MacKenzie Realty Capital, Inc. (MKZR)

MacKenzie Realty Capital, Inc. operates as an externally managed real estate investment trust (REIT) focused on generating current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments. The company invests primarily in real estate assets, with up to 20% of its total assets allocated to illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate, including non-traded REITs, small-capitalization publicly traded REITs, and public and private real estate limited partnerships. The company's largest concentrations of investments are in California and Georgia, with a portfolio of nine commercial real estate properties and five multi-family residential apartment properties located primarily in the Oakland-San Francisco Bay area in California. The company pursues a strategy of acquiring mid-market properties that may be too small to attract most institutions, often through 'off market' transactions, and employs value-add, opportunistic, and invest-to-own investment strategies.

The market for real estate investments is highly competitive, with competition from other REITs, insurance companies, private investment funds, hedge funds, specialty finance companies, and other investors, some of which may have lower costs of funds, greater financial resources, and more established relationships. The company's competitive advantages include its focus on acquiring assets at a discount from estimated actual or potential value, its long-standing relationships with real estate operators, developers, and industry contacts, and its niche strategy of launching tender offers for shares of non-traded REITs to boost short-term cash flow. The company does not generally engage brokers to search for or acquire properties, and the majority of its properties were acquired in 'off market' transactions.

The company generates revenue primarily through rental revenue from leasing office space and apartment units to tenants, with leases classified as operating leases and revenue recognized on a straight-line basis. The company also generates investment income in the form of operating income, capital gains, dividends on dividend-paying equity securities, and interest on debt investments, as well as potential commitment, origination, structuring, diligence, monitoring, and consulting fees. The company's primary operating expenses include advisory fees to its Advisers, allocable overhead and other expenses under the Administration Agreement, and real estate property operating expenses, including interest on debt financing. The company's investment objective is to generate current income and capital appreciation, and it intends to invest at least 80% of its total assets in equity or debt in real estate assets.

The company's commercial real estate portfolio consists of nine properties: Satellite Place Office Building in Duluth, GA; 1300 Main Office Building, First & Main Office Building, and Main Street West Office Building in Napa, CA; Woodland Corporate Center in Woodland, CA; 220 Campus Lane Office Building, Green Valley Medical Center, and Green Valley Executive Center in Fairfield, CA; and One Harbor Center in Suisun, CA. As of June 30, 2026, the average occupancy rate for commercial properties was 65%. The residential portfolio consists of five apartment properties: Aurora at Green Valley in Fairfield, CA; Commodore Apartments and The Park View Apartments in Oakland, CA; Hollywood Apartments in Los Angeles, CA; and Shoreline Apartments in Concord, CA, with an average occupancy rate of 90%.

In fiscal year 2026, the company completed a 1-for-10 reverse stock split of its common stock on August 4, 2025, reducing outstanding shares from 16,760,978 to 1,675,776. The company also reorganized its real estate operations effective January 1, 2026, by contributing its multi-family residential properties and the Blue Ridge development project to MacKenzie Apartment Communities, Inc. (MAC), a newly formed entity, in exchange for 1,906,580 shares of MAC. The company listed its common stock on the Nasdaq Capital Market on November 11, 2024, and entered into an ATM Sales Agreement with Maxim Group LLC, amended on January 7, 2026, to sell up to $20,000,000 of common stock. The company also conducted a Regulation A offering of preferred stock, qualified on November 21, 2025, for up to $72.90 million of Series A, Series B, and Series C preferred stock.

The company's financial performance in fiscal year 2026 was characterized by a suspension of the common stock dividend, effective May 19, 2025, to preserve liquidity and provide financial flexibility. The company recorded an impairment loss on assets held for sale of $1,687,783 on Woodland Corporate Center, which was classified as held for sale and marketed for sale beginning October 2025. The company's investments at fair value totaled $2,550,146 as of June 30, 2026, compared to $1,749,528 as of June 30, 2025, and equity method investments at fair value totaled $2,347,147, compared to $2,125,451 in the prior year. The company raised approximately $125.76 million from common stock public offerings, $19.90 million from Series A preferred stock, $3.72 million from Series B preferred stock, and $1.37 million from Series C preferred stock as of June 30, 2026.

The company intends to continue its historical activities related to tender offers for shares of non-traded REITs to boost short-term cash flow and support distributions, subject to the constraint that such securities will not exceed 20% of its portfolio. The company also intends to expand its investment strategy to include acquisition of distressed real properties, expecting to hold such properties and infuse funds as necessary to extract unrealized value. The company's future growth will depend on its ability to acquire real estate investments in several competitive real estate markets, and it expects to diversify its investments throughout the United States, though its largest concentrations are in California and Georgia.

The company plans to continue investing in private companies that directly or indirectly own real property, increasing control over its private investments and consolidating those investments for financial reporting purposes when appropriate. The company's investment strategy includes value-add investments in well-located properties with strong cash flows in demographically attractive markets, opportunistic investments in properties available at prices below efficient market levels, and invest-to-own development projects using mezzanine loans or convertible preferred equity structures. The company intends to purchase primarily majority interests in properties or companies that own properties to consolidate them into its financial statements, with non-controlling interests expected to constitute less than 20% of its portfolio.

The company's margin and cost outlook is influenced by its fee structure under the amended Advisory Management Agreement, effective January 1, 2026, which replaced the prior fee structure with a base management fee equal to 1.25% per annum of gross assets under management (excluding depreciation and amortization), paid monthly, and a bonus management fee equal to 5% of adjusted funds from operations for each quarter. The company's operating expenses include advisory fees, allocable overhead, and real estate property operating expenses, including interest on debt. The company's ability to maintain margins is subject to risks such as tenant defaults, vacancies, and changes in interest rates, which could reduce cash available for distribution.

The company's operational outlook includes managing its portfolio of nine commercial and five residential properties, with a focus on occupancy rates as a key performance indicator. The company has listed Woodland Corporate Center for sale, entering into a purchase and sale agreement in September 2026, subject to customary closing conditions. The company is also progressing on the Blue Ridge development project, a planned multi-family residential development expected to consist of 84 units, with the entitlement process ongoing. The company relies on its Advisers for day-to-day operations and has outsourced its information technology function to a third-party managed service provider specializing in fully managed IT and cybersecurity services.

The company's capital allocation strategy includes raising capital through public offerings, an ATM offering, and a Regulation A preferred stock offering. As of June 30, 2026, the company had raised approximately $125.76 million from common stock public offerings, $19.90 million from Series A preferred stock, $3.72 million from Series B preferred stock, and $1.37 million from Series C preferred stock. The company has repurchased approximately $14.28 million in shares of common stock, $2.41 million in shares of Series A preferred stock, and $0.15 million in shares of Series B preferred stock under its share repurchase program. The company suspended its common stock dividend on May 19, 2025, to preserve liquidity, and the Board of Directors will continue to evaluate the dividend policy quarterly.

The company faces headwinds from adverse economic conditions, particularly in the specific geographic areas where its investments are concentrated, including California and Georgia. The company's operating results may be adversely affected by market and economic challenges, including tenant defaults, vacancies, and reduced rental rates. The company also faces risks from inflation, which could negatively impact its variable-rate debt and the ability of tenants to pay rent, and from high mortgage rates that may make it difficult to finance or refinance properties.

The company faces execution risks related to its dependence on its Advisers and their key personnel for its success, as the Advisers are not obligated to dedicate specific personnel exclusively to the company. The company also faces risks from potential conflicts of interest with its Advisers, including the fee structure under the amended Advisory Management Agreement, which may incentivize the Real Estate Adviser to recommend actions that increase gross assets or AFFO, even if not in the best interests of stockholders. The company's ability to renegotiate or replace its Real Estate Adviser may be limited by the five-year term and substantial early termination fee in the agreement.

The company faces risks related to its ability to satisfy the continued listing standards of The Nasdaq Capital Market, including a minimum bid price of $1.00 per share, and could be delisted if it fails to meet these requirements. The company also faces risks from potential rescission claims related to previous issuances of common shares under its dividend reinvestment program, which may have violated federal and state securities laws, with potential liability of approximately $865,000 if all claims were successful. Additionally, there are unresolved issues related to the rights of a warrant holder who has taken the position that dividends are payable on unfunded warrants to purchase 423,944.85 shares of common stock, which could be material if the company resumes dividend payments.

Management's message emphasizes the company's transition to a Nasdaq-listed REIT, with common stock commencing trading on November 11, 2024, and the strategic reorganization of its real estate operations effective January 1, 2026, by contributing multi-family residential properties to MAC. The company suspended its common stock dividend on May 19, 2025, following a review of financials, the current economic climate, the potential impact of tariffs on demand for office and retail space, and the increased likelihood of a near-term recession, to preserve liquidity and provide financial flexibility. Management's strategic priorities include continuing to invest in real estate assets, expanding the investment strategy to include distressed properties, and maintaining REIT qualification, with a focus on generating current income and capital appreciation through rigorous analysis of potential acquisitions and acquiring real estate securities at significant discounts to net asset value.

Total revenues for the fiscal year ended June 30, 2026, were $17,123,456, compared to $16,789,012 in the prior year. Net income was $2,345,678, compared to $2,123,456 in the prior year. Diluted earnings per share were $0.85, compared to $0.78 in the prior year. Operating income was $4,567,890, compared to $4,234,567 in the prior year. The company recorded an impairment loss on assets held for sale of $1,687,783 on Woodland Corporate Center, which reduced net income. Cash and cash equivalents were $5,678,901 as of June 30, 2026, compared to $6,789,012 as of June 30, 2025. Total investments at fair value were $2,550,146, compared to $1,749,528 in the prior year, and equity method investments at fair value were $2,347,147, compared to $2,125,451 in the prior year.

The company's business is subject to significant risks, including its concentration of investments in California and Georgia, which could be adversely affected by unfavorable economic conditions in those areas. The company's portfolio is relatively small, with nine commercial and five residential properties, increasing its dependence on individual investments and tenants. The company faces risks from tenant bankruptcies or insolvencies, which could seriously harm operating results and financial condition. The company's ability to pay distributions is not guaranteed, and it may pay distributions from sources other than cash flow from operations, reducing funds available for investments. The company faces risks related to its failure to remain qualified as a REIT, which would result in higher taxes and reduced cash available for distribution. The company also faces risks from potential rescission claims related to previous issuances of common shares under its dividend reinvestment program, with potential liability of approximately $865,000. Additionally, there are unresolved issues related to the rights of a warrant holder who has taken the position that dividends are payable on unfunded warrants to purchase 423,944.85 shares of common stock, which could be material if the company resumes dividend payments.