uncertainty as to the value of these investments. Substantially all of our investments are illiquid and not publicly traded.
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. Substantially all of our investments are illiquid, and the securities in which we invest are not publicly traded.
We intend to continue to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes.
Failure to make required distributions would subject us to U.S. federal corporate income tax. We intend to continue to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes.
To qualify as a REIT, we will be required to distribute at least 90% of our annual taxable income (excluding net capital gains) to our stockholders in each taxable year, and thus our ability to retain internally generated cash is limited.
To qualify as a REIT, we generally will be required to distribute at least 90% of our annual taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) to our stockholders in each taxable year, limiting our ability to retain internally generated cash.
A material decline in the demand or the ability of tenants to pay rent, or the general market for sales of multi-family properties in such geographic areas may result in a material decline in our cash available for distribution to our stockholders. Our success is materially dependent on attracting qualified tenants.
A material decline in the demand or the ability of tenants to pay rent, or the general market for sales of multi-family properties in such geographic areas may result in a material decline in our cash available for distribution to our stockholders. Inflation may adversely affect our financial condition and results of operations.
The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. 16 Table of Contents In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer.
The remainder of our investment in securities (other than government securities, qualified real estate assets and taxable REIT subsidiaries) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer, among other limitations.
A change in our targeted investments may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our securities and our ability to make distributions to stockholders.
Any such changes may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect our ability to make distributions.
This may mean that our ability to access the best investments may be curtailed, which could result in greater than expected operating expense, losses and reduced distributions to our shareholders. 13 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 increases our expenses and could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments.
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 increases our expenses and could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments.
It is expected that the Adviser will maintain or cause to be maintained insurance against certain liabilities and other losses for an investment, but the insurance obtained will not cover all amounts or types of loss.
We will maintain insurance against certain liabilities and other losses for an investment, but the insurance obtained will not cover all amounts or types of loss. There is no assurance that any loss that may occur will be insured or that, if insured, the insurance proceeds will be sufficient to cover the loss.
The costs associated with investigation or remediation activities could be substantial. If we become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected. We may be adversely affected by unfavorable economic changes in the specific geographic areas where our investments are concentrated.
The costs associated with investigation or remediation activities could be substantial. If we become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected. Liability relating to environmental matters may impact the value of the properties that we may acquire or underlying our investments.
We could be exposed to environmental liabilities with respect to investments to which we take title. In the course of our business, and taking title to properties, we could be subject to environmental liabilities with respect to such properties.
It is possible that we will acquire an investment with known or unknown environmental problems that may adversely affect our investments. We could be exposed to environmental liabilities with respect to investments to which we take title. In the course of our business, and taking title to properties, we could be subject to environmental liabilities with respect to such properties.
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.
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.
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. Conflicts caused by our Adviser may severely curtail our investment opportunities, impair our ability to make distributions and reduce the value of stockholders’ investment in us.
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.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect the value of our securities.
As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect the value of our securities. 22 Table of Contents REIT distribution requirements could adversely affect our liquidity.
No assurance can be given that the Adviser 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 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.
In addition, we may choose not to enforce, or to enforce less vigorously, our rights under the Advisory Agreements because of our desire to maintain our ongoing relationship with the Adviser and its affiliates. 12 Table of Contents We may have conflicts of interest with our Adviser and other affiliates, which could result in investment decisions that are not in the best interests of our stockholders.
In addition, we may choose not to enforce, or to enforce less vigorously, our rights under the Advisory Agreements because of our desire to maintain our ongoing relationship with the Advisers and its affiliates.
Our Adviser also advises other clients and such clients may compete with us for investments. Our Advisers have policies in place to deal with such potential conflicts, but such policies may result in other clients buying assets that may be in our best interest to purchase.
Our Advisers have policies in place to deal with such potential conflicts, but such policies may result in other clients buying assets that may be in our best interest to purchase. Our Advisers, and the personnel they provide are not exclusively dedicated to management of our business.
However, if a tenant’s credit deteriorates or a tenant’s income deteriorates, the tenant may default on its obligations under its lease and the tenant may also become bankrupt. The bankruptcy or insolvency of our tenants or other failure to pay is likely to adversely affect the income produced by our real estate investments.
A tenant’s ability to pay rent is often initially determined by the creditworthiness of the tenant and the income of the tenant. However, if a tenant’s credit deteriorates or a tenant’s income deteriorates, the tenant may default on its obligations under its lease and the tenant may also become bankrupt.
However, our investments may nonetheless result in significant concentration in a single investment, especially in our initial stages of operation, or in a group of investments in one or more target markets.
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.
This competition may lead to an increase in the investment prices or otherwise less favorable investment terms. If this situation occurs with a particular investment, our return on that investment is likely to be less than the return it could have achieved if it had invested at a time of less investor competition for the investment.
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.
In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under the Code.
In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under the Code. 24 Table of Contents 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.
Item 1A. RISK FACTORS An investment in our common stock and preferred stock involves substantial risks. In addition to the other information contained in our Registration Statements and Offering Circulars, and any accompanying supplements thereto, stockholders should consider carefully the following information regarding our common and preferred stock.
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.
These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flows.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flows.
If we mortgage a property and have insufficient cash flow to service the debt, we risk an event of default which may result in our lenders foreclosing on the properties securing the mortgage.
If we mortgage a property and have insufficient cash flow to service the debt, we risk an event of default which may result in our lenders foreclosing on the properties securing the mortgage and the loss of our interests in such properties if we are unable to repay or refinance. 20 Table of Contents 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.
Our Adviser may change our targeted investments and asset allocation at any time without the consent of our shareholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in Item 1 hereof.
We may change our investment and operational policies, including our policies with respect to investments (including changes to our Advisers’ targeted assets and asset allocation), acquisitions, growth, operations, indebtedness, capitalization and distributions, at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the types of investments described in this filing.
There can be no assurance that we will be able to locate suitable acquisition opportunities in our target markets, achieve our investment goal and objectives, or fully deploy for our cash. 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.
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.
To the extent we do not obtain such other reports or reliance letters before investing in an investment, the risk of investing in such investment may be increased. Risks Related to Our Financial Position We are subject to risks associated with debt and capital stock issuances, and such issuances may have consequences to holders of shares of our securities.
If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation may suffer. Risks Related to Our Financial Position We are subject to risks associated with debt and capital stock issuances, and such issuances may have consequences to holders of shares of our securities.
Transactions entered into by our Adviser may be costly, difficult or impossible to unwind by the time they are reviewed by our Board of Directors.
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.
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. A REIT’s net income from prohibited transactions is subject to a 100% tax.
You are urged to consult with your tax advisor regarding the effect of this change on your effective tax rate with respect to REIT dividends. 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.
While we intend to endeavor to grow and diversify our portfolio through additional property acquisitions, we may never reach a significant size to achieve true portfolio diversity. Our Board of Directors has approved very broad investment guidelines for our Adviser and will not approve each investment and financing decision made by our Adviser unless required by our investment guidelines.
Our Board of Directors has approved very broad investment guidelines for our Advisers and will not approve each investment and financing decision made by our Advisers unless required by our investment guidelines. Our Advisers are authorized to follow very broad investment guidelines established by our Board of Directors.
If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates.
If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments would reduce the funds available for distribution to our stockholders. 21 Table of Contents We may use floating rate, interest-only or short-term loans to acquire investments.
There is no assurance that any liability that may occur will be insured or that, if insured, the insurance proceeds will be sufficient to cover the loss. There are certain categories of loss that may be or may become uninsurable or not economically insurable, such as earthquakes, floods and hazardous waste.
There are certain categories of loss that may be or may become uninsurable or not economically insurable, such as earthquakes, floods and liabilities related to hazardous waste. Further, if losses arise from hazardous substance contamination that cannot be recovered from a responsible party, the financial viability of the affected investment may be substantially impaired.
If such an investment experienced a material adverse event, or if investments in a particular target market experienced material adverse event specific to that particular market, we and our stockholders would likely be significantly and adversely affected. We may be subject to the risk of liability and casualty loss as the owner of an investment.
The extent of damages that we may incur as a result of such matters cannot be predicted, but potentially could result in a significant adverse effect on the value of the affected investments. We may be subject to the risk of liability and casualty loss as the owner of an investment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. PROPERTIES We currently own and manage two commercial real estate properties: Addison Corporate Center located in Windsor, CT and Satellite Place located in Duluth, GA.
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.
We also own and manage four residential apartments: Commodore Apartments and Pon De Leo Apartments, located in Oakland, CA, Hollywood Property located in Los Angeles, CA, and Shoreline Apartment Homes located in Concord, CA. The details of the properties are discussed under Item 7 Properties.
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.
Added
Additional details concerning the properties are discussed under the heading Properties in Item 7 – Management’s Discussion and Analysis Of Financial Condition And Results Of Operations in this report .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table presents information with respect to our purchases of our common stock during the years ended June 30, 2022 and 2021: Period 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, 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 - During the year ended June 30, 2021: April 22, 2021 through May 12, 2021 68,135.92 $ 6.00 408,818 - 68,135.92 408,818 - *Purchased through third-party auction as the highest bidder. 21 Table of Contents Item 6. [RESERVED]
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]
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 resides.
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.
Recent Sale of Unregistered Securities 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.
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.
Upon closing of the merger on June 1, 2022, 3,172 units of common shares and 550 units of preferred shares of the Company were issued at a stated value of $10.25 and $25 per unit, respectively.
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.
As a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions.
As a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we generally distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding any net capital gain) to the stockholders and meet certain other conditions.
To the extent that we satisfy the annual distribution requirement but distribute less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.
To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income.
During the years ended June 30, 2022 and 2021, we issued 128,740.66 and 22,143.48 shares of our common stock, respectively, in connection with the DRIP.
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.
Holders As of September 28, 2022, we had 13,295,626.16 and 321,624.94 shares of common stock and preferred stock, respectively, outstanding, held by a total of 3,139 common stockholders and 163 preferred stockholders, respectively. Distributions and Taxable Income We typically pay quarterly distributions to stockholders to the extent that we have income from operations available.
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.
During the year ended June 30, 2022, we issued 36.70 shares of our preferred stock, in connection with the DRIP. 20 Table of Contents The following tables reflect the dividends per share that we have declared during the years ended June 30, 2022 and 2021: 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 Dividends During the Quarter Ended Common stock June 30, 2021 Per Share Amount $ 0.050 $ 664,714 *$0.06 per share dividend was declared for the quarter ended June 30, 2021.
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.
Removed
We are also subject to tax on built-in gains we realize during the first five years following REIT election.
Added
In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws.
Removed
We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, our Board of Directors unanimously approved the suspension of regular quarterly distributions to our stockholders.
Added
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.
Removed
On May 10, 2021, the Board of Directors reinstated the quarterly distributions after reassessing our cash flow and intends to continue such distribution so long as it is supported by the previous quarter’s income, but may increase or decrease the distribution accordingly.
Added
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.
Removed
The private placement of our common shares was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D thereunder.
Added
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
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.

Item 7. Management's Discussion & Analysis

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

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Biggest change(Phillips Edison Grocery Center REIT I) - 6,131,261 Satellite Investment Holdings, LLC - Class B - 4,745 Secured Income, LP 520,594 267,734 Sila Realty Trust, Inc. - 1,366,105 SmartStop Self Storage REIT, Inc Class A 120,922 76,312 SmartStop Self Storage REIT, Inc Class T 9,885 6,239 Steadfast Apartment REIT - 503 Strategic Realty Trust, Inc. 311,007 376,482 Summit Healthcare REIT, Inc. 1,973,211 1,747,701 The Parking REIT Inc. - 113,516 Total $ 19,748,208 $ 39,909,838 Fair Value Unconsolidated investments (non-security), at fair value June 30, 2022 June 30, 2021 1300 Main, LP $ 1,688,000 $ - Bishop Berkeley, LLC - 5,142,164 BP3 Affiliate, LLC - 1,668,000 Britannia Preferred Members, LLC - Class 1 - 6,448,000 Britannia Preferred Members, LLC - Class 2 - 5,891,945 Dimensions28 LLP 19,512,036 11,449,296 First & Main, LP 2,237,000 - Green Valley Medical Center, LP 3,010,000 - Main Street West, LP 4,708,000 - Martin Plaza Associates, LP 725,000 - One Harbor Center, LP 4,162,000 - Westside Professional Center I, LP 1,803,000 - Woodland Corporate Center II, LP - - Total $ 37,845,036 $ 30,599,405 29 Table of Contents Properties In addition to our investment securities, we currently own and manage two commercial real estate properties: Addison Corporate Center located in Windsor, CT and MacKenzie Satellite Place in Duluth, GA and four residential apartments: Commodore Apartments and Pon De Leo Apartments, located in Oakland, CA, the Hollywood Property located in Los Angeles, CA, and the Shoreline Apartments in Concord, CA.
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..
Our investment advisory fees compensate our Investment and Real Estate Adviser for their work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses.
Our investment advisory fees compensate our Investment Adviser and Real Estate Adviser for their work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses.
Total realized gains for the year ended June 30, 2022, were realized from 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 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.
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 Adviser or Board of Directors, does not represent fair value, which we expect will represent a substantial portion of our portfolio, 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 Adviser and, where appropriate and necessary, the respective third‑party valuation firms.
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.
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 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.
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; • 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; 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.
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 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 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.
Management’s assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment. Valuation Procedures Valuation of Investments: Our consolidated financial statements include investments that are measured at their estimated fair values in accordance with GAAP.
Management’s assessment of the significance of a particular input to the fair value measurement, in its entirety, requires judgment and considers factors specific to the investment. Valuation of Investments: Our consolidated financial statements include investments that are measured at their estimated fair values in accordance with GAAP.
Investment Income We generate revenues in the form operating income, capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold.
Investment Income We generate revenues in the form of operating income, capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold.
Both properties must compete with every other office property in the market, as well as facing the uncertainty of workers returning to the office after COVID-19. Our unconsolidated investment in a hotel property, Citrus Park Hotel, is a Courtyard by Marriott located in the Tampa/St. Petersburg market that competes for business and leisure travel.
All properties must compete with every other office property in the market, as well as facing the uncertainty of workers returning to the office after COVID-19. Our unconsolidated investment in a hotel property, Citrus Park Hotel, is a Courtyard by Marriott located in the Tampa/St. Petersburg market that competes for business and leisure travel.
We generally seek to acquire assets that produce ongoing distributable income for investors, yet with a primary focus on purchasing such assets at a discount from what the Adviser estimates to be the actual or potential value of the real estate.
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.
Each such determination and the basis thereof are contained in the minutes of our Board of Directors meetings. We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value.
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 also expect to have greater flexibility in issuing securities with common equity participation features (such as warrants and convertible notes) and/or additional classes of stock (such as preferred) in order to facilitate capital formation now that we are no longer subject to the restrictions of the 1940 Act.
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 believe this niche strategy will allow us to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance that some portion of any distribution is not a return of capital. 23 Table of Contents Rental and Reimbursement We generate rental revenue by leasing office space and apartment units to the building’s tenants.
We believe this niche strategy will allow us to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance that some portion of any distribution is not a return of capital. Rental and Reimbursement We generate rental revenue by leasing office space and apartment units to a building’s tenants.
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 recognizes rental income on cash basis.
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.
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 launching tender offers to purchase shares of non-traded REITs in order to boost our short-term cash flow and to support our distributions, subject to the constraint that such securities will not exceed 20% of our portfolio.
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.
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 strategy we select depends upon, among other things, market opportunities, the skills and experience of the Adviser’s investment team and our overall portfolio composition.
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.
Revenue Recognition Rental revenue, net of concessions, which is derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease agreement, are recognized on a straight-line basis over the term of the lease, when collectability is determined to be probable.
Revenue Recognition Rental revenue, net of concessions, which is derived primarily from lease contracts and includes rents that each tenant pays in accordance with the terms of each lease agreement, is recognized on a straight-line basis over the term of the lease, when collectability is determined to be probable.
We intend to continue to qualify as a REIT and to meet the associated testing requirements, including paying out at least 90% of our taxable income. Cash Flows: Fiscal 2022: For the year ended June 30, 2022, we experienced a net increase in cash of $1.24 million.
We intend to continue to qualify as a REIT and to meet the associated testing requirements, including paying out at least 90% of our taxable income. Cash Flows: Fiscal 2023: For the year ended June 30, 2023, we experienced a net increase in cash of $9.14 million.
Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses. Variable Interest Entities We evaluate the need to consolidate our investments in securities in accordance with ASC Topic 810, Consolidation (“ASC 810”).
Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses. Variable Interest Entities We evaluate the need to consolidate other entities in when we have invested in their securities in accordance with ASC Topic 810, Consolidation (“ASC 810”).
During the year ended June 30, 2022, we received dividends, interest, and other investment income of $1.24 million as compared to $1.94 million received during the year ended June 30, 2021.
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.
As of June 30, 2022, we raised total gross proceeds of $119.10 million from the issuance of shares under the three public offerings, $42.46 million from our first public offering, which concluded in October 2016, $67.99 million from the second public offering, which concluded in October 2019, and $8.65 million from our third public offering, which concluded in October 2020.
We have raised total gross proceeds of $119.10 million from the issuance of common stock under the three public offerings, $42.46 million from our first public offering, which concluded in October 2016, $67.99 million from the second public offering, which concluded in October 2019, and $8.65 million from our third public offering, which concluded in October 2020.
Net unrealized gain (loss) on investments: 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 adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period.
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.
Income tax provision (benefit): The Parent Company has elected to be treated as a REIT for tax purposes under the Code and, as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions.
Income tax provision (benefit): The Parent Company has elected to be treated as a REIT for tax purposes under the Code and, as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it generally distributes at least 90% of its REIT taxable income (determined without regard to the dividends paid deduction and excluding any capital gain) to the stockholders and meets certain other conditions.
As of June 30, 2022, we still 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, 2023, we owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below.
Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the year ended June 30, 2022 and 2021 was $4.91 million and $3.91 million, respectively.
Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the years ended June 30, 2023 and 2022 was $11.31 million and $4.91 million, respectively.
Net realized gain on sale of investments: During the year ended June 30, 2022, we had a realized gain of $7.35 million as compared to $1.75 million during the year ended June 30, 2021.
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.
As of June 30, 2022, the property is 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 100% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft.
We finished the year ended June 30, 2022, with cash and cash equivalents, restricted cash, and receivables of $9.99 million, and approximately $4.57 million of current liabilities. Because of our strong liquidity and the liquidity preservation measures taken by the board, we are currently capable of meeting all of our obligations and continue our operations for the foreseeable future.
We finished the year ended June 30, 2023, with cash and cash equivalents, restricted cash, and receivables of $19.35 million, and approximately $4.01 million of current liabilities. Because of our strong liquidity and the liquidity preservation measures taken by the board, we are currently capable of meeting all of our obligations and continuing our operations for the foreseeable future.
During the year ended June 30, 2022, we received $3.67 million of distributions from operations, sales, and liquidations as compared to $1.97 million during the year ended June 30, 2021.
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.
We have elected to be treated as a REIT under the Code and as a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions.
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.
As of June 30, 2022, Commodore Apartment building is approximately 97.9% occupied. Pon De Leo Apartments is also a mid-rise apartment building built in 1929 and has 39 units.
As of 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.
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. We raised $2.96 million pursuant to the Offering Circular as of June 30, 2022.
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.
Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However, if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal. Borrowings We do not have any current plans to borrow money at the Parent Company level.
Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However, if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal.
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.
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.
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.
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.
Comparison of the Fiscal Year Ended June 30, 2022 (“Fiscal 2022”) and Fiscal 2021 Rental and reimbursements revenues: Rental and reimbursement revenues are generated from our commercial and residential real estate properties.
Results of Operations Comparison of the Fiscal Years Ended June 30, 2023 (“Fiscal 2023”) and June 30, 2022 (“Fiscal 2022”) 36 Table of Contents Rental and reimbursements revenues: Rental and reimbursement revenues are generated from our commercial and residential real estate properties.
In addition, we have raised $12.55 million from the issuance of shares under the DRIP. Of the total capital raised from the public offerings as of June 30, 2022, we have used $11.65 million to repurchase shares under our share repurchase program.
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.
During this year, we generated cash of $4.62 million from our operating activities, $28.79 million from our financing activities and used $32.17 million in our investing activities. The net cash inflow of $4.62 million from operating activities resulted from $10.48 million of rental revenues and $4.91 million of investment income offset by $10.77 million of cash used in operating expenses.
The net cash inflow of $4.62 million from operating activities resulted from $10.48 million of rental revenues and $4.91 million of investment income offset by $10.77 million of cash used in operating expenses.
Incentive management fee or subordinated incentive 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.
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.
Interest expense: Interest expense for the year ended June 30, 2022 was $2.35 million, of which $1.87 million was incurred on the notes payable associated with Addison Corporate Center, Hollywood Property and Shoreline Apartments, $0.46 million was incurred on the two mortgage notes payable associated with the two residential apartments, and $0.02 million was incurred on short sale fees.
Interest expense for the year ended June 30, 2022 was $2.35 million, of which $1.09 million was incurred on the notes payable associated with Addison Corporate Center, Hollywood Property and Shoreline Apartments, $1.24 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) and $0.02 million was incurred on short sale fees.
As of June 30, 2022, Pon Do Leo Apartment building is approximately 97.4% occupied. 30 Table of Contents 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.
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.
To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.
To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its REIT taxable income, it will be subject to U.S. federal corporate income tax on its undistributed taxable income.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements, including an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy.
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.
The net cash inflow of $28.79 million from financing activities resulted from note payable proceeds received of $34.45 million for financing the real estate acquisitions, $2.94 million proceeds from issuance of preferred stock, $1.07 million of capital contributions received from the non-controlling interest holders, and $0.09 million proceeds from capital pending acceptance offset by payments on existing note payable of $3.96 million, payments of dividends of $2.82 million, redemption of common stock of $1.43 million, payments of deferred finance cost of $0.83 million, payments of syndication cost amounting to $0.71 million, and capital distributions to non-controlling interests holders amounting to $0.01 million.
The net cash inflow of $28.79 million from financing activities resulted from note payable proceeds received of $34.45 million for financing the real estate acquisitions, $2.94 million proceeds from issuance of preferred stock, $1.07 million of capital contributions received from the non-controlling interest holders, and $0.09 million proceeds from capital pending acceptance offset by payments on existing note payable of $3.96 million, payments of dividends of $2.82 million, redemption of common stock of $1.43 million, payments of deferred finance cost of $0.83 million, payments of syndication cost amounting to $0.71 million, and capital distributions to non-controlling interests holders amounting to $0.01 million. 41 Table of Contents Material Cash Obligations We have entered into two contracts under which we have material future commitments: (i) the Advisory Management Agreement, under which the Real Estate Adviser serves as our adviser, and (ii) the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations.
In determining whether we have a controlling interest in a variable interest entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. 25 Table of Contents Real Estate Assets, Capital Additions, Depreciation and Amortization We capitalize costs, including certain indirect costs, incurred for capital additions, including redevelopment, development, and construction projects.
In determining whether we have a controlling interest in a variable interest entity that requires us to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members, as well as whether the entity is a variable interest entity for which we are the primary beneficiary.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements by MacKenzie Realty Capital, Inc., its wholly owned subsidiaries MRC TRS, Inc. and MacKenzie Satellite Place, Inc. and, its majority owned subsidiaries; MacKenzie Realty Operating Partnership, LP, Madison-PVT Partners LLC and PVT-Madison Partners LLC (the “Company,” “we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future performance or financial condition.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements by MacKenzie Realty Capital, Inc., together with its subsidiaries as discussed in Note 1 of the financial statements included in this report (collectively, the “Company,” “we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future performance or financial condition.
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, a determination of impairment is made and documented. In addition, once per year, in preparation of net asset value, we obtain a third-party appraisal on directly owned properties.
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.
The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets, and assumed liabilities, which could impact the amount of our net income (loss). Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates.
The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets, and assumed liabilities, which could impact the amount of our net income (loss).
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.
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.
We also allocate certain department costs, including payroll, at the corporate levels as “indirect costs” of capital additions, if such costs clearly relate to capital additions. We also capitalize interest, property taxes, and insurance during periods in which redevelopment, development, and construction projects are in progress.
Real Estate Assets, Capital Additions, Depreciation and Amortization We capitalize costs, including certain indirect costs, incurred for capital additions, including redevelopment, development, and construction projects. We also allocate certain department costs, including payroll, at the corporate levels as “indirect costs” of capital additions, if such costs clearly relate to capital additions.
We may also fund a portion of our investments through borrowings from banks and issuances of senior securities.
We also may fund a portion of our investments through borrowings from banks and issuances of senior securities. We also may borrow money within the underlying companies in which we have majority ownership.
The slight decrease was due to a decrease in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to June 30, 2021, as a result of the decrease in our capital raising activities. Transfer agent cost reimbursement paid to MacKenzie for the year ended June 30, 2022 and 2021 were $0.11 million and $0.12 million, respectively.
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 following table provides information regarding each of the residential properties: Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit Pon De Leo Multi-Family Residential Oakland, CA 36,654 39 97.4% $ 1,053,972 $ 2,282 Commodore Multi-Family Residential Oakland, CA 31,156 48 97.9% $ 847,566 $ 1,503 Hollywood Property Multi-Family Residential Los Angeles, CA 36,991 53 58.5% $ 759,263 $ 2,041 Shoreline Apartments Multi-Family Residential Concord, CA 67,925 84 90.5% $ 1,899,480 $ 2,082 Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit Hollywood Property Retail Los Angeles, CA 8,560 1 100% $ 314,220 $ 26,185 There are no present plans for the improvement or development of any property except for the Hollywood Property.
The following table provides information regarding each of the residential properties: Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit The Park View (f/k/a as Pon De Leo Apartments) Multi-Family Residential Oakland, CA 36,654 39 92.3 % $ 1,005,543 $ 2,327 Commodore Multi-Family Residential Oakland, CA 31,156 48 97.9 % $ 886,663 $ 1,572 Hollywood Property Multi-Family Residential Los Angeles, CA 36,991 53 84.9 % $ 1,327,487 $ 2,458 Shoreline Apartments Multi-Family Residential Concord, CA 67,925 84 95.2 % $ 2,010,540 $ 2,094 Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit Hollywood Property Retail Los Angeles, CA 8,560 1 100 % $ 323,647 $ 26,971 35 Table of Contents There are no present plans for the improvement or development of any property except for the vacant land discussed below.
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. 27 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 Adviser believes were priced incorrectly.
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.
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. 26 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.
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.
To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income. Our wholly owned subsidiary, MRC TRS, Inc. is subject to corporate federal and state income tax on its taxable income at regular statutory rates.
To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed REIT taxable income.
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, 2021.
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”).
For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” above.
As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods. For a discussion of additional factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” above in Item 1A of this report.
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. When indicators of potential impairment emerge, we assess whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition.
When indicators of potential impairment emerge, we assess whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition.
In addition to the discussion below, our critical accounting policies are discussed in Note 2 of our consolidated financial statements, which are part of this Annual Report beginning on page F-1. 24 Table of Contents 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.
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.
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 Real Estate Purchase Price Allocations In accordance with the guidance for business combinations, upon the acquisition of real estate properties, We evaluate whether the transaction is a business combination or an asset acquisition.
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.
During the year ended June 30, 2022, we generated $10.37 million in rental and reimbursements revenues, of which $8.08 million was generated from Addison Corporate Center, Hollywood Property, and Shoreline Apartments tenants, $2.16 million from the two residential apartments, and $0.13 million from the Satellite Place.
During the year ended June 30, 2022, we generated $10.37 million in rental and reimbursements revenues, of which $7.47 million was generated from two commercial properties (Addison Corporate Center and Satellite Place Office Building) and $2.90 million 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, 2022, we incurred operating and maintenance expenses of $6.16 million, of which $5.09 million mainly were incurred in the operation of Addison Corporate Center, Hollywood Property and Shoreline Apartments, $1.01 million were incurred in the operation of two residential apartments and $0.06 million were incurred in the operation of Satellite Place.
During the year ended June 30, 2022, we incurred operating and maintenance expenses of $6.16 million, of which $4.67 million were incurred in the operation of our two commercial properties (Addison Corporate Center and Satellite Place Office Building) and $1.49 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).
Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors at least quarterly. The maximum amount of such borrowing will no longer be limited by the 1940 Act.
Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors at least quarterly. We used the funds raised from our public offerings to invest in portfolio companies and to pay operating expenses.
The increase in other operating expenses is due to two reasons: (i) an acquisition of new properties: Hollywood Property, Shoreline Apartments, and Satellite Place, resulting in larger amount of general and administrative operating expenses during the year ended June 30, 2022, and (ii) the two existing properties, Pon De Leo and Commodore reporting full year of operation during year ended June 30, 2022, compared to less than four months of operation during the year ended June 30, 2021 as the properties were acquired in March 2021.
The increase in other operating expenses is due to the following: (i) the acquisition of new properties: First & Main Office Building in July 2022, 1300 Main Office Building in October 2022, Woodland Corporate Center Office Building in January 2023 and Main Street West Office Building in February 2023, resulting in higher amount of general and administrative operating expenses during the year ended June 30, 2023, and (ii) three existing properties, Hollywood Apartments acquired in October 2021, Shoreline Apartments acquired in May 2022 and Satellite Place Office Building acquired in June 2022, reporting a full year of operations during the year ended June 30, 2023, compared to less than two months of operations during the year ended June 30, 2022.
Liquidity and Capital Resources Capital Resources We offered to sell up to 5 million shares under our first public offering and up to 15 million shares each under our second and third public offerings.
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.
Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use. Repair and maintenance and tenant turnover costs are expensed as incurred. Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset.
We also capitalize interest, property taxes, and insurance during periods in which redevelopment, development, and construction projects are in progress. Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use. Repair and maintenance and tenant turnover costs are expensed as incurred.
Property operating and maintenance expenses: Operating and maintenance expenses mainly consists of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of our commercial and residential real estate assets.
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.
As of June 30, 2022, the property is approximately 53% occupied by 1 tenant as listed in below table. Largest Tenants Business Business Square Ft.
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.
Similarly, for the tax year 2022, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2022.
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.
Material estimates that are susceptible to change, and actual results could differ from those estimates.
These estimates are susceptible to change, and actual results could differ materially from those estimates, which in turn could have material impacts on our reported financial results.
Total realized gains for the year ended June 30, 2021, were realized from sales of seventeen publicly traded REIT securities with total realized gains of $1.89 million and four non-traded REIT securities with net realized gain of $0.04 million offset by a realized loss of $0.18 million from two limited partnership interest.
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.
Depreciation and amortization expense are computed on the straight-line method over the asset’s estimated useful life.
Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset. Depreciation and amortization expense are computed on the straight-line method over the asset’s estimated useful life.
We plan to build a multi-family residential building on this land and are currently working on the design of the building. The markets in which our properties (those consolidated and those that are not yet consolidated) operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors.
Current Market and Economic Conditions The markets in which our properties (those consolidated and those that are not yet consolidated) operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors. Our West coast multi-family properties are generally restricted from raising rents significantly by local rent control laws.
Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties. Our consolidated office properties, Addison Corporate Center and Satellite Place, are class B and Class A suburban office properties located in Windsor, Connecticut and Duluth, Georgia, respectively.
Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties.
Other operating expenses for the year ended June 30, 2022 and 2021, were $1.35 million and $1.03 million, respectively.
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.
TRS, MacKenzie NY 2, and MacKenzie Satellite are subject to corporate federal and state income tax on its taxable income at regular statutory rates. However, as of June 30, 2022, they did not have any taxable income for tax years 2021 or 2022.
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.
Occupied Rent per annum Lease Expiration Renewal options OS National, LLC Title Services 71,085 $ 1,307,253 12/31/29 2,5 years The following information pertains to lease expirations at Satellite Place: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2029 1 71,085 $ 1,307,253 100% Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs 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, 2022, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 32% of our total assets as of that date.
Biggest changeAs 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 discussed in Note 4 – Investments, to our consolidated financial statements, these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment portfolio also includes shares of publicly traded REITs, which are valued at recently quoted trading prices.
As discussed in Note 4 – Investments, to our consolidated financial statements, these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment portfolio sometimes also includes shares of publicly traded REITs, which are valued at recently quoted trading prices.
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In addition, we are exposed to interest rate risk with respect to our variable-rate indebtedness, generally an increase in interest rates would directly result in higher interest expense.
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We 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.
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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.

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