8-K: MacKenzie Realty Capital Amends Advisory Management Agreement

MacKenzie Realty Capital, Inc. announced an amendment to its Advisory Management Agreement, effective January 1, 2026, revising management fees and contract terms.

Summary

• The Board of Directors of MacKenzie Realty Capital, Inc. unanimously approved an amendment to the Advisory Management Agreement with MacKenzie Real Estate Advisers, LP, effective January 1, 2026.
• The new Base Management Fee will be 1.25% of Gross Assets Under Management (AUM) monthly, replacing the previous Asset Management Fee.
• A new Bonus Management Fee equal to 5% of Adjusted Funds From Operations (AFFO) will be paid quarterly, replacing the Subordinated Incentive Fee and eliminating Acquisition Fees.
• The Company will no longer pay Acquisition Fees, Debt Financing Fees, or Disposition Fees to the Real Estate Adviser.
• The agreement now has a rolling five-year term, with the Company revisiting the agreement annually to decide on a one-year extension.
• Provisions for fees for non-renewal or termination for reasons other than 'for cause' have been introduced.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While new termination fees introduce potential liabilities, the elimination of several common fees (acquisition, debt financing, disposition) and the shift to a performance-based bonus tied to AFFO could be viewed favorably by investors, aligning adviser incentives with shareholder value. The simplification of the fee structure is also a positive.

Positives

• Elimination of Acquisition Fees, Debt Financing Fees, and Disposition Fees, which are common in other REIT structures, potentially reducing overall costs for the Company.
• Simplification of the fee structure by replacing multiple fees with a clear Base Management Fee and a performance-based Bonus Management Fee tied to AFFO.
• The Bonus Management Fee is tied to Adjusted Funds From Operations (AFFO), aligning the adviser's compensation with the Company's operational performance.

Negatives

• Introduction of an early termination fee equal to 24 times the prior month's Base Management Fee if the Company does not extend the term and the Adviser terminates the agreement.
• If the Company does not extend the term, the Base Management Fee can increase to 2% of AUM for the remainder of the term, potentially increasing costs.
• An elective termination by the Company requires a payment of three times the fees calculated under Section 3.1 for the 12 months prior to termination.

Risks

• The Company faces a financial obligation in the form of an early termination fee if it chooses not to extend the agreement and the Adviser subsequently terminates it, or if the Company elects to terminate the agreement.
• Failure to extend the agreement annually could lead to an increase in the Base Management Fee to 2% of AUM for the remaining term, impacting profitability.
• The definition of 'Cause' for termination is specific, limiting the Company's ability to terminate without significant financial penalty in other circumstances.

Future Outlook

The Company will annually review the Advisory Management Agreement to decide whether to extend its five-year term by one year, with notification to the Adviser by November 30 each year. This provides ongoing flexibility in the advisory relationship.

Management Comments

• No notable direct quotes from company management were provided in the filing, beyond the formal signatures acknowledging the agreement.

Industry Context

The Company highlights that, unlike many other non-traded REITs and smaller publicly traded REITs, it will not pay Acquisition Fees, Debt Financing Fees, or Disposition Fees to its Real Estate Adviser. This positions its fee structure as potentially more streamlined or favorable compared to some industry peers, focusing compensation on asset management and operational performance (AFFO).

Comparison to Industry Standards

• The elimination of Acquisition Fees, Debt Financing Fees, and Disposition Fees differentiates MacKenzie Realty Capital from many other non-traded and smaller publicly traded REITs that commonly include these fees in their advisory agreements.
• The Base Management Fee of 1.25% of AUM is within the typical range for advisory fees in the REIT sector, though specific comparisons would require detailed analysis of AUM definitions and services provided by comparable companies.
• The introduction of a Bonus Management Fee tied to AFFO aligns the adviser's incentives with a key performance metric for REITs, similar to performance-based compensation structures seen in other investment management agreements.

Corporate Governance

Related Party Transactions

• The amendment to the Advisory Management Agreement is a related party transaction between MacKenzie Realty Capital, Inc. and its investment adviser, MacKenzie Real Estate Advisers, LP.

Stakeholder Impact

• Shareholders: The revised fee structure, particularly the elimination of certain fees and the performance-based bonus, could impact the Company's profitability and, consequently, shareholder returns. The new termination clauses represent potential future liabilities.
• Management/Adviser: The compensation structure for MacKenzie Real Estate Advisers, LP is directly impacted, with a new Base Management Fee and a Bonus Management Fee tied to AFFO, replacing previous fees. This changes how the adviser is compensated for its services.

Next Steps

• The Company will annually review the Advisory Management Agreement to decide whether to extend its five-year term by one year.
• The Company will notify the Adviser of its decision regarding term extension no later than November 30 of each calendar year.

Key Dates

Recommendation

The amendment to the Advisory Management Agreement represents a significant structural change in how MacKenzie Realty Capital compensates its adviser. While the elimination of certain fees (acquisition, debt financing, disposition) and the introduction of a performance-based bonus tied to AFFO are generally positive for aligning incentives, the new termination clauses introduce potential financial liabilities. Without a broader financial context, including the Company's current valuation, operational performance, and market conditions, a definitive 'buy' or 'sell' recommendation is premature. Investors should 'hold' while evaluating the long-term impact of these fee structure changes on the Company's profitability and risk profile.

Keywords

MacKenzie Realty Capital, Advisory Management Agreement, Real Estate Investment Trust, REIT, Management Fees, AFFO, AUM, Corporate Governance, Investment Advisory, Fee Structure