10-Q 1 rreo-20180630x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
Commission File Number 000-54369
reit2logoa09.jpg
Resource Real Estate Opportunity REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland
 
27-0331816
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
1845 Walnut Street, 18th Floor, Philadelphia, PA 19103
(Address of principal executive offices) (Zip code)
(215) 231-7050
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company., or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
þ
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
As of August 7, 2018, there were 70,893,399 outstanding shares of common stock of Resource Real Estate Opportunity REIT, Inc.




RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-Q

 
 
PAGE
PART 1
FINANCIAL INFORMATION
 
 
 
 
  Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Item 2.
 
 
 
  Item 3.
 
 
 
  Item 4.
 
 
 
PART II
 
 
 
 
 
  Item 2.
 
 
 
  Item 3.
 
 
 
  Item 6.
 
 
 








Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements.  Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.  Actual results may differ materially from those contemplated by such forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.




PART 1.     FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
 
June 30,
2018
 
December 31,
2017
 
(unaudited)
 
 
ASSETS
 
 
 
Investments:
 
 
 
Rental properties, net
$
1,050,713

 
$
998,889

Loan held for investment, net
787

 
782

Identified intangible assets, net
1,392

 
1,796

Assets held for sale - rental properties
9,816

 

Total investments
1,062,708

 
1,001,467

 
 
 
 
Cash
57,060

 
117,660

Restricted cash
11,042

 
13,401

 Subtotal- cash and restricted cash
68,102

 
131,061

Due from related parties
445

 
371

Tenant receivables, net
263

 
251

Deposits
227

 
227

Prepaid expenses and other assets
3,336

 
1,745

Goodwill
670

 
670

Total assets
$
1,135,751

 
$
1,135,792

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Liabilities:
 

 
 

Mortgage notes payable, net
$
846,805

 
$
794,671

Accounts payable
995

 
791

Accrued expenses and other liabilities
7,512

 
8,074

Accrued real estate taxes
7,865

 
9,195

Due to related parties
809

 
719

Tenant prepayments
1,384

 
1,178

Security deposits
2,741

 
2,572

Total liabilities
$
868,111

 
$
817,200

 
 
 
 
Stockholders' Equity:
 

 
 

Preferred stock (par value $.01; 10,000,000 shares authorized, none issued)

 

Common stock (par value $.01; 1,000,000,000 shares authorized; 78,698,602 and 77,457,551 shares issued, respectively; and 70,691,085 and 71,299,467 shares outstanding, respectively)
707

 
713

Convertible stock (“promote shares”; par value $.01; 50,000 shares authorized; 49,995 shares issued and outstanding)
1

 
1

Additional paid-in capital
629,216

 
635,748

Accumulated other comprehensive loss
(494
)
 
(562
)
Accumulated deficit
(361,790
)
 
(317,308
)
Total stockholders’ equity
267,640

 
318,592

Total liabilities and stockholders' equity
$
1,135,751

 
$
1,135,792


The accompanying notes are an integral part of these consolidated statements.
3


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
32,788

 
$
28,714

 
$
63,204

 
$
56,712

Utility income
2,025

 
1,755

 
4,019


3,427

Ancillary tenant fees
532

 
512

 
1,019


1,005

Interest and dividend income
101

 
49

 
175

 
91

Total revenues
35,446

 
31,030

 
68,417

 
61,235

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Rental operating - expenses
8,208

 
6,948

 
15,058

 
12,847

Rental operating - payroll
3,482

 
3,418

 
6,861

 
7,079

Rental operating - real estate taxes
4,360

 
3,650

 
8,215

 
7,302

     Subtotal - Rental operating expenses
16,050

 
14,016

 
30,134

 
27,228

Acquisition costs

 
1,775

 
9

 
1,775

Management fees
4,823

 
4,143

 
9,392

 
8,207

General and administrative
2,693

 
2,665

 
5,536

 
5,672

Loss on disposal of assets
196

 
114

 
304

 
192

Depreciation and amortization expense
15,046

 
12,756

 
29,383

 
25,334

Total expenses
38,808

 
35,469

 
74,758

 
68,408

         Loss before other income (expense)
(3,362
)
 
(4,439
)
 
(6,341
)
 
(7,173
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Net gains on dispositions of properties and joint venture interests

 
8,435

 

 
8,435

Interest expense
(9,060
)
 
(7,187
)
 
(17,183
)
 
(13,388
)
Insurance proceeds in excess of cost basis
193

 
29

 
346

 
98

Total other (expense) income
(8,867
)
 
1,277

 
(16,837
)
 
(4,855
)
 
 
 
 
 
 
 
 
Net loss
$
(12,229
)
 
$
(3,162
)
 
$
(23,178
)
 
$
(12,028
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Reclassification adjustment for realized loss on designated derivatives
45

 
52

 
83

 
75

Designated derivatives, fair value adjustments
(159
)
 
(62
)
 
(15
)
 
(289
)
Total other comprehensive income (loss)
(114
)
 
(10
)
 
68

 
(214
)
Comprehensive loss
$
(12,343
)
 
$
(3,172
)
 
$
(23,110
)
 
$
(12,242
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
71,006

 
72,007

 
71,221

 
72,102

Basic and diluted loss per common share:
 
 
 
 
 
 
 
Net loss per common share
$
(0.17
)
 
$
(0.04
)
 
$
(0.32
)
 
$
(0.16
)



The accompanying notes are an integral part of these consolidated statements.
4


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(in thousands)
(unaudited)

 
Common Stock
 
Convertible Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at January 1, 2018
71,299

 
$
713

 
50

 
$
1

 
$
635,748

 
$
(562
)
 
$
(317,308
)
 
$
318,592

Common stock issued through the distribution reinvestment plan
1,241

 
12

 

 

 
13,109

 

 

 
13,121

Distributions declared

 

 

 

 

 

 
(21,304
)
 
(21,304
)
Common stock redemptions
(1,849
)
 
(18
)
 

 

 
(19,641
)
 

 

 
(19,659
)
Other comprehensive income

 

 

 

 

 
68

 

 
68

Net loss

 

 

 

 

 

 
(23,178
)
 
(23,178
)
Balance at June 30, 2018
70,691

 
$
707

 
50

 
$
1

 
$
629,216

 
$
(494
)
 
$
(361,790
)
 
$
267,640




The accompanying notes are an integral part of this consolidated statement.
                            
5



RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Six Months Ended
 
June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 

Net loss
$
(23,178
)
 
$
(12,028
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

     Loss on disposal of assets
304

 
192

     Casualty (gains) losses
(438
)
 
90

Net gains on dispositions of properties and joint venture interests

 
(8,435
)
Depreciation and amortization
29,383

 
25,334

Amortization of deferred financing costs
863

 
963

Amortization of debt premium (discount)
(175
)
 
(239
)
Realized loss on change in fair value of interest rate cap
83

 
75

Accretion of discount and direct loan fees and costs
(15
)
 
(22
)
Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Tenant receivables, net
(12
)
 
(116
)
Deposits

 
3

Prepaid expenses and other assets
(1,400
)
 
(60
)
Due to/from related parties, net
16

 
(1,091
)
Accounts payable and accrued expenses
(3,171
)
 
(2,229
)
Tenant prepayments
192

 
126

Security deposits
102

 
10

Net cash provided by operating activities
2,554

 
2,573

 
 
 
 
Cash flows from investing activities:
 

 
 

Proceeds from disposal of properties and joint venture interests, net of closing costs

 
14,141

Property acquisitions
(25,218
)
 
(17,479
)
Insurance proceeds received for casualty losses
1,439

 

Capital expenditures
(10,131
)
 
(9,802
)
Principal payments received on loans held for investment
10

 
16

Net cash used in investing activities
(33,900
)
 
(13,124
)
Cash flows from financing activities:
 

 
 

Redemptions of common stock
(19,659
)
 
(18,005
)
Payment of deferred financing costs
(329
)
 

Borrowings on mortgages

 
46,286

Principal repayments on mortgages
(3,442
)
 
(3,241
)
Distributions paid on common stock
(8,183
)
 
(7,886
)
           Net cash (used in) provided by financing activities
(31,613
)
 
17,154

Net (decrease) increase in cash and restricted cash
(62,959
)
 
6,603

Cash and restricted cash at beginning of period
131,061

 
125,119

Cash and restricted cash at end of period
$
68,102

 
$
131,722

Reconciliation to consolidated balance sheets
 

 
 

Cash
$
57,060

 
$
122,515

Restricted cash
11,042

 
9,207

Cash and restricted cash at end of period
$
68,102

 
$
131,722


The accompanying notes are an integral part of these consolidated statements.
6

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(unaudited)


NOTE 1 - NATURE OF BUSINESS AND OPERATIONS
Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009 for the purpose of owning a diversified portfolio of discounted U.S. commercial real estate and real estate-related assets in order to generate gains to stockholders from the potential appreciation in the value of the assets and to generate current income for stockholders by distributing cash flow from the Company’s investments. Resource Real Estate Opportunity Advisor, LLC (the “Advisor”), an indirect wholly-owned subsidiary of Resource America, Inc. (“RAI”) has been engaged to manage the day-to-day operations of the Company.
RAI is a wholly-owned subsidiary of C-III Capital Partners LLC, ("C-III"), a leading commercial real estate investment management and services company engaged in a broad range of activities. C-III controls both our Advisor and Resource Real Estate Opportunity Manager, LLC (the "Manager"), the Company's property manager; C-III also controls all of the shares of common stock held by the Advisor.
Through its private offering and primary public offering, which concluded on December 13, 2013, the Company raised aggregate gross offering proceeds of $645.8 million, which resulted in the issuance of 64.9 million shares of common stock, including approximately 276,056 shares purchased by the Advisor and 1.2 million shares sold in the Company's distribution reinvestment plan. During the years ended December 31, 2017 and 2016, the Company issued approximately 5.1 million additional shares for $55.6 million pursuant to its distribution reinvestment plan. During the six months ended June 30, 2018, the Company issued approximately 1.2 million additional shares for $13.1 million pursuant to its distribution reinvestment plan. The Company's distribution reinvestment plan offering is ongoing.
The Company has acquired, and may continue to acquire, real estate and real estate-related debt. The Company has a particular focus on owning and operating multifamily assets, and it has targeted, and intends to continue to target, this asset class while also possibly acquiring interests in other types of commercial property assets consistent with its investment objectives.  The Company’s portfolio predominantly consists of multifamily rental properties to which the Company has added or will add value with a capital infusion (referred to as “value add properties”).  However, the Company is not limited in the types of real estate assets in which it may invest and, accordingly, it may invest in other real estate-related assets either directly or together with a co-investor or joint venture partner.
The Company is organized and conducts its operations in a manner intended to allow it to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended.  The Company also operates its business in a manner intended to maintain its exemption from registration under the Investment Company Act of 1940, as amended.
The consolidated financial statements and the information and tables contained in the notes to the consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The consolidated balance sheet as of December 31, 2017 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2017. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for the six months ended June 30, 2018 may not necessarily be indicative of the results of operations for the full year ending December 31, 2018.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with GAAP. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as follows:


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


    
Subsidiary

Apartment Complex

Number
of Units

Property Location
RRE Opportunity Holdings, LLC

N/A

N/A

N/A
Resource Real Estate Opportunity OP, LP

N/A

N/A

N/A
RRE Charlemagne Holdings, LLC
 
N/A
 
N/A
 
N/A
RRE Iroquois, LP (“Vista”)

Vista Apartment Homes

133

Philadelphia, PA
RRE Iroquois Holdings, LLC

N/A

N/A

N/A
RRE Cannery Holdings, LLC (“Cannery”)

Cannery Lofts

156

Dayton, OH
RRE Williamsburg Holdings, LLC (“Williamsburg”)

Williamsburg

976

Cincinnati, OH
RRE Autumn Wood Holdings, LLC ("Autumn Wood")

Retreat at Rocky Ridge

206

Hoover, AL
RRE Village Square Holdings, LLC ("Village Square")

Trailpoint at the Woodlands

271

Houston, TX
RRE Brentdale Holdings, LLC ("Brentdale")

The Westside Apartments

412

Plano, TX
RRE Jefferson Point Holdings, LLC ("Jefferson Point")

Tech Center Square

208

Newport News, VA
RRE Centennial Holdings, LLC ("Centennial")

Verona Apartment Homes

276

Littleton, CO
RRE Pinnacle Holdings, LLC ("Pinnacle")

Skyview Apartment Homes

224

Westminster, CO
RRE River Oaks Holdings, LLC ("River Oaks")

Maxwell Townhomes

316

San Antonio, TX
RRE Nicollet Ridge Holdings, LLC ("Nicollet Ridge")

Meridian Pointe

339

Burnsville, MN
RRE Addison Place Holdings, LLC ("Addison Place")
 
The Estates at Johns Creek
 
403
 
Alpharetta, GA
PRIP Coursey, LLC ("Evergreen at Coursey Place") (a)
 
Evergreen at Coursey Place
 
352
 
Baton Rouge, LA
PRIP 500, LLC ("Pinehurst") (a)
 
Pinehurst
 
146
 
Kansas City, MO
PRIP 1102, LLC ("Pheasant Run") (a)
 
Pheasant Run
 
160
 
Lee's Summit, MO
PRIP 11128, LLC ("Retreat at Shawnee") (a)
 
Retreat at Shawnee
 
342
 
Shawnee, KS
PRIP Pines, LLC ("Pines of York") (a)
 
Pines of York
 
248
 
Yorktown, VA
RRE Berkeley Run Holdings, LLC ("Berkley Run")
 
Perimeter Circle
 
194
 
Atlanta, GA
RRE Berkeley Trace Holdings LLC ("Berkley Trace")
 
Perimeter 5550
 
165
 
Atlanta, GA
RRE Merrywood Holdings, LLC ("Merrywood")
 
Aston at Cinco Ranch
 
228
 
Katy, TX
RRE Sunset Ridge Holdings, LLC ("Sunset Ridge")
 
Sunset Ridge
 
324
 
San Antonio, TX
RRE Parkridge Place Holdings, LLC ("Parkridge Place")
 
Calloway at Las Colinas
 
536
 
Irving, TX
RRE Woodmoor Holdings, LLC ("Woodmoor")
 
South Lamar Village
 
208
 
Austin, TX
RRE Gilbert Holdings, LLC ("Springs at Gilbert")
 
Heritage Pointe
 
458
 
Gilbert, AZ
RRE Bonita Glen Holdings, LLC ("Bonita")
 
Point Bonita Apartment Homes
 
295
 
Chula Vista, CA
RRE Yorba Linda Holdings, LLC ("Yorba Linda")
 
The Bryant at Yorba Linda
 
400
 
Yorba Linda, CA
RRE Providence Holdings, LLC ("Providence in the Park")
 
Providence in the Park
 
524
 
Arlington, TX
RRE Green Trails Holdings, LLC ("Green Trails")
 
Green Trails Apartment Homes
 
440
 
Lisle, IL
RRE Terraces at Lake Mary Holdings, LLC ("Lake Mary")
 
Terraces at Lake Mary
 
284
 
Lake Mary, FL
RRE Courtney Meadows Holdings, LLC ("Courtney Meadows")
 
Courtney Meadows Apartments
 
276
 
Jacksonville, FL
RRE Sandy Springs Holdings, LLC ("Sandy Springs")
 
Addison at Sandy Springs

236

Sandy Springs, GA
RRE Grapevine Holdings, LLC ("Bristol Grapevine")
 
Bristol Grapevine

376

Grapevine, TX
 
 
 
 
10,112
 
 
 
N/A - Not Applicable
(a) Wholly-owned subsidiary of RRE Charlemagne Holdings, LLC.
All intercompany accounts and transactions have been eliminated in consolidation.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


Segment Reporting
The Company does not evaluate performance on a relationship-specific or transactional basis and does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company believes it has a single operating segment for reporting purposes in accordance with GAAP.

Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.  Actual results could differ from those estimates.
Adoption of New Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers” ("ASU No. 2014-09"), which replaces most existing revenue recognition guidance in GAAP.  Under the new standard, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. ASU No. 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective approach. The majority of the Company’s revenue is derived from residential rental income and other lease income, which are scoped out from this standard and included in the current lease accounting framework, and will be accounted for under ASU No. 2016-02, Leases, as discussed below. Revenue streams that are in the scope of the new standards include (but are not limited to) administrative and late fees and revenue sharing arrangements of cable income from contracts with cable providers at the Company's properties. The accounting for these revenue streams were not affected by the adoption of ASU 2014-09, nor was there a cumulative effect of initially applying the standard.
In August 2016, FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments", which addresses eight specific cash flow issues with the objective of reducing existing diversity in practice.  On January 1, 2018, the Company adopted ASU No. 2016-15, and the adoption did not have a material impact on its consolidated financial statements and disclosures.
In November 2016, FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU No. 2016-18”), which provides guidance on the classification of restricted cash in the statement of cash flows. The Company adopted ASU No. 2016-18 as of January 1, 2018, and the adoption did not have a material effect on the Company's consolidated financial statements and disclosures. As a result of adopting the new guidance, $2.0 million and $147,000 of restricted cash, which were previously included as operating cash inflows and investing cash outflows within the consolidated statements of cash flows for the six months ended June 30, 2017, respectively, have been removed and are now included in the cash and restricted cash line items at the beginning and end of the period.
In January 2017, FASB issued ASU No. 2017-01, "Business Combinations (Topic 850): Clarifying the Definition of Business", which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses.  The Company adopted ASU No. 2017-01 as of January 1, 2018. Acquisitions during the six months ended June 30, 2018 were evaluated under the new standard and accounted for as asset acquisitions. The Company believes any future property acquisitions will be accounted for as asset acquisitions, not business combinations.
Accounting Standards Issued But Not Yet Effective
In February 2016, FASB issued ASU No. 2016-02, "Leases" ("ASU No. 2016-02") and amended by ASU No. 2018-09 "Codification Improvements" in July 2018, which is intended to improve financial reporting about leasing transactions and requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In September 2017, the FASB issued ASU No. 2017-13, "Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)", which provides additional implementation guidance on the previously issued ASU No. 2016-02.  ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is continuing to evaluate this guidance; however, the Company expects that its operating leases where it is the lessor will be accounted for on its balance sheet similar to its current accounting with the underlying leased asset recognized as real estate. For leases in which the Company is the lessee, primarily consisting of a parking


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


space lease and office equipment leases, the Company expects to recognize a right-of-use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and to interest expense and the right-of-use asset being amortized to expense on a straight-line basis over the term of the lease. In July 2018, FASB issued ASU No. 2018-11, “Leases: Targeted Improvements” an additional amendment to ASU No. 2016-02.  Although the Company is still evaluating this guidance, the Company believes it will apply the practical expedient allowed in this new guidance to combine lease and associated nonlease components by class of underlying asset.  In addition, the Company is expected to utilize the optional method for adopting the new leasing guidance and not restate comparative periods. 
In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses”, which requires measurement and recognition of expected credit losses for financial assets held. ASU No. 2016-13 will be effective for the Company beginning January 1, 2019. The Company is evaluating this guidance; however, it does not expect the adoption of ASU No. 2016-13 to have a significant impact on its consolidated financial statements.
In January 2017, FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment", which alters the current goodwill impairment testing procedures to eliminate Step 2. Step 2 required that, if the carrying amount of a reporting unit exceeded its fair value, the implied fair value of the goodwill must be compared to the carrying amount in order to determine impairment. ASU No. 2017-04 will be effective for the Company beginning December 15, 2019. Early application is permitted. The Company is evaluating this guidance and assessing the impact of this guidance on its consolidated financial statements.
In August 2017, FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The update to the standard is effective for the Company on January 1, 2019, with early adoption permitted in any interim period. The Company is continuing to evaluate this guidance and assessing the impact of this guidance on its consolidated financial statements.    
In July 2018, FASB issued ASU No. 2018-09, "Codification Improvements". This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company is evaluating this guidance to determine the impact it may have on its consolidated financial statements.
Assets Held for Sale
The Company presents rental property assets that qualify as held for sale separately in the consolidated balance sheets. Real estate assets held for sale are measured at the lower of carrying amount or fair value less cost to sell. Subsequent to classification of an asset as held for sale, no further depreciation is recorded. As of June 30, 2018 and December 31, 2017, the Company had one and zero rental properties, respectively, included in assets held for sale.
Rental Properties
The Company records acquired rental properties at fair value on the acquisition date. The Company considers the period of future benefit of an asset to determine its appropriate useful life and depreciates the asset using the straight line method.  The Company anticipates the estimated useful lives of its assets by class as follows:
Buildings
27.5 years
Building improvements
5.0 to 27.5 years
Furniture, fixtures, and equipment
3.0 to 5.0 years
Tenant improvements
Shorter of lease term or expected useful life
Lease intangibles
Remaining term of related lease

Improvements and replacements in excess of $1,000 are capitalized when they have a useful life greater than or equal to one year. The Manager earns a construction management fee of 5.0% of actual aggregate costs to construct improvements, or to repair, rehab or reconstruct a property. These costs are capitalized along with the related asset. Costs of repairs and maintenance are expensed as incurred.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


Contractual Obligations
The Company leases parking space and equipment under leases with varying expiration dates through 2023.  As of June 30, 2018, the payments due under these obligations totaled $194,000.
Impairment of Long Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment.  This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition.  The review also considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.
An impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of a property to be held and used.  For properties held for sale, the impairment loss would be the adjustment to fair value less the estimated cost to dispose of the asset.  There were no impairment losses recorded on long-lived assets during the three and six months ended June 30, 2018 and 2017.
Loans Held for Investment, Net
The Company records acquired performing loans held for investment at cost and reviews them for potential impairment at each balance sheet date.  The Company considers a loan to be impaired if one of two conditions exists.  The first condition is if, based on current information and events, management believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The second condition is if the loan is deemed to be a troubled-debt restructuring (“TDR”) where a concession has been given to a borrower in financial difficulty.  A TDR may not have an associated specific loan loss allowance if the principal and interest amount is considered recoverable based on current market conditions, expected collateral performance and/or guarantees made by the borrowers.
The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or, as a practical expedient, the fair value of the collateral.  If a loan is deemed to be impaired, the Company records a reserve for loan losses through a charge to income for any shortfall.    
Interest income from performing loans held for investment is recognized based on the contractual terms of the loan agreement.  Fees related to any buy down of the interest rate are deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income.  The initial investment made in a purchased performing loan includes the amount paid to the seller plus fees.  The initial investment frequently differs from the related loan’s principal amount at the date of the purchase.  The difference is recognized as an adjustment of the yield over the life of the loan.  Closing costs related to the purchase of a performing loan held for investment are amortized over the term of the loan and accreted as an adjustment to interest income.
The Company may acquire real estate loans at a discount due to the credit quality of such loans and the respective borrowers under such loans.  Revenues from these loans are recorded under the effective interest method.  Under this method, an effective interest rate (“EIR”) is applied to the cost basis of the real estate loan held for investment.  The EIR that is calculated when the loan held for investment is acquired remains constant and is the basis for subsequent impairment testing and income recognition.  However, if the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method.  Under the cost recovery method of accounting, no income is recognized until the basis of the loan held for investment has been fully recovered.     
Allocation of the Purchase Price of Acquired and Foreclosed Assets
On January 1, 2018, the Company adopted ASU 2017-01. Acquisitions that do not meet the definition of a business under this guidance are accounted for as asset acquisitions. In most cases, the Company believes acquisitions of real estate will no longer be considered a business combination, as in most cases substantially all of the fair value is concentrated in a single identifiable asset or group of tangible assets that are physically attached to each other (land and building). However, if the Company determines that substantially all of the fair value of the gross assets acquired is not concentrated in either a single identifiable asset or in a group of similar identifiable assets, the Company will then perform an assessment to determine whether the set is a business by using the framework outlined in the ASU. If the Company determines that the acquired asset is not a business, the Company will allocate the cost of the acquisition, including transaction costs, to the assets acquired or liabilities assumed based on their related fair value.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


Upon the acquisition of real properties, the Company allocates the purchase price of properties to acquired tangible assets consisting of land, buildings, fixtures and improvements, identified intangible lease assets, consisting of the value of above-market and below-market leases, as applicable, the value of in-place leases, the value of tenant relationships, and liabilities, based in each case on their fair values.
The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease.  The Company amortizes any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases.    
The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if it were vacant.  Management’s estimates of value are determined by independent appraisers (e.g., discounted cash flow analysis).  Factors to be considered in the analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.
In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.
The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant.  Characteristics to be considered by management in allocating these values include the nature and extent of the Company’s existing relationships with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
The Company amortizes the value of in-place leases to expense over the average remaining term of the respective leases.  The value of customer relationship intangibles are amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building.  
The determination of the fair value of assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables.  The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income.  
Goodwill
The Company records the excess of the cost of an acquired entity over the difference between the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit during the fourth quarter of each calendar year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There have been no such events or changes in circumstances during the three and six months ended June 30, 2018.
Revenue Recognition
The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related lease.
The future minimum rental payments to be received from noncancelable operating leases for residential rental properties are $73.4 million and $1.3 million for the 12 month periods ending June 30, 2019 and 2020, respectively, and none thereafter. The future minimum rental payments to be received from noncancelable operating leases for commercial rental properties and antenna rentals are $435,000, $399,000, $274,000, $241,000, and $48,000 for the 12 month periods ending June 30, 2019, through June 30, 2023, respectively, and none thereafter.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


Revenue is primarily derived from the rental of residential housing units for which the Company receives minimum rents and utility reimbursements pursuant to underlying tenant lease agreements. The Company also receives other ancillary tenant fees for administration of leases, late payments, amenities, and revenue sharing arrangements of cable income from contracts with cable providers at the Company's properties. As discussed earlier, the Company adopted ASU No. 2014-09 beginning January 1, 2018. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company records utility reimbursement income and ancillary charges in the period when the performance obligation is completed, either at a point in time or on a monthly basis as the service is utilized. Included in Accrued expenses and other liabilities on the consolidated balance sheet at June 30, 2018 is a $512,000 contract liability relating to contracts with cable providers. The Company recognizes income on a straight line basis over the contract period of 10 years to 12 years. In the six months ended June 30, 2018, $38,000 of revenue from the contract liability was recognized into income.     
Tenant Receivables
Tenant receivables are stated in the consolidated financial statements as amounts due from tenants net of an allowance for uncollectible receivables.  Payment terms vary and receivables outstanding longer than the payment terms are considered past due.  The Company determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history, the tenants’ current ability to pay their obligations to the Company, the condition of the general economy and the industry as a whole.  The Company writes off receivables when they become uncollectible.  As of June 30, 2018 and December 31, 2017, there were allowances for uncollectible receivables of $35,606 and $149,300, respectively.
Income Taxes
The Company elected to be taxed as a REIT commencing with its taxable year ended December 31, 2010. To maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its taxable net income (excluding net capital gains) to its stockholders as well as comply with other requirements, including certain asset, income and stock ownership tests.  As a REIT, the Company is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year.  If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it is subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it fails its REIT qualification.  Accordingly, the Company’s failure to qualify as a REIT could have a material adverse impact on its results of operations and amounts available for distribution to its stockholders.
The dividends-paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements.  Generally, taxable income differs from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.
The Company may elect to treat any of its subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, the Company’s TRSs may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business.  A TRS is subject to U.S. federal, state and local corporate income taxes. While a TRS may generate net income, a TRS can declare dividends to the Company which will be included in the Company's taxable income and necessitate a distribution to its stockholders. Conversely, if the Company retains earnings at a TRS level, no distribution is required and the Company can increase book equity of the consolidated entity.  As of June 30, 2018 and December 31, 2017, the Company had no TRSs.
    
The Company evaluates the benefits from tax positions taken or expected to be taken in its tax return. Only the largest amount of benefits from tax positions that will more likely than not be sustainable upon examination are recognized by the Company.  The Company does not have any unrecognized tax benefits, nor interest and penalties, recorded in its consolidated financial statements and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next 12 months.
    
The Company is subject to examination by the U.S. Internal Revenue Service and by the taxing authorities in other states in which the Company has significant business operations.  The Company is not currently undergoing any examinations by taxing authorities. The Company is not subject to IRS examination for tax return years 2013 and prior.
    


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


Legislation commonly known as the Tax Cuts and Jobs Act ("TCJA") was signed into law on December 22, 2017. The TCJA makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations (including REITs), generally effective for taxable years beginning after December 31, 2017. The Company is continuing to evaluate this legislation, but does not expect it to have a significant impact.
Earnings Per Share
Basic earnings per share is calculated on the basis of the weighted-average number of common shares outstanding during the year. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock.  None of the 49,995 shares of convertible stock (see Note 14) are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of June 30, 2018 (were such date to represent the end of the contingency period).
Reclassifications
Certain amounts in the prior year financial statements have been reclassified to conform to the current-year presentation. The impact of the reclassifications made to prior year amounts are not material and did not affect net income (loss).
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents the Company's supplemental cash flow information (in thousands):
 
Six Months Ended
 
June 30,
 
2018
 
2017
Non-cash financing and investing activities:
 
 
 
Stock issued from the distribution reinvestment plan
$
13,121

 
$
13,691

Deferred financing costs funded directly by mortgage notes
57

 
220

Accruals for construction in progress
1,011

 
280

 
 
 
 
Non-cash activity related to dispositions:
 
 
 
Mortgage notes payable settled directly with proceeds from sale of rental property

 
11,587

 
 
 
 
Non-cash activity related to acquisitions:
 
 
 
Mortgage notes payable used to acquire rental property
55,672

 
61,500

Cash paid during the period for:
 
 
 
Interest
$
15,988

 
$
12,106

NOTE 4 - RESTRICTED CASH
Restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance, and capital improvements. The following table presents a summary of the components of the Company's restricted cash (in thousands):

 
June 30, 2018
 
December 31, 2017
Real estate taxes
 
$
6,849

 
$
8,876

Insurance
 
961

 
1,995

Capital improvements
 
3,232

 
2,530

Total
 
$
11,042

 
$
13,401

In addition, the Company had unrestricted cash earmarked for capital expenditures of $30.0 million and $31.3 million as of June 30, 2018 and December 31, 2017, respectively.



RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


NOTE 5 - RENTAL PROPERTIES, NET
The following table presents the Company’s investments in rental properties (in thousands):
 
June 30, 2018
 
December 31, 2017
Land
$
204,048

 
$
196,765

Building and improvements
974,131

 
905,739

Furniture, fixtures and equipment
41,989

 
37,796

Construction in progress
2,146

 
6,297

 
1,222,314

 
1,146,597

Less: accumulated depreciation
(171,601
)
 
(147,708
)
 
$
1,050,713

 
$
998,889

Depreciation expense for the three and six months ended June 30, 2018 was $13.9 million and $27.1 million, respectively, and for the three and six months ended June 30, 2017 depreciation expense was $11.8 million and $23.6 million, respectively.
During the three months ended June 30, 2018, the Company entered into an agreement to sell one rental property, Pheasant Run, with a net book value of $9.8 million. The Company confirmed the intent and ability to sell this property in its present condition and this property qualified for held for sale accounting treatment upon meeting all applicable criteria prior to June 30, 2018, at which time depreciation ceased. As such, the assets associated with this property were separately classified and included as assets held for sale on the Company's consolidated balance sheet as of June 30, 2018. However, the sale of this property did not qualify for discontinued operations, and, therefore, the operations for all periods presented continue to be classified within continuing operations on the Company's consolidated statements of operations. The Company expects to complete the sale during the three months ended September 30, 2018.
NOTE 6 - LOAN HELD FOR INVESTMENT, NET
In 2011, the Company purchased, at a discount, one performing promissory note (the "Trail Ridge Note”), which is secured by a first priority mortgage on a multifamily rental apartment community. The contract purchase price for the Trail Ridge Note was $700,000, excluding closing costs. As of both June 30, 2018 and December 31, 2017, the Trail Ridge Note was both current and performing.
The following table presents details of the balance and terms of the Trail Ridge Note as of June 30, 2018 and December 31, 2017 (in thousands):
 
June 30, 2018
 
December 31, 2017
Unpaid principal balance
$
924

 
$
934

Unamortized discount and acquisition costs
(137
)
 
(152
)
Net book value
$
787

 
$
782

 
 
 
 
Maturity date
10/28/2021

 
 
Interest rate
7.5
%
 
 
Average monthly payment
$
8

 
 

The Company has evaluated the loan for impairment and determined that, as of June 30, 2018, it was not impaired.  There were no allowances for credit losses as of both June 30, 2018 and December 31, 2017. There were no charge-offs for both the six months ended June 30, 2018 and the six months ended June 30, 2017.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


NOTE 7 - ACQUISITIONS
As of June 30, 2018, the Company owned interests in 32 properties. On April 17, 2018, the Company, through its wholly-owned subsidiary, purchased Addison at Sandy Springs Apartments, a 236-unit multifamily apartment complex in Sandy Springs, Georgia, for $34.0 million from an unrelated third party. On April 25, 2018, the Company, through its wholly-owned subsidiary, purchased Bristol at Grapevine, a 376-unit multifamily apartment complex in Grapevine, Texas, for $44.7 million from an unrelated third party.
The following table presents the allocated contract purchase price, acquisition fee, and acquisition costs during the six months ended June 30, 2018 (in thousands):
Bristol at Grapevine

Contractual Purchase
Price

Acquisition Fee

Acquisition Costs

Total Real Estate Cost
Land

$
3,279


$
70


$
15


$
3,364

Building and Improvements

39,777


854


187


40,818

Furniture, fixtures and equipment

570


12


3


585

Intangible Assets

1,074


23


5


1,102



$
44,700


$
959


$
210


$
45,869

Addison at Sandy Springs

Contractual Purchase
Price

Acquisition Fee

Acquisition Costs

Total Real Estate Cost
Land

$
4,595


$
100


$
24


$
4,719

Building and Improvements

28,241


613


145


28,999

Furniture, fixtures and equipment

424


9


2


435

Intangible Assets

740


16


4


760



$
34,000


$
738


$
175


$
34,913

    
NOTE 8 - DISPOSITION OF PROPERTIES AND DECONSOLIDATION OF INTERESTS
There were no dispositions of properties during the three and six months ended June 30, 2018. On June 29, 2018, the Company entered into an agreement to sell its interest in Pheasant Run, located in Lee's Summit, Missouri, for $16.4 million with an expected closing in the third quarter of 2018. Pheasant Run is included in assets held for sale-rental properties in the consolidated balance sheet as of June 30, 2018. The Company expects to recognize a gain on sale during the three months ended September 30, 2018.
The following table presents details of the Company's disposition and deconsolidation activity during the three and six months ended June 30, 2017 (in thousands):

 

 

 


 
Net Gains on Dispositions of Properties and Joint Venture Interests
2017 Dispositions:
 
Location
 
Sale Date
 
Contract Sales Price
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
Chisholm Place

Plano, Texas

May 10, 2017

$
21,250


$
6,922


$
6,922

Mosaic

Oklahoma City, Oklahoma

May 12, 2017

6,100


1,513


1,513










$
8,435


$
8,435



RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


The following table presents the Company's revenues and net income (loss) attributable to properties sold, which includes gain on sale, for the three and six months ended June 30, 2017 (in thousands):
 
 
Revenues Attributable to Properties Sold
 
Net Income (Loss) Attributable to Properties Sold
2017 Dispositions:
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
Chisholm Place
 
$
270

 
$
825

 
$
6,662

 
$
6,663

Mosaic
 
143

 
475

 
1,509

 
1,467


 
$
413

 
$
1,300

 
$
8,171

 
$
8,130


NOTE 9 - IDENTIFIED INTANGIBLE ASSETS, NET AND GOODWILL
Identified intangible assets, net, relate to in-place apartment unit rental and antennae leases. The net carrying value of the acquired in-place leases totaled $1.4 million and $1.8 million as of June 30, 2018 and December 31, 2017, respectively, net of accumulated amortization of $28.9 million and $26.6 million, respectively.  The weighted-average remaining life of the acquired apartment unit rental leases was five months as of both June 30, 2018 and December 31, 2017. Expected amortization for the antennae leases at the Vista Apartment Homes for the years ending June 30, 2019, 2020, 2021, and 2022 are $13,068, $12,580, $5,358, $2,025, respectively, and none thereafter. Amortization of the apartment unit rental and antennae leases for the three and six months ended June 30, 2018 was $1.2 million and $2.3 million, respectively. Amortization of the apartment unit rental and antennae leases for the three and six months ended June 30, 2017 was $931,000 and $1.7 million, respectively.
The following table presents the Company's expected amortization for the rental and antennae leases for the next five 12-month periods ending June 30, and thereafter (in thousands): 
2019
$
1,372

2020
13

2021
5

2022
2

2023

Thereafter

 
$
1,392


As of both June 30, 2018 and December 31, 2017, the Company had $670,000 of goodwill included on the consolidated balance sheets.


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


NOTE 10 - MORTGAGE NOTES PAYABLE, NET

The following table presents a summary of the Company's mortgage notes payable, net (in thousands):

 
 
June 30, 2018
 
December 31, 2017
Collateral
 
Outstanding Borrowings
 
Premium (Discount)
 
Deferred finance costs, net
 
Carrying Value
 
Outstanding Borrowings
 
Premium (Discount)
 
Deferred finance costs, net
 
Carrying Value
Vista Apartment Homes
 
$
14,745

 
$

 
$
(122
)
 
$
14,623

 
$
14,896

 
$

 
$
(140
)
 
$
14,756

Cannery Lofts
 
13,100

 

 
(151
)
 
12,949

 
13,100

 

 
(165
)
 
12,935

Trailpoint at the Woodlands
 
18,207

 

 
(171
)
 
18,036

 
18,368

 

 
(188
)
 
18,180

Verona Apartment Homes
 
32,970

 

 
(447
)
 
32,523

 
32,970

 

 
(475
)
 
32,495

Skyview Apartment Homes
 
28,400

 

 
(389
)
 
28,011

 
28,400

 

 
(413
)
 
27,987

Maxwell Townhomes
 
13,206

 

 
(95
)
 
13,111

 
13,342

 

 
(109
)
 
13,233

Pinehurst
 
7,277

 

 
(116
)
 
7,161

 
7,339

 

 
(128
)
 
7,211

Pheasant Run
 
6,250

 

 

 
6,250

 
6,250

 

 

 
6,250

Retreat of Shawnee
 
12,553

 

 

 
12,553

 
12,682

 
7

 
(2
)
 
12,687

Evergreen at Coursey Place
 
26,393

 
67

 
(64
)
 
26,396

 
26,639

 
77

 
(75
)
 
26,641

Pines of York
 
14,570

 
(204
)
 
(39
)
 
14,327

 
14,717

 
(235
)
 
(44
)
 
14,438

The Estates at Johns Creek
 
48,094

 

 
(228
)
 
47,866

 
48,603

 

 
(286
)
 
48,317

Perimeter Circle
 
16,730

 

 
(56
)
 
16,674

 
16,923

 

 
(84
)
 
16,839

Perimeter 5550
 
13,204

 

 
(46
)
 
13,158

 
13,356

 

 
(70
)
 
13,286

Aston at Cinco Ranch
 
22,720

 

 
(181
)
 
22,539

 
22,942

 

 
(210
)
 
22,732

Sunset Ridge 1
 
19,023

 
155

 
(123
)
 
19,055

 
19,254

 
189

 
(150
)
 
19,293

Sunset Ridge 2
 
2,861

 
21

 
(16
)
 
2,866

 
2,890

 
26

 
(19
)
 
2,897

Calloway at Las Colinas
 
34,040

 

 
(209
)
 
33,831

 
34,396

 

 
(241
)
 
34,155

South Lamar Village
 
12,043

 

 
(54
)
 
11,989

 
12,177

 

 
(80
)
 
12,097

Heritage Pointe
 
25,636

 

 
(263
)
 
25,373

 
25,912

 

 
(284
)
 
25,628

The Bryant at Yorba Linda
 
67,500

 

 
(412
)
 
67,088

 
67,500

 

 
(461
)
 
67,039

Point Bonita Apartment Homes
 
26,324

 
1,510

 
(259
)
 
27,575

 
26,525

 
1,660

 
(285
)
 
27,900

The Westside Apartments
 
36,820

 

 
(366
)
 
36,454

 
36,820

 

 
(390
)
 
36,430

Tech Center Square
 
12,033

 

 
(148
)
 
11,885

 
12,141

 

 
(164
)
 
11,977

Williamsburg
 
53,995

 

 
(644
)
 
53,351

 
53,995

 

 
(706
)
 
53,289

Retreat at Rocky Ridge
 
11,375

 

 
(203
)
 
11,172

 
11,375

 

 
(223
)
 
11,152

Providence in the Park
 
47,000

 

 
(479
)
 
46,521

 
47,000

 

 
(524
)
 
46,476

Green Trails Apartment Homes
 
61,500

 

 
(614
)
 
60,886

 
61,500

 

 
(667
)
 
60,833

Meridian Pointe
 
39,500

 

 
(542
)
 
38,958

 
39,500

 

 
(588
)
 
38,912

Terraces at Lake Mary
 
32,250

 

 
(348
)
 
31,902

 
32,250

 

 
(377
)
 
31,873

Courtney Meadows Apartments
 
27,100

 

 
(339
)
 
26,761

 
27,100

 

 
(367
)
 
26,733

Addison at Sandy Springs
 
22,750




(316
)

22,434









Bristol at Grapevine
 
32,922




(395
)

32,527









 
 
$
853,091

 
$
1,549

 
$
(7,835
)
 
$
846,805

 
$
800,862

 
$
1,724

 
$
(7,915
)
 
$
794,671






    



RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


The following table presents additional information about the Company's mortgage notes payable, net (in thousands, except percentages) as of June 30, 2018:
Collateral
 
Maturity Date
 
Annual Interest Rate
 
Average Monthly Debt Service
 
Average Monthly Escrow
Vista Apartment Homes
 
1/1/2022
 
4.38%
(1)(5) 
$
72

 
$
17

Cannery Lofts
 
11/1/2023
 
4.63%
(1)(3) 
42

 
26

Trailpoint at the Woodlands
 
11/1/2023
 
4.50%
(1)(4) 
83

 
47

Verona Apartment Homes
 
10/1/2026
 
4.45%
(1)(3) 
100

 
40

Skyview Apartment Homes
 
10/1/2026
 
4.45%
(1)(3) 
86

 
24

Maxwell Townhomes
 
1/1/2022
 
4.32%
(2)(5) 
71

 
78

Pinehurst
 
11/1/2023
 
4.51%
(1)(3) 
34

 
15

Pheasant Run
 
10/1/2018
 
4.59%
(1)(3)(6) 
19

 
12

Retreat of Shawnee
 
2/1/2019
 
4.59%
(1)(7) 
78

 
28

Evergreen at Coursey Place
 
8/1/2021
 
5.07%
(2)(5) 
154

 
37

Pines of York
 
12/1/2021
 
4.46%
(2)(5) 
80

 
25

The Estates at Johns Creek
 
7/1/2020
 
3.38%
(2)(5) 
221

 
79

Perimeter Circle
 
7/1/2019
 
3.42%
(2)(5) 
81

 
44

Perimeter 5550
 
7/1/2019
 
3.42%
(2)(5) 
64

 
32

Aston at Cinco Ranch
 
10/1/2021
 
4.34%
(2)(5) 
120

 
70

Sunset Ridge 1
 
11/1/2020
 
4.58%
(2)(5) 
113

 
89

Sunset Ridge 2
 
11/1/2020
 
4.54%
(2)(5) 
16

 

Calloway at Las Colinas
 
12/1/2021
 
3.87%
(2)(5) 
171

 
115

South Lamar Village
 
8/1/2019
 
3.64%
(2)(5) 
59

 
57

Heritage Pointe
 
4/1/2025
 
3.97%
(1)(4) 
113

 
43

The Bryant at Yorba Linda
 
6/1/2020
 
3.84%
(1)(3) 
281

 

Point Bonita Apartment Homes
 
10/1/2023
 
5.33%
(2)(5) 
152

 
61

The Westside Apartments
 
9/1/2026
 
4.21%
(1)(3) 
153

 
69

Tech Center Square
 
6/1/2023
 
4.67%
(1)(5) 
58

 
24

Williamsburg
 
1/1/2024

4.47%
(1)(3) 
230

 
167

Retreat at Rocky Ridge
 
1/1/2024

4.55%
(1)(3) 
43

 
23

Providence in the Park
 
2/1/2024

4.39%
(1)(3) 
193

 
138

Green Trails Apartment Homes
 
6/1/2024

4.08%
(1)(3) 
207

 
79

Meridian Pointe
 
8/1/2024

3.99%
(1)(3) 
130

 
56

Terraces at Lake Mary
 
9/1/2024

4.00%
(1)(3) 
86

 
46

Courtney Meadows Apartments
 
1/1/2025

3.93%
(1)(3) 
74

 
51

Addison at Sandy Springs
 
5/1/2025

3.85%
(1)(3)(8) 
70

 
38

Bristol at Grapevine
 
5/1/2025

3.80%
(1)(3)(8) 
99

 
78


(1)
Variable rate based on one-month LIBOR of 2.0903% (as of June 30, 2018) plus a fixed margin.
(2)
Fixed rate.
(3)
Monthly interest-only payment currently required.
(4)
Monthly fixed principal plus interest payment required.
(5)
Fixed monthly principal and interest payment required.
(6)
Mortgage note payable related to asset held for sale at June 30, 2018.
(7)
Automatic extension to February 1, 2019 occurred on February 1, 2018 at which time the fixed interest rate converted to a variable rate.
(8)
New debt placed during the six months ended June 30, 2018.
Loans assumed as part of the Point Bonita Apartment Homes, South Lamar Village, Paladin (Pinehurst, Pheasant Run, Retreat of Shawnee, Evergreen at Coursey Place, Pines of York), Sunset Ridge and Maxwell Townhomes acquisitions were recorded at their fair values. The premium or discount is amortized over the remaining term of the loans and included in interest expense. For the three months ended June 30, 2018 and 2017, interest expense was reduced by $85,000 and $120,000, respectively, for the


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


amortization of the premium or discount. For the six months ended June 30, 2018 and 2017, interest expense was reduced by $175,000 and $239,000, respectively, for the amortization of the premium or discount.
All mortgage notes are collateralized by a first mortgage lien on the assets of the respective property as named in the table above. The amount outstanding on the mortgages may be prepaid in full during the entire term with a prepayment penalty on the majority of mortgages held.
The following table presents the Company's annual principal payments on outstanding borrowings for each of the next five 12-month periods ending June 30, and thereafter (in thousands):
2019
 
$
27,767

2020
 
118,793

2021
 
78,587

2022
 
127,853

2023
 
21,381

Thereafter
 
478,710

 
 
$
853,091


The mortgage notes payable are recourse only with respect to the properties that secure the notes, subject to certain limited standard exceptions, as defined in each mortgage note. These exceptions are referred to as “carveouts.” The Company has guaranteed the carveouts under mortgage notes by executing a guarantee with respect to the properties.    In general, carveouts relate to damages suffered by the lender for a borrower’s failure to pay rents, insurance or condemnation proceeds to lender, failure to pay water, sewer and other public assessments or charges, failure to pay environmental compliance costs or to deliver books and records, in each case as required in the loan documents.  The exceptions also require the Company to guarantee payment of audit costs, lender’s enforcement of its rights under the loan documents and payment of the loan if the borrower voluntarily files for bankruptcy or seeks reorganization, or if a related party of the borrower does so with respect to the subsidiary.
The Company may borrow an additional $7.5 million on the mortgage secured by The Bryant at Yorba Linda when certain debt service coverage and loan to value criteria are met. The Bryant at Yorba Linda mortgage loan includes a net worth and liquidity covenant. During the three months ended June 30, 2018, the Company paid $50,000 to the lender in connection with an amendment to the loan agreement to modify the debt service coverage ratio covenant. The Company was in compliance with all covenants related to this loan as of June 30, 2018.
Deferred financing costs incurred to obtain financing are amortized over the term of the related debt.  During the three months ended June 30, 2018 and June 30, 2017, $443,000 and $515,000, respectively, of amortization of deferred financing costs was included in interest expense. During the six months ended June 30, 2018 and June 30, 2017, $863,000 and $895,000, respectively, of amortization of deferred financing costs was included in interest expense. Accumulated amortization as of June 30, 2018 and December 31, 2017 was $4.9 million and $4.0 million, respectively.  
The following table presents the Company's estimated amortization of the existing deferred financing costs for the next five 12-month periods ending June 30, and thereafter (in thousands):
2019
$
1,799

2020
1,609

2021
1,233

2022
1,060

2023
961

Thereafter
1,173

 
$
7,835




RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


NOTE 11 - CREDIT FACILITY
       The secured revolving credit facility with Bank of America, N.A. (“Bank of America”), as amended, matured on May 23, 2017 and was closed; all collateral subject to the revolving credit line was released.
Deferred financing costs incurred to obtain financing were amortized over the term of the related debt. During the three months ended June 30, 2018 and 2017, $0 and $24,000, respectively, of amortization of deferred financing costs was included in interest expense. During the six months ended June 30, 2018 and 2017, $0 and $68,000, respectively, of amortization of deferred financing costs was included in interest expense. Deferred financing costs were fully amortized on the date of maturity.
NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in each component of the Company's accumulated other comprehensive loss for the six months ended June 30, 2018 (in thousands):
Balance, January 1, 2018
$
(562
)
Reclassification adjustment for realized loss on designated derivatives
83

Designated derivatives, fair value adjustments
(15
)
Balance, June 30, 2018
$
(494
)
NOTE 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In the ordinary course of its business operations, the Company has ongoing relationships with several related parties. 
Relationship with RAI and C-III
Property loss pool. The Company's properties participate in a property loss self-insurance pool with other properties directly and indirectly managed by RAI and C-III, which is backed by a catastrophic insurance policy. Substantially all of the receivables from related parties represent insurance deposits held in escrow by RAI and C-III to the self-insurance pool which, if unused, will be returned to the Company. The pool covers losses up to $2.5 million, after a $25,000 deductible per incident.  Claims beyond the insurance pool limits will be covered by the catastrophic insurance policy, which covers claims up to $250 million, after a $25,000 deductible per incident. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limits could have a material adverse effect on the Company's financial condition and operating results. During the six months ended June 30, 2018, the Company paid $940,327 into the insurance pool.

General liability loss pool. The Company's properties participated in a general liability pool with other properties directly or indirectly managed by RAI and C-III until April 22, 2017. The pool covered claims up to $50,000 per incident through April 22, 2017.  Effective April 23, 2017, the loss pool was eliminated, and the Company now participates (with other properties directly or indirectly managed by RAI and C-III) in a general liability policy. The insured limit for the general liability policy is $76 million in total claims, after a $25,000 deductible per incident.
Internal audit. RAI performs internal audit services for the Company.

Directors and officers liability insurance. The Company participates in a liability insurance program for directors and officers coverage with other C-III  managed entities and subsidiaries for coverage up to $100.0 million.  The Company paid premiums of $304,047 during the year ended December 31, 2017 in connection with this insurance program for an annual policy through September 2018.
Other expenses. The Company utilizes the services of The Planning and Zoning Resource Company, an affiliate of C-III, for zoning reports for acquisitions.

Relationship with the Advisor
In September 2009, the Company entered into an advisory agreement (the “Advisory Agreement”) pursuant to which the Advisor provides the Company with investment management, administrative and related services.  The Advisory Agreement was amended in January 2010 and further amended in January 2011 and March 2015.  The Advisory Agreement has a one-year term and renews for an unlimited number of successive one-year terms upon the approval of the conflicts committee of the Company's


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


board of directors.  The Company renewed the Advisory Agreement for another year on September 15, 2017. Under the Advisory Agreement, the Advisor receives fees and is reimbursed for its expenses as set forth below:
Acquisition fees. The Company pays the Advisor an acquisition fee of 2.0% of the cost of investments acquired on behalf of the Company, plus any capital expenditure reserves allocated, or the amount funded by the Company to acquire loans, including acquisition expenses and any debt attributable to such investments. 
Asset management fees. The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 1.0% of the higher of the cost or the independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves.  The asset management fee is based only on the portion of the costs or value attributable to the Company’s investment in an asset if the Company does not own all or a majority of an asset and does not manage or control the asset.  
Disposition fees. The Advisor earns a disposition fee in connection with the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.75% of the contract sales price.
Debt financing fees. The Advisor earns a debt financing fee equal to 0.5% of the amount available under any debt financing obtained for which it provided substantial services.
Expense reimbursements. The Company also pays directly or reimburses the Advisor for all of the expenses paid or incurred by the Advisor or its affiliates on behalf of the Company or in connection with the services provided to the Company in relation to its public offering, including its ongoing distribution reinvestment plan offering. 
Reimbursements also include expenses the Advisor incurs in connection with providing services to the Company, including the Company’s allocable share of costs for Advisor personnel and overhead, out of pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not the Company ultimately acquires the investment.  However, the Company will not reimburse the Advisor or its affiliates for employee costs in connection with services for which the Advisor earns acquisition or disposition fees.
Relationship with Resource Real Estate Opportunity Manager
The Manager manages the Company's real estate properties and real estate-related debt investments and coordinates the leasing of, and manages construction activities related to, some of the Company’s real estate properties pursuant to the terms of the management agreement with the Manager.
Property management fees. The Manager earns 4.5% of the gross receipts from the Company's properties, provided that for properties that are less than 75% occupied, the manager receives a minimum fee for the first 12 months of ownership for performing certain property management and leasing activities. 
Construction management fees. The Manager earns a construction management fee of 5.0% of actual aggregate costs to construct improvements, or to repair, rehab or reconstruct a property.
Debt servicing fees. The Manager earns a debt servicing fee of 2.75% on payments received from loans held by the Company for investment.  
Information technology fees and operating expense reimbursement. During the ordinary course of business, the Manager or other affiliates of RAI may pay certain shared information technology fees and operating expenses on behalf of the Company for which they are reimbursed.
Relationship with Other Related Parties
The Company utilizes the services of a printing company, Graphic Images, LLC (“Graphic Images”), whose principal owner is the father of RAI’s Chief Financial Officer.
    





RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


The following table presents the Company's amounts payable to and amounts receivable from such related parties (in thousands):
 
June 30,
2018
 
December 31,
2017
Due from related parties:
 
 
 
RAI and affiliates
$
445

 
$
371

 
 
 
 
Due to related parties:
 
 
 
Advisor:
 
 
 
Asset management fees
$

 
$
15

Operating expense reimbursements

 
32

 
 
 
 
Manager:
 
 
 
Property management fees
538

 
476

Other operating expense reimbursements
271

 
196

 
$
809

 
$
719

The following table presents the Company's fees earned by and expenses paid to such related parties (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Fees earned / expenses paid to related parties:
 
 
 
 
 
 
 
Advisor:
 
 
 
 
 
 
 
Acquisition fees (1)
$
1,697

 
$
1,612

 
$
1,697

 
$
1,612

Asset management fees (2)
3,263

 
2,757

 
6,356

 
5,477

Disposition fees (3)

 
217

 

 
217

Debt financing fees (4)
278

 
308

 
278

 
543

Overhead allocation (5)
1,113

 
1,097

 
2,237

 
2,308

Internal audit (5)
26

 
13

 
48

 
26

 
 
 
 
 
 
 
 
  Manager:
 
 
 
 
 
 
 
Property management fees (2)
$
1,559

 
$
1,386

 
$
3,035

 
$
2,730

Construction management fees (6)
242

 
343

 
436

 
524

Construction payroll reimbursements (6)
40


57


81


108

Acquisition-related reimbursements (5)
53

 
18

 
53

 
18

Operating expense reimbursements (7)
85

 
114

 
228

 
505

Debt servicing fees (2)
1

 
1

 
1

 
1

 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
The Planning & Zoning Resource Company (1)
2


1


2


1

Graphic Images (5)

 
9

 

 
9


(1)
For the three and six months ended June 30, 2017, Acquisition fees are included in Acquisition costs on the consolidated statements of operations and comprehensive income (loss). For the three and six months ended June 30, 2018, Acquisition fees are included in Rental Properties, net on the consolidated balance sheet.
(2)
Included in Management fees on the consolidated statements of operations and comprehensive income (loss).
(3)
Included in Net gains on dispositions of properties on the consolidated statements of operations and comprehensive (loss) income.
(4)
Included in Mortgage notes payable, net, on the consolidated balance sheets.
(5)
Included in General and administrative on the consolidated statements of operations and comprehensive income (loss).
(6)
Included in Rental properties, net, on the consolidated balance sheets.
(7)
Included in Rental operating expenses on the consolidated statements of operations and comprehensive income (loss).


RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
JUNE 30, 2018
(unaudited)


NOTE 14 - EQUITY
Preferred Stock
The Company’s charter authorizes the Company to issue 10.0 million shares of its $0.01 par value preferred stock.  As of June 30, 2018 and December 31, 2017, no shares of preferred stock were issued and outstanding.
Common Stock
As of June 30, 2018, the Company had issued 78,698,602 shares of its $0.01 par value common stock as follows (dollars in thousands):
 
 
Shares Issued
 
Gross Proceeds
Shares issued through private offering

1,263,727


$
12,582

Shares issued through primary public offering (1)

62,485,461


622,077

Shares issued through stock distributions

2,132,266



Shares issued through distribution reinvestment plan

12,801,648


131,619

Shares issued in conjunction with the Advisor's initial investment,
net of 4,500 share conversion

15,500


155

    Total
 
78,698,602

 
$
766,433

Shares redeemed and retired