Mackenzie Realty Capital Inc.

Company Overview

Business Model: MacKenzie Realty Capital, Inc. is a Maryland-incorporated real estate investment trust (REIT) that primarily invests in real estate assets and, to a lesser extent (intended to be less than 20% of its portfolio), in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate. The Company is externally managed by MacKenzie Capital Management, LP, with MCM Advisers, LP providing investment advice for securities and MacKenzie Real Estate Advisers, LP advising on real estate assets. Operations commenced on February 28, 2013, with a fiscal year-end of June 30. The Company conducts many of its operations through its operating partnership, MacKenzie Realty Operating Partnership, LP.

Market Position: The Company pursues a strategy focused on opportunistic and value-add real estate situations, seeking to acquire assets at a discount to their estimated actual or potential value. It targets mid-market properties that may be too small for larger institutions and often acquires properties in "off market" transactions. The Company also employs a niche strategy of tender offers for shares of non-traded REITs to boost short-term cash flow and support distributions, subject to the 20% portfolio constraint. Its largest concentrations of investments are in California and Georgia. MacKenzie Realty Capital, Inc. common stock commenced trading on The Nasdaq Capital Market on November 11, 2024, after previously trading on the OTCQX Best Market.

Recent Strategic Developments:

• Nasdaq Listing: Common stock began trading on The Nasdaq Capital Market on November 11, 2024.
• Capital Raising Initiatives:
  • A new offering circular was qualified on January 29, 2025, to sell up to approximately $71.30 million of Series A or Series B preferred stock, later amended in June 2025 to include Series C preferred stock and increase the offering to $72.90 million.
  • A shelf registration statement on Form S-3 was declared effective on January 15, 2025, for the sale of up to $75 million in various securities.
  • An Equity Distribution Agreement with Maxim Group LLC was entered into on January 15, 2025, for an at-the-market offering of common stock, through which $1.50 million was raised from the sale of 56,948.30 shares as of June 30, 2025.
  • A registered direct offering on February 28, 2025, generated approximately $4.80 million in gross proceeds from the sale of 153,403.40 common shares, pre-funded warrants for 129,226.50 common shares, and warrants for 423,944.85 common shares to a single institutional investor.
• Property Acquisitions & Development:
  • Acquired 100% limited partnership interest in Green Valley Medical Center, LP on August 1, 2024, for $3,004,194.
  • Commenced construction of Aurora at Green Valley, a 72-unit multi-family residential community in Fairfield, California, in September 2024. The clubhouse opened in June 2025 for pre-leasing, and the first residential building was completed in July 2025, with leasing commencing in August 2025 (30.56% occupied as of the report date).
  • The Campus Lane Residential development project, known as Blue Ridge at Suisun Valley, is undergoing the entitlement process with a goal to commence construction in spring 2026 for 84 luxury multi-family units.
• Debt Management:
  • Refinanced the Main Street West Office Building loan on June 6, 2025, with a new $9.50 million loan from EverTrust Bank, following a maturity default and forbearance agreement with the prior lender.
  • Refinanced the Woodland Corporate Center Two loan in October 2024 and the Hollywood Hillview loan in March 2025.
• Dividend Policy: The Board of Directors suspended the regular quarterly dividend on common stock effective May 19, 2025, to preserve liquidity and provide financial flexibility.

Geographic Footprint: The Company's operations are entirely within the United States, with significant concentrations of real estate investments in California (including Oakland, Los Angeles, Concord, Napa, Woodland, Fairfield, and Suisun) and Georgia (Duluth). As of June 30, 2025, the Company owns and manages nine commercial real estate properties and four residential apartment properties across these regions.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Operating Margin: -106.36% (FY2025)
• Net Margin: -108.66% (FY2025)

Investment in Growth:

• Capital Expenditures: $18,899,433 (FY2025)
• Strategic Investments:
  • Acquisition of Green Valley Medical Center, LP for $3,004,194.
  • Construction of Aurora at Green Valley financed through $10 million of preferred capital and a $17.15 million construction loan.

Business Segment Analysis

Real Estate Properties

Financial Performance:

• Revenue: $22,059,843 (+40.19% YoY)
• Segment Net Loss: $(16,044,238) (FY2025)
• Key Growth Drivers: The increase in rental revenue was primarily driven by the acquisition of Green Valley Medical Center, LP in August 2024, and a $3 million early lease termination income received from a tenant at Satellite Place Office Building in December 2024. The segment net loss was significantly impacted by a $9,500,167 impairment loss on Main Street West Office Building.

Product Portfolio:

• Commercial Properties (9):
  • Office Buildings: Satellite Place Office Building (Duluth, GA; 134,785 sq ft, 29% occupied), 1300 Main Office Building (Napa, CA; 20,145 sq ft, 96% occupied), First & Main Office Building (Napa, CA; 27,398 sq ft, 100% occupied), Main Street West Office Building (Napa, CA; 38,135 sq ft, 53% occupied), Woodland Corporate Center (Woodland, CA; 37,034 sq ft, 91% occupied), 220 Campus Lane Office Building (Fairfield, CA; 29.1% leased, undergoing renovation), Green Valley Executive Center (Fairfield, CA; 46,101 sq ft, 100% occupied), One Harbor Center (Suisun, CA; 49,569 sq ft, 74% occupied), Green Valley Medical Center (Fairfield, CA; 31,590 sq ft, 94% occupied).
• Residential Properties (4):
  • Commodore Apartments (Oakland, CA; 48 units, 97.9% occupied), The Park View Apartments (Oakland, CA; 39 units, 94.9% occupied), Hollywood Apartments (Los Angeles, CA; 54 units, 87.0% occupied for apartments, 100% for retail), Shoreline Apartments (Concord, CA; 84 units, 92.9% occupied).
• Development Projects: Aurora at Green Valley (Fairfield, CA; 72-unit multi-family residential community, 30.56% occupied as of report date), Blue Ridge at Suisun Valley (Fairfield, CA; 84 luxury multi-family units, in entitlement phase).

Market Dynamics: The markets for the Company's properties are highly competitive. West Coast multi-family residential properties are subject to local rent control laws, which can lead to below-market rents but offer stability during recessions. Office properties face competitive challenges due to plentiful available space in their respective markets. The broader economic environment, characterized by increased inflation, higher interest rates, and tightening monetary policies, has impacted variable-rate borrowing costs and could affect real estate asset values.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: No common stock repurchases in FY2025 (program terminated April 2024). $5,531 of Series A preferred stock repurchased in FY2025.
• Dividend Payments:
  • Common Stock: $4,802,866 (FY2025)
  • Series A Preferred Stock: $952,669 (FY2025)
  • Series B Preferred Stock: $40,449 (FY2025)
• Future Capital Return Commitments: The Board of Directors suspended the regular quarterly dividend on common stock effective May 19, 2025, to preserve liquidity. The common stock dividend reinvestment plan (DRIP) was also suspended. Preferred stock DRIPs remain active.

Balance Sheet Position: (As of June 30, 2025)

• Cash and Equivalents: $3,788,082
• Total Debt: $132,433,581 (comprising $120,417,074 in mortgage notes payable, net, and $12,016,507 in line of credit and notes payable, net)
• Net Cash Position: $(128,645,499) (Net Debt)
• Debt Maturity Profile:
  • Fiscal Year 2026: $28,553,223
  • Fiscal Year 2027: $1,933,860
  • Fiscal Year 2028: $29,029,695
  • Fiscal Year 2029: $4,780,408
  • Fiscal Year 2030: $27,471,758
  • Thereafter: $43,569,422

Cash Flow Generation:

• Operating Cash Flow: $(1,690,102) (FY2025)
• Free Cash Flow: $(20,589,535) (FY2025, calculated as Operating Cash Flow minus Capital Expenditures)

Operational Excellence

Production & Service Model: The Company's operational model involves acquiring, owning, developing, and managing income-producing real estate properties. It focuses on value-add and opportunistic investments, often acquiring properties off-market. Day-to-day investment operations are managed by its Advisers, and administrative services are provided by MacKenzie Capital Management, LP. The Company does not have direct employees, relying on the personnel of its Advisers.

Supply Chain Architecture: Key Suppliers & Partners:

• Advisers: MacKenzie Capital Management, LP (administration), MCM Advisers, LP (securities investment advice), MacKenzie Real Estate Advisers, LP (real estate investment advice).
• Property Management & Leasing: Wiseman Commercial, Inc. (an affiliate of the Real Estate Adviser) manages several of the Company's properties.
• Financial Services: Maxim Group LLC (financial advisory, investment banking), Outside The Box Capital Inc. (marketing and distribution services).
• Banking & Lending: Valley Strong Credit Union (construction loan for Aurora at Green Valley), EverTrust Bank (Main Street West refinancing), Summit Bank (Woodland Corporate Center Two, MacKenzie Satellite refinancing), Wells Fargo Bank, National Association (Hollywood Hillview refinancing).
• Transfer Agents: Securities Transfer Corporation (common and Series B preferred stock), Computershare Limited (common stock).

Facility Network:

• Headquarters: 89 Davis Road, Suite 100, Orinda, CA 94563.
• Manufacturing: Not applicable.
• Research & Development: Not applicable as a separate facility, but investment analysis and due diligence are core functions of the Advisers' investment team.
• Distribution: Not applicable.

Operational Metrics:

• Occupancy Rates (as of June 30, 2025):
  • Commercial Office: 1300 Main (96%), First & Main (100%), Main Street West (53%), Satellite Place (29%), Woodland Corporate Center (91%), 220 Campus Lane (29.1% leased), Green Valley Executive Center (100%), One Harbor Center (74%), Green Valley Medical Center (94%).
  • Residential Apartments: Commodore (97.9%), The Park View (94.9%), Hollywood (87.0% units, 100% retail), Shoreline (92.9%).
• Aurora at Green Valley: 30.56% occupied (first residential building, as of report date).

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels: The Company primarily generates revenue by leasing office space and apartment units directly to tenants. For capital raising, it utilizes public offerings and at-the-market offerings through sales agents like Maxim Group LLC. Customer Portfolio: Enterprise Customers: The Company's commercial properties serve a diverse range of tenants, including wine wholesalers (Wilson Daniels), legal services (GVM Law, Bay Area Legal Aid), restaurants (Bao Ling Li, Azzurro Pizzeria, Sticky Rice), healthcare software (Codoxo), engineering consulting (Ampirical), non-profit education (Children’s Home Society), and state emergency services (Cal OES). Customer Concentration: While the Company aims for diversification, its relatively small portfolio means exposure to individual tenants can be significant. Geographic Revenue Distribution: 100% of the Company's revenue is derived from customers within the United States.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The real estate investment market is highly competitive, with increasing demand leading to higher investment prices and potentially less favorable terms. The office property markets in which the Company operates are characterized by plentiful available space, intensifying competitive challenges. West Coast multi-family residential properties are subject to local rent control laws, which can limit rent growth but offer some stability. The broader economic environment, marked by inflation and rising interest rates, poses challenges to real estate asset values and borrowing costs.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: The Company faces competition from other REITs, insurance companies, private investment funds, hedge funds, specialty finance companies, and other investors. Some competitors may possess advantages such as lower cost of funds, broader access to financing, higher risk tolerances, greater financial and operational resources, and more established customer relationships.

Competitive Response Strategy: The Company's strategy involves rigorous analysis of potential acquisitions, acquiring real estate securities at significant discounts, expanding into direct ownership of physical assets, and investing in distressed properties to extract unrealized value. It relies on long-standing relationships with real estate operators and a value-oriented investment philosophy to manage downside exposure.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics: Real property investments are subject to various risks, including adverse changes in national and local economic conditions, governmental regulations, condemnation, oversupply or reduced demand, tenant perceptions, competition, occupancy rates, ability to collect rent, tenant bankruptcies, re-leasing difficulties, and changes in interest rates. The illiquidity of real estate investments could significantly reduce economic returns and limit the ability to respond to market changes. Climate Change: The Company faces potential risks from climate change-related laws and regulations, which could lead to substantial compliance, energy, retrofit, and construction costs. Physical impacts of climate change, such as changes in weather patterns, could also adversely affect properties. Customer Concentration: The relatively small size of the Company's portfolio increases its dependence on individual investments and tenants, posing a concentration risk.

Operational & Execution Risks

Supply Chain Vulnerabilities: The Company is externally managed and relies heavily on its Advisers and their key personnel. There is a risk that these personnel may not dedicate sufficient time exclusively to the Company, potentially leading to missed investment opportunities or less efficient operations. Due Diligence Limitations: Due diligence by the Advisers may not uncover all liabilities or weaknesses, especially when properties are acquired at below-market prices or with limited time for investigation. Selling Difficulties: The illiquid nature of real estate investments may lead to delays or difficulties in selling properties that no longer fit investment criteria, potentially resulting in sales at unfavorable prices or losses. Cybersecurity Threats: The Company's business is highly dependent on information systems. Cyber incidents could lead to operational disruptions, compromise of confidential information, damage to business relationships, and negative financial impacts. The Company relies on a third-party managed service provider for IT and cybersecurity.

Financial & Regulatory Risks

Market & Financial Risks: Future debt or equity issuances could dilute existing shareholders. The Company lacks guaranteed cash flow and may need to fund distributions from sources other than operating cash flow. High debt levels and increases in interest rates could raise loan payments, reducing cash available for distributions. High mortgage rates may also hinder financing or refinancing efforts. The Company is exposed to "bad boy" carve-out guaranties on nonrecourse loans. Interest-only or short-term loans increase default and refinancing risks. REIT Qualification: Failure to maintain REIT qualification would result in higher corporate taxes and reduced cash available for distributions. Compliance with REIT requirements may necessitate foregoing otherwise attractive opportunities or liquidating investments. Legal Proceedings: The Company faces potential rescission claims (estimated at approximately $865,000) related to past common share issuances under its dividend reinvestment program due to a deficient registration statement. There are also unresolved issues regarding dividend rights for unfunded warrants issued in February 2025, which could lead to material claims if dividends are restarted. REIT Stock Ownership Limit: To maintain REIT status, not more than 50% of the Company's stock may be owned by five or fewer individuals, and at least 100 persons must beneficially own its capital stock. The Company's charter limits individual ownership to 9.80%. Adverse Tax Changes: Changes in U.S. federal income tax laws or interpretations could adversely affect the Company and its stockholders.

Geopolitical & External Risks

Outbreaks of Infectious Diseases: Future pandemics or similar threats could materially and adversely impact the Company's financial condition, results of operations, and cash flows by affecting tenant income, ability to pay rent, and potentially requiring rent obligation restructuring.

Innovation & Technology Leadership

Research & Development Focus: The Company does not explicitly state a dedicated research and development function. Its innovation is primarily driven by the Advisers' investment team, which focuses on rigorous analysis and due diligence for identifying and evaluating real estate acquisition opportunities.

Intellectual Property Portfolio: Not explicitly stated.

Technology Partnerships: The Company has outsourced its information technology function to a third-party managed service provider (MSP). This MSP is responsible for managing hosted services, hardware, software, and backups, and provides managed security services following the NIST Cybersecurity Framework. The MSP conducts ongoing cybersecurity training and periodic penetration testing.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company is externally managed, and its Advisers are not obligated to dedicate specific personnel exclusively to the Company. Executive officers and non-independent directors also hold responsibilities with the Advisers' affiliates, potentially leading to competing demands on their time. Advisory agreements are subject to annual renewal.

Board Composition: The Board of Directors oversees risk assessment and management, including cybersecurity. Independent Directors periodically review investment policies. The Board approves advisory and administrative services agreements annually. The Board has the authority to revoke the Company's REIT election without stockholder approval and can authorize the issuance of common and preferred stock, potentially affecting control.

Human Capital Strategy

Workforce Composition: MacKenzie Realty Capital, Inc. does not have any direct employees. It relies on the personnel provided by its Advisers for day-to-day investment operations and administrative services.

Talent Management: Talent management is handled by the Advisers, who may hire additional investment professionals as needed.

Diversity & Development: Not explicitly stated.

Environmental & Social Impact

Environmental Commitments: Climate Strategy: The Company has solar equipment leases in place for six of its properties. It acknowledges potential exposure to climate change-related laws and regulations, which could result in increased costs, and the physical impacts of climate change on its properties. Supply Chain Sustainability: Not explicitly stated.

Social Impact Initiatives: Not explicitly stated.

Business Cyclicality & Seasonality

Demand Patterns: The Company's operating results are sensitive to market and economic challenges, including downturns in the U.S. economy, household formation rates, and the attractiveness of the real estate market. Inflation can adversely affect its financial condition and results. The real estate market is influenced by factors such as financing availability, interest rates, and supply and demand.

Planning & Forecasting: Not explicitly stated.

Regulatory Environment & Compliance

Regulatory Framework: The Company is subject to various regulations, including those for REIT qualification under the Internal Revenue Code (asset, income, organizational, distribution, and ownership tests) and public company reporting requirements under the Securities Exchange Act of 1934. It must also comply with environmental laws and regulations related to its real property assets.

Legal Proceedings: The Company is exposed to potential rescission claims totaling approximately $865,000 related to common shares issued under a dividend reinvestment program with a deficient registration statement. An unresolved issue exists with an institutional investor regarding dividend rights on unfunded warrants, which could lead to material claims if common stock dividends are reinstated.

Tax Strategy & Considerations

Tax Profile: As a REIT, MacKenzie Realty Capital, Inc. is generally not subject to federal income taxes on amounts distributed to stockholders, provided it distributes at least 90% of its REIT taxable income annually. It is subject to corporate income tax on undistributed taxable income and a 4% non-deductible excise tax if distributions fall below a specified minimum. The Company's taxable REIT subsidiary, MacKenzie NY Real Estate 2 Corp., is subject to corporate federal and state income tax. The Inflation Reduction Act of 2022's corporate alternative minimum tax and stock repurchase excise tax provisions do not apply to REITs.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains property and liability insurance policies on all its properties, which it believes are adequate and in line with industry standards. However, certain categories of loss, such as those from earthquakes, floods, or hazardous waste, may be uninsured or not economically insurable. Risk Transfer Mechanisms: The Company utilizes interest rate hedging (e.g., a past interest rate cap for Hollywood Apartments) and various guaranty and indemnity agreements. The Parent Company guarantees mortgage notes for several properties, and the Operating Partnership indemnifies certain parties for losses from limited partnership mortgage or solar lease defaults. MRC QRS guarantees a secured promissory note agreement.