Part I Business The company operates as an externally managed REIT focusing on real estate assets, with its common stock recently listed on the OTCQX market - The company was incorporated in Maryland in 2012, has elected to be treated as a REIT, and is externally managed by MacKenzie Capital Management, LP and its affiliates811 - On April 29, 2024, the company's common stock began trading on the OTCQX Best Market under the ticker MKZR, and it is exploring a potential uplisting to a national exchange1026 - The investment strategy focuses on investing at least 80% of assets in real estate and less than 20% in real estate-related securities, utilizing value-add and opportunistic approaches313235 Capital Raised and Share Repurchases (as of June 30, 2024) | Category | Amount Raised/Repurchased | | :--- | :--- | | Capital Raised | | | Common Stock Public Offerings | ~$119.10 million | | Series A Preferred Stock Offering | ~$18.51 million | | Series B Preferred Stock Offering | ~$1.26 million | | Dividend Reinvestment Program (DRIP) - Common | ~$15.56 million | | Dividend Reinvestment Program (DRIP) - Preferred | ~$0.25 million | | Share Repurchases | | | Common Stock Repurchased | ~$14.28 million | | Series A Preferred Stock Repurchased | ~$0.11 million | Risk Factors The company faces substantial risks related to real estate investments, financial stability, operational dependencies, and REIT compliance Risks Related to Investing in Real Estate The company is exposed to inherent real estate risks, including market downturns, tenant defaults, and geographic concentration in California and Georgia - Real estate investments are subject to risks beyond the company's control, such as economic conditions and illiquidity, which could reduce revenue and property values6064 - Investment concentration in California and Georgia makes the company vulnerable to adverse local economic conditions or industry slowdowns81 - The bankruptcy or insolvency of tenants poses a significant threat to operating results, as collecting pre-bankruptcy debts is difficult87 Risks Related to Our Financial Position Financial risks include potential shareholder dilution from future equity issuances and uncertainty regarding cash flow for distributions - Future equity or debt issuances could dilute the ownership interest of current stockholders and impose restrictive covenants9495 - Distributions are not guaranteed and paying them from non-operational sources like borrowings would reduce funds available for investment9699 Risks Related to Our Business Operations and Strategy Operational success depends heavily on external advisers, while the portfolio's concentration and cybersecurity threats present further risks - The company is dependent on its external Advisers and their key personnel for success, with advisory agreements extending to December 31, 2024118120 - The investment portfolio is concentrated in eight commercial and four residential properties, increasing risk if any single property underperforms113114 - Cyber incidents could disrupt operations and compromise confidential information, with the company relying on its Advisers' cybersecurity measures129 Risks Related to Conflicts of Interest Significant conflicts of interest exist due to related-party advisory agreements and the allocation of resources by the Advisers - Advisory agreements were not negotiated on an arm's-length basis, as the company's executive officers are also executives of the Advisers135 - The Advisers and their affiliates face conflicts in allocating personnel time and investment opportunities among the company and other clients136137139 Risks Associated with Debt Financing The use of debt financing increases foreclosure risk, and rising interest rates could reduce cash available for distributions - Using mortgage and other debt financing increases the risk of foreclosure if cash flow is insufficient to service the debt142143 - Rising interest rates could increase borrowing costs on variable-rate debt and make it difficult to refinance properties on favorable terms146147 Risks Related to Our Taxation as a REIT Failure to maintain REIT status would result in corporate taxation, and the 90% distribution requirement could strain liquidity - If the company fails to qualify as a REIT, it would be subject to federal income tax, significantly reducing cash available for stockholders153154158 - The requirement to distribute at least 90% of REIT taxable income could force the company to borrow funds or sell assets in unfavorable conditions160177 - Compliance with REIT asset and income tests may cause the company to forgo attractive investments or liquidate assets prematurely164166 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None187 Cyber Security Cybersecurity risk is managed by external Advisers through a third-party provider following the NIST framework, with board oversight - Cybersecurity and IT functions are outsourced to a third-party Managed Service Provider (MSP) specializing in these services189 - The MSP's program follows the NIST Cybersecurity Framework and includes employee training, phishing simulations, and annual penetration testing189190 - The board of directors oversees cybersecurity risk, with the Chief Operating Officer responsible for managing mitigation strategies192194 - The company is not aware of any cybersecurity risks or incidents that have materially affected its business, operations, or financial condition191 Properties The company owns a portfolio of twelve properties, comprising eight commercial and four residential buildings in Georgia and California - The company owns eight commercial real estate properties and four residential apartments located in Georgia and California195 Legal Proceedings The company is not currently subject to any material legal proceedings - We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us197 Mine Safety Disclosures This item is not applicable to the company - Not applicable198 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock began trading on the OTCQX in April 2024, while its common stock DRIP and repurchase programs were suspended - The company's common stock began trading on the OTCQX Best Market on April 29, 2024, under the ticker MKZR, with a potential uplisting being explored200 - As of September 27, 2024, the company had 1,857 common stockholders, 403 Series A preferred stockholders, and 35 Series B preferred stockholders201 - The Board of Directors suspended the common stock share repurchase program and the DRIP on March 4, 2024, in connection with the OTCQX listing204 Dividends Declared Per Share (Fiscal Year 2024 vs. 2023) | Stock Type | FY 2024 Total Dividend/Share | FY 2023 Total Dividend/Share | | :--- | :--- | :--- | | Common Stock | $0.500 | $0.450 | | Series A Preferred Stock | $1.500 | $1.500 | | Series B Preferred Stock | $2.250* | N/A | Issuer Purchases of Equity Securities (Fiscal Year 2024) | Security | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Common Stock | 129,538.06 | $7.38 / $5.50 | | Series A Preferred Stock | 3,399.50 | $22.00 - $22.75 | Selected Financial Data This item is reserved and no information is provided - Item 6 is marked as [RESERVED]214 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting increased rental revenue from acquisitions, decreased investment income, and upcoming debt maturities Portfolio and Properties The portfolio consists of investment securities and twelve properties, with development underway on the 'Aurora at Green Valley' project Investment Portfolio Fair Value | Investment Type | Fair Value (June 30, 2024) | Fair Value (June 30, 2023) | | :--- | :--- | :--- | | Investments, at fair value | $2,138,104 | $13,432,480 | | Unconsolidated investments (non-securities) | $3,906,326 | $8,716,500 | - The company owns and manages eight commercial properties and four residential apartment buildings, with the Hollywood Apartments property listed for sale in August 2024230 - Development is underway for the 'Aurora at Green Valley' project, a 72-unit multi-family community, with a $17.15 million construction loan secured240 - The company is pursuing development of a multi-family community on its 'Campus Lane Land' and aims to commence construction in late 2025239 Results of Operations The company reported a net loss of $11.2 million in FY2024, driven by a sharp decline in investment income compared to the prior year Comparison of Operations (Fiscal Years 2024 vs. 2023) | Metric | FY 2024 | FY 2023 | Key Driver of Change | | :--- | :--- | :--- | :--- | | Revenues | | | | | Rental and reimbursements | $15.74M | $15.11M | Increase from acquisition of three office buildings. | | Investment income | $0.85M | $11.31M | Decrease due to a large one-time liquidation in FY2023. | | Other income (Gain on debt extinguishment) | $0 | $14.49M | One-time gain in FY2023 from Addison property sale. | | Expenses | | | | | Property operating and maintenance | $6.52M | $9.03M | Decrease from sale of Addison property in June 2023. | | Depreciation and amortization | $7.15M | $5.27M | Increase from acquisitions of three new office buildings. | | Interest expense | $6.12M | $7.10M | Decrease from settlement of Addison property debt. | | Net Realized/Unrealized | | | | | Net realized gain (loss) on investments | ($3.02M) | $0.66M | Write-off of two LP interests in FY2024. | Liquidity and Capital Resources The company ended FY2024 with $13.08 million in cash and is actively managing $40.2 million in debt maturing in fiscal 2025 - The company finished fiscal year 2024 with approximately $13.08 million in cash, cash equivalents, and restricted cash273 Cash Flow Summary (Fiscal Years 2024 vs. 2023) | Cash Flow Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | ($0.59M) | ($6.62M) | | Net Cash from Investing Activities | ($1.30M) | $15.31M | | Net Cash from Financing Activities | ($3.17M) | $0.45M | | Net (Decrease) Increase in Cash | ($5.06M) | $9.14M | - The company has significant debt maturing in fiscal year 2025, totaling $40.2 million, and is actively negotiating extensions and refinancing282 Critical Accounting Policies and Estimates Management identifies real estate purchase price allocations and fair value measurements of Level III investments as critical accounting policies - Real estate purchase price allocations require significant assumptions to estimate the fair values of tangible assets and identifiable intangibles284 - The valuation of investments relies on a three-level fair value hierarchy, with most investments classified as Level III, requiring significant management judgment287289 - For directly owned real property, valuation is determined using an Argus model with inputs such as rent rolls, expenses, and cap rates294 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are its illiquid real estate investments and interest rate risk from its variable-rate debt - The company's portfolio primarily consists of illiquid or non-listed equity and debt investments in U.S. real estate companies, carrying high risk311312 - As of June 30, 2024, the company had $17.5 million of variable-rate debt indexed to SOFR, with risk managed through an interest rate cap313 Consolidated Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements and supplementary data by reference to page F-1 of the report - The company's consolidated financial statements and notes are located starting on page F-1 of the report314 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants - None315 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024316 - Based on the COSO framework, management assessed internal control over financial reporting as effective as of June 30, 2024320321 Other Information The company reports no other information for this item - None323 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable324 Part III Directors, Executive Officers and Corporate Governance The company is managed by a three-member board with two independent directors and has established key governance committees and a Code of Ethics - The Board of Directors consists of three members: Charles "Chip" Patterson (Chairman, not independent), Tim Dozois (Independent), and Tom Frame (Independent)328 - Key executive officers include Robert Dixon (CEO & President), Angche Sherpa (CFO), and Glen Fuller (COO)331 - The Audit Committee and the Nominating and Corporate Governance Committee are both composed of the two independent directors335336 - The company has adopted a Code of Ethics, and a copy is available on its website334 Executive Compensation Executive officers receive no direct compensation from the company, while independent directors received total fees of $105,000 in fiscal 2024 - Executive officers receive no direct compensation from the company; their compensation is paid by MacKenzie or the Advisers345 Director Compensation (Fiscal 2024) | Name | Fees Earned or Paid in Cash | | :--- | :--- | | Chip Patterson (Chairman) | $0 | | Tim Dozois (Independent Director) | $52,500 | | Tom Frame (Independent Director) | $52,500 | | Total Fees | $105,000 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters No person is known to own more than 5% of voting securities, and directors and officers as a group beneficially own less than 1% - As of September 27, 2024, no person is known to beneficially own more than 5% of the company's voting securities347 Security Ownership of Directors and Officers (as of Sept 27, 2024) | Name/Group | Common Shares Beneficially Owned | Percent of Class | | :--- | :--- | :--- | | Tim Dozois (Independent Director) | 5,086 | < 1% | | Tom Frame (Independent Director) | 5,975 | < 1% | | Charles "Chip" Patterson (Interested Director) | 66,810 | < 1% | | Robert Dixon (CEO) | 66,810 | < 1% | | Directors and Officers as a group (6 persons) | 79,472 | < 1% | Certain Relationships and Related Transactions, and Director Independence The company has significant related-party transactions with its external manager, paying $3.22 million in management fees in fiscal 2024 - The company is managed by MacKenzie and advised by its affiliates, which are owned by the company's executive officers and their families350351352 Fees Paid to Related Parties (Fiscal 2024 vs. 2023) | Fee Type | Recipient | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | :--- | | Management Fees | Real Estate Adviser | $3,224,834 | $3,004,725 | | Administration Fees | MacKenzie | $756,733 | $726,000 | | Transfer Agent Costs | MacKenzie | $66,267 | $92,000 | - The Board of Directors has determined that two of its three members are independent according to New York Stock Exchange standards357 Principal Accountant Fees and Services Total fees paid to the independent auditor, Moss Adams LLP, were $264,500 in fiscal 2024, primarily for audit services Accountant Fees (Moss Adams LLP) | Fee Category | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | | Audit Fees | $259,500 | $268,608 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $5,000 | $8,000 | | Total Fees | $264,500 | $276,608 | - The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent accounting firm362 Part IV Exhibits and Consolidated Financial Statement Schedules This section lists all documents filed with the report, including financial statements, advisory agreements, and officer certifications - The report includes a list of all filed exhibits, such as the Amended and Restated Investment Advisory Agreement, Administration Agreement, and officer certifications367368 Form 10-K Summary The company reports no summary for this item - None371 Consolidated Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion, identifying purchase price allocation and Level III investment valuation as Critical Audit Matters - The auditor, Moss Adams LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects374 - A Critical Audit Matter was identified regarding the purchase price allocation for real estate acquisitions due to significant management judgment380381 - A second Critical Audit Matter was the fair value measurement of Level III investments, which are inherently subjective and depend on unobservable inputs383384 Financial Statements The company reported total assets of $233.1 million and a net loss attributable to common stockholders of $13.2 million for fiscal 2024 Consolidated Balance Sheet Summary | Metric (in millions) | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total Real Estate Assets, Net | $211.3 | $170.7 | | Total Assets | $233.1 | $213.2 | | Mortgage Notes Payable, Net | $113.7 | $91.2 | | Total Liabilities | $125.1 | $102.1 | | Total Stockholders' Equity | $82.4 | $98.9 | | Total Equity (incl. Non-controlling interests) | $107.9 | $111.0 | Consolidated Statement of Operations Summary | Metric (in millions) | Year Ended June 30, 2024 | Year Ended June 30, 2023 | | :--- | :--- | :--- | | Rental and Reimbursements | $15.74 | $15.11 | | Total Operating Expenses | $25.65 | $34.98 | | Operating Loss | ($9.92) | ($19.87) | | Net Loss | ($11.22) | ($3.69) | | Net Loss Attributable to Common Stockholders | ($13.23) | ($4.79) | | Net Loss Per Share | ($1.00) | ($0.36) | Notes to Consolidated Financial Statements The notes detail the company's UPREIT structure, accounting policies, property acquisitions, and significant debt maturities in fiscal 2025 - The company operates through a UPREIT structure with its Operating Partnership, which holds the real estate assets405 - All of the company's financial investments are classified as Level III in the fair value hierarchy, valued using significant unobservable inputs485 - The company acquired three properties during fiscal 2024 and provides detailed purchase price allocations for these acquisitions495496497 - The company has significant debt maturities totaling $117.3 million, with $40.2 million maturing in fiscal year 2025566 Future Minimum Rental Income (as of June 30, 2024) | Year Ending June 30, | Rental Income | | :--- | :--- | | 2025 | $12,015,210 | | 2026 | $9,258,288 | | 2027 | $6,589,707 | | 2028 | $5,415,188 | | 2029 | $4,500,143 | | Thereafter | $9,372,528 | | Total | $47,151,064 |
MacKenzie Realty Capital Inc(MKZR) - 2024 Q4 - Annual Report