8-K: MacKenzie Realty Secures $2.18M Debt for REIT Tender Offer

MacKenzie Realty Capital, Inc. has issued two secured promissory notes totaling $2.18 million to Streeterville Capital, LLC to fund a tender offer for non-traded REIT securities.

Summary

• MacKenzie Realty Capital, Inc. (the "Company") issued two secured promissory notes, Secured Note #2 and Secured Note #3, to Streeterville Capital, LLC (the "Investor").
• Secured Note #2, effective August 1, 2025, has a principal amount of $545,000, an Original Issue Discount (OID) of $45,000, and a purchase price of $500,000.
• Secured Note #3, effective January 15, 2026, has a principal amount of $1,635,000, an OID of $135,000, and a purchase price of $1,500,000.
• The aggregate principal amount of both notes is $2,180,000, with an aggregate OID of $180,000, resulting in an aggregate cash received of $2,000,000.
• Both notes carry an interest rate of 9% per annum, compounded daily, calculated on a 360-day year.
• The maturity date for each note is 18 months after its respective Purchase Price Date.
• The proceeds from these notes are being used to purchase non-traded REIT securities through a tender offer made by the Company.
• While Secured Note #2 is individually immaterial, both notes in aggregate are considered material to the Company.

Sentiment

Score: 3

Explanation: The filing details a capital raise, which provides funding for the Company's operations. However, the terms of the debt are highly unfavorable, including a high daily compounded interest rate, significant original issue discount, and aggressive fees and default provisions. This indicates a high cost of capital and increased financial risk for the Company, outweighing the benefit of the funding itself.

Positives

• Successfully secured $2,000,000 in funding to pursue strategic tender offers for non-traded REIT securities.
• The funding allows the Company to continue its business operations related to acquiring non-traded REITs.

Negatives

• The notes carry a high interest rate of 9% per annum, compounded daily, which significantly increases the cost of borrowing.
• An Original Issue Discount (OID) totaling $180,000 across both notes effectively reduces the immediate cash received by the Company.
• A monitoring fee is imposed if the notes are outstanding for more than 90 days, calculated as Outstanding Balance / 0.93 Outstanding Balance, adding to the cost.
• Prepayment penalties apply, requiring 107% of the outstanding balance if repaid within 90 days.
• The notes are secured by a Guaranty, Pledge Agreement, and Security Agreement, indicating a high level of collateralization required by the lender.
• Numerous "Trigger Events" and "Events of Default" with severe remedies, including immediate acceleration of the debt and a default interest rate of 22% per annum, expose the Company to significant financial risk.

Risks

• Financial Obligation: The Company has incurred a material financial obligation totaling $2,180,000 in principal, subject to 9% daily compounded interest, OID, and potential monitoring fees.
• Default Risk: Failure to make timely payments of principal, interest, fees, or charges constitutes a Trigger Event, potentially leading to an Event of Default.
• Covenant Breach: Breaching covenants in the Note Purchase Agreement or other Transaction Documents can trigger default.
• Corporate Actions: Fundamental Transactions (e.g., mergers, asset sales, significant stock changes, certain dividends) without lender consent are Trigger Events.
• Operational Compliance: Failure to maintain DWAC Eligibility or a money judgment against the Company exceeding $1,000,000 can lead to default.
• Accelerated Maturity: Upon an Event of Default, the entire Outstanding Balance can become immediately due and payable at the Mandatory Default Amount, with interest accruing at 22% per annum.
• Dilution Risk: A reverse split of Common Shares without 20 Trading Days prior notice (unless for listing maintenance) is a Trigger Event.
• Cross-Default: Breaching terms in "Other Agreements" (existing and future agreements with Lender or material agreements affecting business operations) can trigger default on these notes.

Future Outlook

The filing does not contain explicit forward-looking statements or guidance beyond the terms of the debt repayment schedule and the stated purpose of acquiring non-traded REIT securities.

Management Comments

• MacKenzie Realty Capital, Inc. has duly caused this report to be signed on its behalf by Robert Dixon, President.

Industry Context

The issuance of these secured notes by MacKenzie Realty Capital, Inc. is specifically aimed at funding tender offers for non-traded REIT securities. This strategy aligns with the Company's focus on acquiring illiquid alternative investments, a niche within the broader real estate investment market. The terms of the debt, including high interest rates and significant OID, suggest that traditional financing might be less accessible or more expensive for this type of specialized investment activity, potentially reflecting the perceived risk or illiquidity associated with non-traded REITs.

Comparison to Industry Standards

• The 9% annual interest rate, compounded daily, is significantly higher than typical corporate debt for established companies, especially when considering the secured nature of the notes. For example, investment-grade corporate bonds often yield 3-6%, while even high-yield (junk) bonds typically range from 6-10% simple interest, not daily compounded.
• The Original Issue Discount (OID) of $180,000 on a $2,180,000 principal ($2,000,000 cash received) represents an effective upfront cost of 9% of the cash received, which is substantial.
• The monitoring fee, calculated as Outstanding Balance / 0.93 Outstanding Balance, is an unusual and aggressive fee structure, further increasing the effective cost of capital. For a $500,000 outstanding balance, this fee would be $37,634, or 7.5% of the balance.
• The stringent Trigger Events and Event of Default clauses, including a 22% default interest rate and immediate acceleration, are indicative of a high-risk lending environment, more akin to distressed debt financing than standard corporate borrowing.
• Comparable companies or projects in the non-traded REIT acquisition space would typically seek more favorable terms if they had stronger balance sheets or more liquid assets. The terms suggest that MacKenzie Realty Capital, Inc. may have limited alternative financing options or is pursuing a strategy with inherently higher perceived risk.

Stakeholder Impact

• Shareholders: The high cost of debt (9% daily compounded interest, OID, monitoring fees) will negatively impact profitability and potentially future shareholder returns. The stringent default clauses increase financial risk, which could lead to share price volatility or impairment.
• Creditors: Streeterville Capital, LLC, as the lender, benefits from highly favorable terms, including high interest, OID, security, and aggressive default remedies, which protect its investment. Other creditors might see their claims subordinated or diluted in a default scenario.
• Employees: No direct impact mentioned, but severe financial distress from the debt terms could indirectly affect job security or compensation.
• Customers/Suppliers: No direct impact mentioned.

Next Steps

• The Company is obligated to make monthly interest payments for the first five months, followed by principal and interest payments thereafter, until the notes are paid in full.
• The Company will continue to pursue its strategy of purchasing non-traded REIT securities using the proceeds from these notes.
• The Company must adhere to all covenants and avoid Trigger Events to prevent acceleration of the debt and imposition of default interest.

Key Dates

Recommendation

The terms of the secured promissory notes are exceptionally onerous, featuring a 9% daily compounded interest rate, a substantial Original Issue Discount (OID), and aggressive monitoring fees. These terms, coupled with a comprehensive list of 'Trigger Events' and severe default remedies including a 22% default interest rate and immediate acceleration, indicate a very high cost of capital and significant financial risk for MacKenzie Realty Capital, Inc. While the funding supports the acquisition of non-traded REIT securities, the burden of this debt is likely to severely impact future profitability and cash flow, making the Company a high-risk investment with limited upside potential given the punitive financing structure. Investors should consider selling to avoid potential capital erosion.

Keywords

MacKenzie Realty Capital, MKZR, Secured Promissory Note, Debt Financing, Streeterville Capital, Non-Traded REITs, Tender Offer, Original Issue Discount, Corporate Debt, SEC Filing, Form 8-K, Financial Obligation, Investment