MacKenzie Realty Capital Inc(MKZR) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Consolidated Financial Statements The company's Q3 2023 financials show decreased assets and equity, with a net loss driven by investment performance Consolidated Balance Sheets Total assets and equity declined by September 30, 2023, due to lower cash and investment values Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $210,912,522 | $213,157,593 | | Total real estate assets, net | $174,281,506 | $170,715,312 | | Cash and cash equivalents | $13,981,263 | $17,242,781 | | Investments, at fair value | $11,986,262 | $13,432,480 | | Total Liabilities | $104,972,352 | $102,145,587 | | Mortgage notes payable, net | $94,146,609 | $91,247,384 | | Total Equity | $105,940,170 | $111,012,006 | Consolidated Statements of Operations The company reported a $4.2 million net loss for Q3 2023, a reversal from a profit in Q3 2022 Statement of Operations Summary (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Rental and reimbursements | $3,559,981 | $3,068,503 | | Total operating expenses | $5,816,596 | $5,586,535 | | Operating loss | ($2,256,615) | ($2,518,032) | | Net income (loss) | ($4,208,702) | $1,286,454 | | Net income (loss) attributable to common stockholders | ($4,597,421) | $1,166,345 | | Net income (loss) per share | ($0.35) | $0.09 | Consolidated Statements of Changes in Equity Total equity decreased to $105.9 million, impacted by a net loss and dividend payments - Key changes in equity for the three months ended September 30, 2023 include a net loss of $4.3 million, common stock dividends of $1.7 million, and preferred stock dividends of $0.3 million[13] - The company issued $1.4 million in preferred stock and $0.4 million in common stock through dividend reinvestment, while repurchasing $0.5 million of common stock[13] Consolidated Statements of Cash Flows Net cash decreased by $3.5 million in Q3 2023, driven by significant investments in real estate assets Cash Flow Summary (Unaudited) | Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $517,066 | ($850,176) | | Net cash from investing activities | ($5,427,818) | $553,133 | | Net cash from financing activities | $1,451,608 | $3,210,829 | | Net increase (decrease) in cash | ($3,459,144) | $2,913,786 | Notes to Consolidated Financial Statements Notes detail the company's REIT structure, accounting policies, investments, debt, and related party transactions Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the REIT transition, Q3 2023 operational results, and market risks from inflation - The company's investment strategy is to invest at least 80% of total assets in equity or debt in real estate assets and up to 20% in investment securities of real estate companies[156] - The company plans to develop a 72-unit multi-family residential community in Fairfield, CA, with construction expected to begin in early Spring 2024[174] - Management acknowledges risks from increased inflation and higher interest rates, which have increased variable rate borrowing costs and could adversely impact real estate asset values[179] Results of Operations Rental revenue grew due to acquisitions, but a significant unrealized investment loss drove a net loss for Q3 2023 Key Operational Metrics Comparison (Q3 2023 vs Q3 2022) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Rental and reimbursements revenues | $3.56 million | $3.07 million | | Asset management fee | $0.79 million | $0.72 million | | Property operating and maintenance | $1.39 million | $1.83 million | | Depreciation and amortization | $1.56 million | $0.91 million | | Interest expense | $1.32 million | $1.59 million | | Net unrealized gain (loss) on investments | ($2.27 million) | $2.84 million | - The increase in rental revenue was mainly due to the acquisition of three commercial properties since September 2022[181] - The decrease in property operating expenses was mainly due to the sale of the Addison Property in June 2023, partially offset by acquisitions of new office buildings[189] Liquidity and Capital Resources The company maintains sufficient liquidity from stock offerings and operations to meet its obligations - As of September 30, 2023, the company had raised $17.72 million from its Series A preferred stock offering and plans to fund future investments with these proceeds and cash from operations[200] - For the three months ended September 30, 2023, cash decreased by $3.46 million, driven by $5.43 million used in investing activities, primarily for real estate acquisitions[205] Debt Maturity Schedule | Fiscal Year Ending June 30, | Debt Maturing | | :--- | :--- | | 2024 (remainder) | $943,436 | | 2025 | $22,237,498 | | 2026 | $11,024,219 | | Thereafter | $62,570,297 | | Total | $96,775,450 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are from illiquid real estate investments and variable-rate debt - The company's primary market risk stems from its speculative and illiquid investments in smaller U.S. real estate companies[219] - The company is exposed to interest rate risk on $17.5 million of variable-rate debt indexed to SOFR, managed through an interest rate cap agreement[220] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[221] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[222] PART II. OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[224] Risk Factors No material changes to risk factors were reported since the last annual report - There have been no material changes to risk factors from the annual report on Form 10-K for the fiscal year ended June 30, 2023[225] Unregistered Sales of Equity Securities and Use of Proceeds The company issued preferred and common shares and repurchased common stock during the quarter - In July 2023, 2,265 common shares were issued at $10.25 per share upon conversion of Class A units of the Operating Partnership[226] - During the quarter, the company issued 54,394.20 Series A preferred shares for gross proceeds of $1,359,350, plus an additional 1,771.45 shares via the DRIP[227] Issuer Purchases of Equity Securities (Q3 2023) | Security | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Common stocks | 64,092.00 | $7.38 | Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[230] Mine Safety Disclosures This item is not applicable to the company - Not applicable[231] Other Information The company reported no other information - None[232] Exhibits The report includes required CEO and CFO certifications and Inline XBRL data files as exhibits - Key exhibits filed include Section 302 and Section 1350 certifications by the CEO and CFO[233]