10-Q 1 rpt10q-2017q2.htm 10-Q Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
Form 10-Q
_________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
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 000-55598
__________________________________________ 
RREEF Property Trust, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________
Maryland
45-4478978
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
345 Park Avenue, 26th Floor, New York, NY 10154
(212) 454-6260
(Address of principal executive offices; zip code)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 ________________________________________________________________________
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  x    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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    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
o  (Do not check if smaller reporting company)
Smaller reporting company
x
 
 
Emerging growth company
x
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of August 9, 2017, the registrant had 3,690,156 shares of Class A common stock, $.01 par value, outstanding, 4,299,394 shares of Class I common stock, $.01 par value, outstanding, and no shares of Class T common stock, $.01 par value, Class D common stock, $.01 par value, or Class N common stock, $.01 par value, outstanding.
 
 
 
 
 



RREEF PROPERTY TRUST, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2017

TABLE OF CONTENTS
 
 


2


PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RREEF PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
 
June 30, 2017 (unaudited)
 
December 31, 2016
ASSETS

 

Investment in real estate assets:

 

Land
$
37,238,612

 
$
37,238,612

Buildings and improvements, less accumulated depreciation of $9,348,259 and $7,224,763, respectively
94,163,934

 
96,237,173

Furniture, fixtures and equipment, less accumulated depreciation of $169,744 and $124,752, respectively
261,767

 
270,260

Acquired intangible lease assets, less accumulated amortization of $13,612,652 and $11,703,672, respectively
23,182,682

 
25,091,662

Total investment in real estate assets, net
154,846,995

 
158,837,707

Investment in marketable securities
8,781,071

 
8,609,212

Total investment in real estate assets and marketable securities, net
163,628,066

 
167,446,919

Cash and cash equivalents
3,638,189

 
1,493,256

Receivables, net of allowance for doubtful accounts of $313 and $1,133, respectively
2,061,427

 
1,857,590

Deferred leasing costs, net of amortization of $118,750 and $47,159, respectively
1,804,726

 
1,872,817

Prepaid and other assets
1,604,188

 
1,518,865

Total assets
$
172,736,596

 
$
174,189,447

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Line of credit, net
$
63,147,970

 
$
64,677,532

Mortgage loans payable, net
27,236,768

 
27,219,106

Accounts payable and accrued expenses
1,465,697

 
2,409,307

Due to affiliates
4,276,162

 
4,844,917

Note to affiliate, net of unamortized discount of $1,581,275 and $1,652,108, respectively
7,368,725


7,297,892

Acquired below market lease intangibles, less accumulated amortization of $2,819,723 and $2,623,139, respectively
5,864,032

 
6,060,616

Distributions payable
244,793

 
239,897

Other liabilities
1,463,599

 
1,168,665

Total liabilities
111,067,746

 
113,917,932

Stockholders' Equity:

 

Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued

 

Class A common stock, $0.01 par value; 200,000,000 shares authorized; 3,698,101 and 3,646,919 issued and outstanding, respectively
36,981

 
36,469

Class I common stock, $0.01 par value; 200,000,000 shares authorized; 4,178,586 and 3,780,836 issued and outstanding, respectively
41,786

 
37,809

Class T common stock, $0.01 par value; 250,000,000 shares authorized; zero and 4,043 issued and outstanding, respectively

 
40

Class D common stock, $0.01 par value; 50,000,000 shares authorized; none issued

 

Class N common stock, $0.01 par value; 300,000,000 shares authorized; none issued

 

Additional paid in capital
84,831,965

 
79,994,729

Deficit
(23,761,851
)
 
(20,302,983
)
Accumulated other comprehensive income
519,969

 
505,451

Total stockholders' equity
61,668,850

 
60,271,515

Total liabilities and stockholders' equity
$
172,736,596

 
$
174,189,447

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

3


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues

 
 
 
 
 
 
Rental and other property income
$
3,784,351

 
$
3,260,003

 
$
7,581,484

 
$
6,498,902

Tenant reimbursement income
530,623

 
284,746

 
1,067,823

 
640,142

Investment income on marketable securities
76,980

 
73,813

 
120,856

 
264,329

Total revenues
4,391,954

 
3,618,562

 
8,770,163

 
7,403,373

Expenses

 
 
 
 
 

General and administrative expenses
481,617

 
521,181

 
864,746

 
1,109,657

Property operating expenses
1,296,348

 
1,189,689

 
2,647,479

 
2,563,360

Advisory fees
257,054

 
218,791

 
504,402

 
424,728

Depreciation
1,087,167

 
911,360

 
2,168,488

 
1,820,380

Amortization
932,102

 
1,456,936

 
1,860,349

 
2,913,873

Total operating expenses
4,054,288

 
4,297,957

 
8,045,464

 
8,831,998

Operating income (loss)
337,666

 
(679,395
)
 
724,699

 
(1,428,625
)
Interest expense
(886,455
)
 
(550,654
)
 
(1,711,934
)
 
(1,116,361
)
Net realized (loss) gain on sale of marketable securities
(6,906
)
 
223,991

 
47,796

 
129,046

Net loss
$
(555,695
)
 
$
(1,006,058
)
 
$
(939,439
)
 
$
(2,415,940
)


 
 
 

 
 
Basic and diluted net loss per share of Class A, I and T common stock
$
(0.07
)
 
$
(0.15
)
 
$
(0.12
)
 
$
(0.37
)

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



4


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net loss
$
(555,695
)
 
$
(1,006,058
)
 
$
(939,439
)
 
$
(2,415,940
)
Other comprehensive income:

 

 

 

Reclassification of previous unrealized loss (gain) on marketable securities into net realized (loss) gain
6,906

 
(223,991
)
 
(47,796
)
 
(129,046
)
Unrealized gain on marketable securities
83,545

 
384,852

 
62,314

 
664,152

Total other comprehensive income
90,451

 
160,861

 
14,518

 
535,106

Comprehensive loss
$
(465,244
)
 
$
(845,197
)
 
$
(924,921
)
 
$
(1,880,834
)

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


5


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)

 
Preferred Stock

Class A Common Stock

Class I Common Stock

Class T Common Stock

Class D Common Stock

Class N Common Stock

Additional Paid in Capital

Deficit

Accumulated Other Comprehensive Income

Total
Stockholders'
Equity
 
Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value




Balance, December 31, 2016

$


3,646,919

$
36,469


3,780,836

$
37,809


4,043

$
40



$



$


$
79,994,729


$
(20,302,983
)

$
505,451


$
60,271,515

Issuance of common stock



94,258

942


428,511

4,284











7,047,348






7,052,574

Issuance of common stock through the distribution reinvestment plan



47,373

474


31,763

318











1,059,360






1,060,152

Redemption of common stock



(90,449
)
(904
)

(62,524
)
(625
)

(4,043
)
(40
)







(2,104,519
)





(2,106,088
)
Distributions to investors




















(2,519,429
)



(2,519,429
)
Dealer - manager fees


















(242,999
)





(242,999
)
Other offering costs


















(921,954
)





(921,954
)
Comprehensive income (loss)




















(939,439
)

14,518


(924,921
)
Balance, June 30, 2017

$

 
3,698,101

$
36,981

 
4,178,586

$
41,786

 

$



$

 

$

 
$
84,831,965

 
$
(23,761,851
)
 
$
519,969

 
$
61,668,850


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



6


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(939,439
)
 
$
(2,415,940
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation
2,168,488

 
1,820,380

Net realized gain on sale of marketable securities
(47,796
)
 
(129,046
)
Amortization of intangible lease assets and liabilities
1,783,987

 
2,741,781

Amortization of deferred financing costs
238,100

 
169,127

Allowance for doubtful accounts
(820
)
 
470,480

Straight line rent
(383,072
)
 
(289,236
)
Amortization of discount on note to affiliate
70,833


139,618

Changes in assets and liabilities:

 

Receivables
138,507

 
(208,874
)
Deferred leasing costs

 
(156,475
)
Prepaid and other assets
(55,324
)
 
59,667

Accounts payable and accrued expenses
(953,444
)
 
(94,965
)
Other liabilities
327,876

 
153,061

Due to affiliates
(253,739
)
 
85,337

Net cash provided by operating activities
2,094,157

 
2,344,915

Cash flows from investing activities:

 

Improvements to real estate assets
(86,756
)
 

Investment in marketable securities
(8,016,522
)
 
(6,154,708
)
Proceeds from sale of marketable securities
7,935,862

 
5,839,799

Net cash used in investing activities
(167,416
)
 
(314,909
)
Cash flows from financing activities:

 

Proceeds from line of credit

 
2,700,000

Proceeds from mortgage loans payable

 
14,500,000

Repayments of line of credit
(1,750,000
)

(28,000,000
)
Proceeds from issuance of common stock
7,071,574

 
21,156,682

Payment of offering costs
(1,542,912
)
 
(2,060,673
)
Repayment of note to affiliate


(250,000
)
Distributions to investors
(2,514,534
)
 
(2,110,235
)
Redemption of common stock
(2,106,088
)

(8,131,222
)
Common stock issued through the distribution reinvestment plan
1,060,152

 
864,285

Deferred financing costs

 
(159,500
)
Net cash provided by (used in) financing activities
218,192

 
(1,490,663
)
Net increase in cash and cash equivalents
2,144,933

 
539,343

Cash and cash equivalents, beginning of period
1,493,256

 
1,936,870

Cash and cash equivalents, end of period
$
3,638,189

 
$
2,476,213


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


7


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Unaudited)

 
Six Months Ended June 30,
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
2017
 
2016
Distributions declared and unpaid
$
244,793


$
211,791

Unrealized gain on marketable securities
14,518


535,106

Purchases of marketable securities not yet paid
113,249


27,710

Proceeds from sale of marketable securities not yet received
61,785


32,466

Proceeds from issuance of common stock not yet received


197,088

Discount on note to affiliate


1,861,880

Accrued offering costs not yet paid
632,397


828,684

 
 
 
 
Supplemental Cash Flow Disclosures:

 

Interest paid
$
1,351,287


$
766,748


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


8


RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

NOTE 1 — ORGANIZATION
RREEF Property Trust, Inc. (the “Company”) was formed on February 7, 2012 as a Maryland corporation and has elected to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. Substantially all of the Company's business is conducted through RREEF Property Operating Partnership, LP, the Company's operating partnership (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. RREEF Property OP Holder, LLC (the “OP Holder”), a wholly-owned subsidiary of the Company, is the limited partner of the Operating Partnership. As the Company completes the settlement for purchase orders for shares of its common stock in its continuous public offering, it will continue to transfer substantially all of the proceeds to the Operating Partnership.
The Company was organized to invest primarily in a diversified portfolio consisting primarily of high quality, income-producing commercial real estate located in the United States, including, without limitation, office, industrial, retail and multifamily properties (“Real Estate Properties”). Although the Company intends to invest primarily in Real Estate Properties, it also intends to acquire common and preferred stock of REITs and other real estate companies (“Real Estate Equity Securities”) and debt investments backed principally by real estate (“Real Estate Loans” and, together with Real Estate Equity Securities, “Real Estate-Related Assets”).
On January 3, 2013, the Securities and Exchange Commission ("SEC") declared effective the Company's registration statement on Form S-11 (File No. 333-180356), filed under the Securities Act of 1933, as amended (the "Initial Registration Statement"). On May 30, 2013, RREEF America L.L.C., a Delaware limited liability company (“RREEF America”), the Company's sponsor and advisor, purchased $10,000,000 of the Company's Class I common stock, $0.01 par value per share ("Class I Shares"), and the Company’s board of directors authorized the release of the escrowed funds to the Company, thereby allowing the Company to commence operations.

On January 15, 2016, the Company filed articles supplementary to its articles of incorporation to add a newly-designated Class D common stock, $0.01 par value per share ("Class D Shares"). On January 20, 2016, the Company commenced a private offering of up to a maximum of $350,000,000 in Class D Shares (the "Private Offering," and together with the Follow-On Public Offering (defined below), the "Offerings").

On July 12, 2016, the SEC declared effective the Company's registration statement on Form S-11 (File No. 333-208751), filed under the Securities Act of 1933, as amended (the "Registration Statement"). Pursuant to the Registration Statement, the Company is offering for sale up to $2,100,000,000 of shares of its Class A common stock, $0.01 par value per share ("Class A Shares"), Class I Shares, and Class T common stock, $0.01 par value per share ("Class T Shares"), in its primary offering and up to $200,000,000 of Class A Shares, Class I Shares, Class N common stock, $0.01 par value per share ("Class N Shares") and Class T Shares pursuant to its distribution reinvestment plan, to be sold on a "best efforts" basis for the Company's follow-on public offering (the "Follow-On Public Offering"). The Company's initial public offering terminated upon the commencement of the Follow-On Public Offering.

Class T Shares contain a conversion feature whereby upon the occurrence of a specified event (generally related to a Class T stockholder's account having incurred a maximum of 8.5% of underwriting compensation), Class T Shares owned in a shareholder's Class T account for a given offering will automatically convert to Class N Shares.
Shares of the Company’s common stock are sold at the Company’s net asset value (“NAV”) per share, plus, for Class A, T and D Shares only, applicable selling commissions. Each class of shares may have a different NAV per share because of certain class-specific fees. NAV per share is calculated by dividing the NAV at the end of each business day for each class by the number of shares outstanding for that class on such day.


9

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


The Company's NAV per share for its Class A, Class I and Class T Shares is posted to the Company's website at www.rreefpropertytrust.com after the stock market close each business day. Additionally, the Company's NAV per share for its Class A, Class I and Class T Shares is published daily via NASDAQ's Mutual Fund Quotation System under the symbols ZRPTAX, ZRPTIX and ZRPTTX for its Class A Shares, Class I Shares and Class T Shares, respectively.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), the authoritative reference for U.S. generally accepted accounting principles (“GAAP”). There have been no significant changes to the Company's significant accounting policies during the six months ended June 30, 2017. The interim financial data as of June 30, 2017 and for the six months ended June 30, 2017 and 2016 is unaudited. In our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.
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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Organization and Offering Costs

Organizational expenses and other expenses which do not qualify as offering costs are expensed as incurred. Offering costs are those costs incurred by the Company, RREEF America and its affiliates on behalf of the Company which relate directly to the Company’s activities of raising capital in the Offerings, preparing for the Offerings, the qualification and registration of the Offerings and the marketing and distribution of the Company’s shares. This includes, but is not limited to, accounting and legal fees, including the legal fees of the dealer manager for the public offerings, costs for registration statement amendments and prospectus supplements, printing, mailing and distribution costs, filing fees, amounts to reimburse RREEF America as the Company’s advisor or its affiliates for the salaries of employees and other costs in connection with preparing supplemental sales literature, amounts to reimburse the dealer manager for amounts that it may pay to reimburse the bona fide due diligence expenses of any participating broker-dealers supported by detailed and itemized invoices, telecommunication costs, fees of the transfer agent, registrars, trustees, depositories and experts, the cost of educational conferences held by the Company (including the travel, meal and lodging costs of registered representatives of any participating broker-dealers) and attendance fees and cost reimbursement for employees of affiliates to attend retail seminars conducted by broker-dealers. Offering costs will be paid from the proceeds of the Offerings. These costs will be treated as a reduction of the total proceeds. Total organization and offering costs incurred by the Company with respect to a particular Offering will not exceed 15% of the gross proceeds from such particular Offering. In addition, the Company will not reimburse RREEF America or the dealer manager for any underwriting compensation (a subset of organization and offering costs) which would cause the Company’s total underwriting compensation to exceed 10% of the gross proceeds from the primary portion of a particular offering.

Included in offering costs are (1) distribution fees paid on a trailing basis at the rate of (a) 0.50% per annum on the NAV of the outstanding Class A Shares, and (b) 1.00% per annum for approximately three years on the NAV of the outstanding Class T Shares, and (2) dealer manager fees paid on a trailing basis at the rate of 0.55% per annum on the NAV of the outstanding Class A and Class I Shares (collectively, the "Trailing Fees"). The Trailing Fees are computed daily based on the respective NAV of each share class as of the beginning of each day and paid monthly. However, at each reporting date, the Company accrues an estimate for the amount of Trailing Fees that ultimately may be paid on the outstanding shares. Such estimate reflects the Company's assumptions for certain variables, including future redemptions, share price appreciation and the total gross proceeds raised or to be raised during each Offering. In addition, the estimated accrual for future Trailing Fees as of a given reporting date may be reduced by

10

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


the aforementioned limits on total organization and offering costs and total underwriting compensation. Changes in this estimate will be recorded prospectively as an adjustment to additional paid in capital. As of June 30, 2017 and December 31, 2016, the Company has accrued $2,340,382 and $2,352,711, respectively, in Trailing Fees to be payable in the future, which was included in due to affiliates on the consolidated balance sheets.

Net Earnings or Loss Per Share

Net earnings or loss per share is calculated using the two-class method. The two-class method is utilized when an entity (1) has different classes of common stock that participate differently in net earnings or loss, or (2) has issued participating securities, which are securities that participate in distributions separately from the entity’s common stock. Pursuant to the advisory agreement between the Company and its advisor (see Note 7), the advisor may earn a performance component of the advisory fee which is calculated separately for each class of common stock which therefore may result in a different allocation of net earnings or loss to each class of common stock. From the Company’s inception through June 30, 2017, the Company has not issued any participating securities.

Concentration of Credit Risk

As of June 30, 2017 and 2016, the Company had cash on deposit at multiple financial institutions which were in excess of federally insured levels. The Company limits significant cash holdings to accounts held by financial institutions with a high credit standing. Therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits.
As of June 30, 2017, the Company owned four office properties, two retail properties and one industrial property with a total of nineteen tenants and one student housing property with 316 beds. As of June 30, 2016, the Company owned three office properties, two retail properties and one industrial property with a total of fourteen tenants and one student housing property with 316 beds. Percentages of gross rental revenues by property and tenant representing more than 10% of the Company's total gross rental revenues (rental and other property income and tenant reimbursement income) for the three and six months ended June 30, 2017 and 2016 are shown below.
 
 
Percent of actual gross rental revenues
Property
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
Flats at Carrs Hill, Athens, GA
 
17.3
%
 
17.3
%
Loudoun Gateway, Sterling, VA
 
17.0
%
 
17.6
%
Allied Drive, Dedham, MA
 
16.3
%
 
16.4
%
Terra Nova Plaza, Chula Vista, CA
 
12.7
%
 
12.3
%
Anaheim Hills Office Plaza, Anaheim, CA
 
12.6
%
 
12.4
%
Commerce Corner, Logan Township, NJ
 
10.5
%
 
10.4
%
Total
 
86.4
%
 
86.4
%
 
 
 
 
 
 
 
Percent of actual gross rental revenues
Tenant
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
Orbital ATK Inc. - Loudoun Gateway
 
17.0
%
 
17.6
%
New England Baptist Hospital - Allied Drive
 
13.7
%
 
13.8
%
Total
 
30.7
%
 
31.4
%



11

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)



 
 
Percent of actual gross rental revenues
Property
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Loudoun Gateway, Sterling VA
 
20.4
%
 
22.0
%
Flats at Carrs Hill, Athens GA
 
19.8
%
 
20.0
%
Terra Nova Plaza, Chula Vista, CA
 
15.5
%
 
13.5
%
Anaheim Hills Office Plaza, Anaheim CA
 
15.2
%
 
15.0
%
Commerce Corner, Logan Township, NJ
 
12.0
%
 
12.4
%
Total
 
82.9
%
 
82.9
%
 
 
 
 
 
 
 
Percent of actual gross rental revenues
Tenant
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Orbital ATK Inc. - Loudoun Gateway
 
20.4
%
 
22.0
%
Gateway One Lending and Finance, L.L.C. - Anaheim Hills Office Plaza
 
10.0
%
 
10.1
%
Total
 
30.4
%
 
32.1
%
The Company's tenants representing more than 10% of in-place annualized base rental revenues as of June 30, 2017 and 2016 were as follows:
 
 
Percent of in-place annualized base rental revenues as of
Tenant
 
June 30, 2017
 
June 30, 2016
Orbital ATK Inc. - Loudoun Gateway
 
18.8
%
 
22.0
%
New England Baptist Hospital - Allied Drive
 
10.8
%
 
%
Gateway One Lending and Finance, L.L.C. - Anaheim Hills Office Plaza
 
9.4
%
 
11.1
%
Allstate Insurance Company - Heritage Parkway
 
8.8
%
 
10.3
%
Total
 
47.8
%
 
43.4
%

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-01, Financial Statements - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many current requirements, it significantly revises an entity’s accounting related to investments in equity securities, excluding those accounted for under the equity method of accounting or those that result in consolidation of the investee. Under ASU 2016-01, investments in equity securities that fall within the scope of ASU 2016-01 will be measured at fair value, with changes in fair value recognized in net earnings. Since the Company's inception, it has accounted for its investments in equity securities as available for sale securities, with unrealized changes in fair value recognized in other comprehensive income or loss. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective on January 1, 2018 with early adoption permitted for certain provisions. Upon adoption, the Company will be required to record the amount of net unrealized gain or loss on its investments in marketable

12

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


securities at the time of adoption in earnings via a cumulative effect adjustment. The Company presently does not intend to early adopt ASU 2016-01.

In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows, (Topic 230): Classification of Cash Receipts and Cash Payments, which identifies the principles for the classification of eight specific types of cash flow with the objective of providing specific guidance on these specified cash flows. The cash flows that may be pertinent to the Company in the future include debt prepayment or debt extinguishment costs, contingent consideration of payments made after a business combination, proceeds from the settlement of insurance claims and distributions received. In addition, ASU 2016-15 also specifies the classification of cash flows for payments made under zero-coupon debt instruments, such as the Company's note to affiliate on its consolidated balance sheet as of June 30, 2017. During the year ended December 31, 2016, the Company made one payment of $250,000 to its advisor under the note to affiliate. Under ASU 2016-15, the portion of such payment representing the imputed interest expense, which was $91,726, would be included in cash flows from operating activities. Under current GAAP, the entire payment of $250,000 was reported as a financing activity. ASU 2016-15 will become effective on January 1, 2018. Upon adoption, ASU 2016-15 must be applied retrospectively, implying that prior periods presented should be adjusted to conform to ASU 2016-15, unless to do so would be impracticable.

In January 2017, FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, the intent of which is to assist entities with evaluating whether transactions should be accounted for as acquisitions (and dispositions) of assets or businesses. Under the current implementation guidance, real estate has broadly been interpreted to be a business, which requires, among other things, that acquisition related costs be expensed at the time of acquisition. The amendments in ASU 2017-01 provide a screen to determine when a set of identifiable assets is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. Generally, a real estate asset and its related leases will be considered a single identifiable asset and therefore will not meet the definition of a business. If the real estate and related leases in an acquisition are determined to be an asset and not a business, then the acquisition related costs would be capitalized onto the balance sheet. ASU 2017-01 is effective on January 1, 2018 with early adoption permitted in certain circumstances. Adoption of ASU 2017-01 is not expected to have an impact on the Company's consolidated financial statements, but may affect transactions in real estate that occur after adoption. The Company presently intends to early adopt ASU 2017-01, but will more fully evaluate this option based on the specifics of its next real estate transaction.

In May 2014, FASB issued ASU 2014-09, Revenue From Contracts With Customers. ASU 2014-09 requires entities to recognize revenue in their financial statements in a manner that depicts the transfer of the promised goods or services to its customers in an amount that reflects the consideration to which the entity is entitled at the time of transfer of those goods or services. As a result, the amount and timing of revenue recognition may be affected. However, certain types of contracts are excluded from the provisions of ASU 2014-09, including leases. Other types of real estate related contracts, such as for dispositions or development of real estate, will be impacted by ASU 2014-09. In addition, ASU 2014-09 requires additional disclosures regarding revenue recognition. ASU 2014-09, as amended, becomes effective on January 1, 2018. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Upon adoption, ASU 2014-09 must be applied retrospectively either (a) to each prior reporting period presented, or (b) with a cumulative effect adjustment. The Company intends to adopt ASU 2014-09 via a cumulative effect adjustment in the period of adoption. The Company is still evaluating the impact of ASU 2014-09 on its consolidated financial statements but currently does not expect adoption of ASU 2014-09 to have a material impact.

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessors to identify the lease and non-lease components contained within each lease. Common area maintenance reimbursements within a real estate lease under ASU 2016-02 are considered a non-lease component and as such, would have to be evaluated under the revenue recognition guidance of ASU 2014-09. However, based on recent interpretations, for real estate leases in place at the date of adoption of ASU 2016-02, common area maintenance reimbursements will continue to be accounted for under the current guidance of ASC Topic 840, Leases, until such

13

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


leases expire or are amended. Accordingly, only real estate leases entered into after the date of adoption of ASU 2016-02 would require an evaluation of the common area maintenance reimbursements as non-lease components under ASU 2014-09. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. As of June 30, 2017, the Company is not a lessee under any lease contracts. As of June 30, 2017, all of the Company's leases are classified as operating leases, and it is expected that such leases will continue to be classified as operating leases under ASU 2016-02. The Company intends to adopt ASU 2016-02 when it is effective on January 1, 2019. The Company is still evaluating the impact of ASU 2016-02 on its consolidated financial statements but currently does not expect adoption of ASU 2016-02 to have a material impact.

Correction of Immaterial Error
 
During the three months ended June 30, 2017, the Company identified an immaterial presentation and disclosure error related to net loss per share.  Previously, the Company had not been applying the two-class method for reporting net loss per share.  The Company has determined that reporting net loss per share under the two-class method is appropriate.  The net loss per share disclosed on the Company’s consolidated statements of operations for the three and six months ended June 30, 2017 and 2016 has been presented for each class of common stock with shares outstanding for the periods presented.  Additionally, Note 9 discloses the application of the two-class method, including the calculation of net loss per share for each class of common stock with shares outstanding during the relevant periods.  For the three and six months ended June 30, 2016, the net loss per share for each class of common stock was the same as the net loss per share originally reported by the Company.

NOTE 3 — FAIR VALUE MEASUREMENTS
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820, Fair Value Measurement and Disclosures, establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity's own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company's investments in marketable securities are valued using Level 1 inputs as the securities are publicly traded on major stock exchanges.
FASB ASC 825-10-65-1 requires the Company to disclose fair value information for all financial instruments for which it is practicable to estimate fair value, whether or not recognized in the consolidated balance sheets. Fair value of lines of credit and mortgage loans payable is determined using Level 2 inputs and a discounted cash flow approach with an interest rate and other assumptions that approximate current market conditions. The carrying

14

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


amount of the Company's line of credit, exclusive of deferred financing costs, approximated its fair value of $63,450,000 and $65,200,000 at June 30, 2017 and December 31, 2016, respectively. The Company estimated the fair value of the Company's mortgage loans payable at $26,643,231 and $25,942,141 as of June 30, 2017 and December 31, 2016, respectively.
The fair value of the Company's note to affiliate is determined using Level 3 inputs and a discounted cash flow approach with an interest rate and other assumptions that estimate current market conditions. The Company has estimated the fair value of its note to affiliate at approximately $2,600,000 as of June 30, 2017 and December 31, 2016.
The Company's financial instruments, other than those referred to above, are generally short-term in nature and contain minimal credit risk. These instruments consist of cash and cash equivalents, accounts and other receivables and accounts payable. The carrying amounts of these assets and liabilities in the consolidated balance sheets approximate their fair value.

NOTE 4 — REAL ESTATE INVESTMENTS
The Company acquired no real estate property during the six months ended June 30, 2017 and 2016. The Company's rental and other property income for the three and six months ended June 30, 2017 and 2016 is comprised of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Rental revenue
$
3,674,135

 
$
3,021,129

 
$
7,122,050

 
$
6,037,575

Straight line revenue
72,177

 
152,828

 
383,072

 
289,236

Above- and below-market lease amortization, net
63,878

 
86,046

 
127,756

 
172,091

Lease incentive amortization
(25,839
)
 

 
(51,394
)
 

Rental and other property income
$
3,784,351

 
$
3,260,003

 
$
7,581,484

 
$
6,498,902


NOTE 5 — MARKETABLE SECURITIES
The following is a summary of the Company's marketable securities held as of June 30, 2017 and December 31, 2016, which consisted entirely of publicly-traded shares of common stock in REITs as of each date. All marketable securities held as of June 30, 2017 and December 31, 2016 were available-for-sale securities and none were considered impaired on an other-than-temporary basis.
 
June 30, 2017
 
December 31, 2016
Marketable securities—cost
$
8,261,102

 
$
8,103,761

   Unrealized gains
687,140

 
652,417

   Unrealized losses
(167,171
)
 
(146,966
)
Net unrealized gain
519,969

 
505,451

Marketable securities—fair value
$
8,781,071

 
$
8,609,212


Upon the sale of a particular security, the realized net gain or loss is computed assuming the shares with the highest cost are sold first. During the three months ended June 30, 2017 and 2016, marketable securities sold generated proceeds of $5,072,780 and $2,731,836, respectively, resulting in gross realized gains of $232,736 and $279,772, respectively, and gross realized losses of $239,642 and $55,781, respectively. During the six months ended June 30, 2017 and 2016, marketable securities sold generated proceeds of $7,913,314 and $5,854,654,

15

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


respectively, resulting in gross realized gains of $369,942 and $402,420, respectively, and gross realized losses of $322,146 and $273,374, respectively.

NOTE 6 — NOTES PAYABLE
Wells Fargo Line of Credit

On March 6, 2015, the Company, as guarantor, and the wholly-owned subsidiaries of the Operating Partnership, as co-borrowers, entered into a secured revolving line of credit arrangement (the “Wells Fargo Line of Credit”) pursuant to a credit agreement with Wells Fargo Bank, National Association, as administrative agent, and other lending institutions that may become parties to the credit agreement. The Wells Fargo Line of Credit has a three-year term set to mature on March 6, 2018 with two one-year extension options exercisable by the Company upon satisfaction of certain conditions and payment of applicable extension fees. Each one-year extension is exercisable between 45 and 120 days prior to the then scheduled maturity. Subject to then current market conditions, the Company plans to extend the line of credit prior to the maturity date using available cash flow to meet the requirements for extension. The interest rate under the Wells Fargo Line of Credit is based on the 1-month LIBOR with a spread of 170 to 190 basis points depending on the debt yield as defined in the agreement. In addition, the Wells Fargo Line of Credit has a maximum capacity of $100,000,000 and is expandable by the Company up to a maximum capacity of $150,000,000 upon satisfaction of specified conditions. Each requested expansion must be for at least $25,000,000 and may result in the Wells Fargo Line of Credit being syndicated. As of June 30, 2017 and December 31, 2016, the outstanding balance was $63,450,000 and $65,200,000, respectively, and the weighted average interest rate was 3.06% and 2.40%, respectively.

At any time, the borrowing capacity under the Wells Fargo Line of Credit is based on the lesser of (1) an amount equal to 65% of the aggregate value of the properties in the collateral pool as determined by lender appraisals, (2) an amount that results in a minimum debt yield of 11% based on the in-place net operating income of the collateral pool as defined, or (3) the maximum capacity of the Wells Fargo Line of Credit. Proceeds from the Wells Fargo Line of Credit can be used to fund acquisitions, redeem shares pursuant to the Company's redemption plan and for any other corporate purpose. As of June 30, 2017 and December 31, 2016, the Company's maximum borrowing capacity was $74,898,512 and $65,800,970, respectively.

The Wells Fargo Line of Credit agreement contains customary representations, warranties, borrowing conditions and affirmative, negative and financial covenants, including that there must be at least five properties in the collateral pool at all times and that the collateral pool must also meet specified concentration provisions, unless waived by the lender. In addition, the Company, as guarantor, must meet tangible net worth hurdles. The Company was in compliance with all financial covenants as of June 30, 2017 and December 31, 2016.

Nationwide Life Insurance Loan

On March 1, 2016, RPT Flats at Carrs Hill, LLC, a wholly-owned subsidiary of the Operating Partnership, entered into a credit agreement with Nationwide Life Insurance Company (the "Nationwide Loan"). Proceeds of $14,500,000 obtained from the Nationwide Loan were used to repay outstanding balances under the Wells Fargo Line of Credit, thereby releasing The Flats at Carrs Hill from the Wells Fargo Line of Credit. The Nationwide Loan is a secured, fully non-recourse loan with a term of ten years with no extension options. The Nationwide Loan carries a fixed interest rate of 3.63% and requires monthly interest-only payments of $43,862 during the entire term.

Hartford Life Insurance Loan


16

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


On December 1, 2016, RPT 1109 Commerce Boulevard, LLC, a wholly-owned subsidiary of the Operating Partnership, entered into a credit agreement with Hartford Life Insurance Company (the "Hartford Loan"). Proceeds of $13,000,000 obtained from the Hartford Loan were used to repay outstanding balances under the Wells Fargo Line of Credit, thereby releasing Commerce Corner from the Wells Fargo Line of Credit. The Hartford Loan is a secured, fully non-recourse loan with a term of seven years with no extension options. The Hartford Loan carries a fixed interest rate of 3.41% with interest-only payments for the first 24 months of the term, then principal and interest payments for the remainder of the term based upon a 30-year amortization schedule.

The following is a reconciliation of the carrying amount of the of the Wells Fargo Line of Credit and mortgage loans payable as of June 30, 2017 and December 31, 2016:
 
June 30, 2017
 
December 31, 2016
Line of credit
$
63,450,000

 
$
65,200,000

Deduct: Deferred financing costs, less accumulated amortization
(302,030
)
 
(522,468
)
Line of credit, net
$
63,147,970

 
$
64,677,532

 
 
 
 
Mortgage loans payable
$
27,500,000

 
$
27,500,000

Deduct: Deferred financing costs, less accumulated amortization
(263,232
)
 
(280,894
)
Mortgage loans payable, net
$
27,236,768

 
$
27,219,106


NOTE 7 — RELATED PARTY ARRANGEMENTS

Advisory Agreement

RREEF America is entitled to compensation and reimbursements in connection with the management of the Company's investments in accordance with an advisory agreement between RREEF America and the Company (the "Advisory Agreement"). The Advisory Agreement has a one-year term and is renewable annually upon the review and approval of the Company's board of directors, including the approval of a majority of the Company's independent directors. The Advisory Agreement has a current expiration date of January 20, 2018. There is no limit to the number of terms for which the Advisory Agreement can be renewed.
Fees

Under the Advisory Agreement, RREEF America can earn an advisory fee split between two components as described below.
1.
The fixed component accrues daily in an amount equal to 1/365th of 1.0% of the NAV for each class of shares for such day. The fixed component of the advisory fee is payable monthly in arrears.
2.
The performance component is calculated for each class of shares on the basis of the total return to stockholders and is measured by the total distributions per share declared to such class plus the change in the NAV per share for such class. For any calendar year in which the total return per share allocable to a class exceeds 6% per annum, RREEF America will receive 25% of the excess total return allocable to that class; provided, however, that in no event will the performance component exceed 10% of the aggregate total return allocable to such class for such year. The performance component earned by RREEF America for each class is subject to certain other adjustments which do not apply unless the NAV per share is below $12.00 per share. The performance component is payable annually in arrears.
The fees earned by RREEF America for the three and six months ended June 30, 2017 and 2016, are shown below.

17

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Fixed component
$
257,054

 
$
218,791

 
$
504,402

 
$
424,728

Performance component

 

 

 

 
$
257,054

 
$
218,791

 
$
504,402

 
$
424,728


Expense Reimbursements

Under the Advisory Agreement, RREEF America is entitled to reimbursement of certain costs incurred by RREEF America or its affiliates that were not incurred under the Expense Support Agreement, as described below. Costs eligible for reimbursement, if they were not incurred under the Expense Support Agreement, include most third-party operating expenses, salaries and related costs of RREEF America's employees who perform services for the Company (but not those employees for which RREEF America earns a separate fee or those employees who are executive officers of the Company) and travel related costs for RREEF America's employees who incur such costs on behalf of the Company. Reimbursement payments to RREEF America are subject to the limitations described below under "Reimbursement Limitations."

For the three months ended June 30, 2017 and 2016, RREEF America incurred $72,829 and $82,210 of reimbursable operating expenses, respectively, that were subject to reimbursement under the Advisory Agreement. For the six months ended June 30, 2017 and 2016, RREEF America incurred $137,780 and $159,927 of reimbursable operating expenses, respectively, that were subject to the terms and conditions of the Advisory Agreement. As of June 30, 2017 and December 31, 2016, the Company had a payable to RREEF America of $96,173 and $72,200, respectively, of operating expenses reimbursable under the Advisory Agreement.

Organization and Offering Costs

Under the Advisory Agreement, RREEF America agreed to pay all of the Company’s organization and offering costs incurred through January 3, 2013. In addition, RREEF America agreed to pay certain of the Company’s organization and offering costs from January 3, 2013 through January 3, 2014 that were incurred in connection with certain offering related activities. In total, RREEF America incurred $4,618,318 of these costs (the “Deferred O&O”) on behalf of the Company from the Company’s inception through January 3, 2014. Pursuant to the Advisory Agreement, the Company began reimbursing RREEF America monthly for the Deferred O&O on a pro rata basis over 60 months beginning in January 2014. However, if the Advisory Agreement is terminated by RREEF America, then the unpaid balance of the Deferred O&O is payable to RREEF America within 30 days. For the three months ended June 30, 2017 and 2016, the Company reimbursed RREEF America $230,157 and $230,157, respectively. For the six months ended June 30, 2017 and 2016, the Company reimbursed RREEF America $457,785 and $460,314, respectively.
The amount of Deferred O&O payable to RREEF America is shown below.
 
 
June 30, 2017
 
December 31, 2016
Total Deferred O&O
 
$
4,618,318

 
$
4,618,318

Cumulative reimbursements made to RREEF America
 
(3,224,729
)
 
(2,766,943
)
Remaining Deferred O&O reimbursable to RREEF America
 
$
1,393,589

 
$
1,851,375





18

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


Expense Support Agreement
Pursuant to the terms of the expense support agreement, as most recently amended on January 20, 2016 (the "Expense Support Agreement"), RREEF America agreed to defer reimbursement of certain expenses related to the Company's operations that RREEF America has incurred that are not part of the Deferred O&O described above and, therefore, are in addition to the Deferred O&O amount (the “Expense Payments”). The Expense Payments include organization and offering costs and operating expenses as described above under the Advisory Agreement. RREEF America incurred these expenses until the earlier of (i) the date the Company raised $200,000,000 in aggregate gross proceeds from the Offerings or (ii) the date upon which the aggregate Expense Payments by RREEF America exceed $9,200,000. Through December 31, 2015, the Company had incurred a total of $9,200,000 in Expense Payments in addition to the $4,618,318 of Deferred O&O noted above. The balance of $9,200,000 in Expense Payments consisted of $3,775,369 in organization and offering costs related to the Company's initial public offering, $195,450 of offering costs for the Private Offering and $5,229,181 in operating expenses.
As the maximum amount of Expense Payments has been reached, the Company is no longer eligible to receive Expense Payments from RREEF America and has not received any Expense Payments since December 31, 2015. In addition, under the Expense Support Agreement, RREEF America agreed to defer reimbursement of Expense Payments until the first calendar quarter of the first calendar year that follows the earlier of (1) the quarter in which the Company surpasses $200,000,000 in aggregate gross proceeds from the Offering or (2) the date upon which the aggregate Expense Payments by RREEF America exceed $9,200,000. Pursuant to this provisions, reimbursement of the Expense Payments was triggered in January 2016, for which the Company would reimburse RREEF America $250,000 per quarter (the "Quarterly Reimbursement").
The Quarterly Reimbursements were scheduled to continue until RREEF America was fully repaid for all Expense Payments. In accordance with the quarterly reimbursement schedule, the Company's obligation to reimburse RREEF America represented a non-interest bearing note due to RREEF America ("Note to Affiliate") which is subject to the imputation of interest. In accordance therewith, as of January 1, 2016, the Company recorded a discount on the Note to Affiliate equal to the difference between the $9,200,000 face amount and the present value of the contractual reimbursements using an estimated market interest rate of 5.0%. The Company estimated the market interest rate based on how an independent market participant would evaluate the note in addition to considering other financing options available to the Company. The amount of the Quarterly Reimbursement is subject to adjustment in amount or timing as described in the Expense Support Agreement. However, the provisions altering the amount or timing of the Quarterly Reimbursement are contingent on future events not within the Company's control and which cannot be reasonably estimated. Accordingly, these contingencies were not considered in determining the present value of the Note to Affiliate as of January 1, 2016. As of January 1, 2016, the Company recorded a discount on the Note to Affiliate in the amount of $1,861,880 which was to be amortized to interest expense over the contractual reimbursement period using the effective interest method. For the three months ended March 31, 2016, the Company made one payment of $250,000 to RREEF America.
On April 25, 2016, the Company and RREEF America entered into a letter agreement that amended certain provisions of the Advisory Agreement and the Expense Support Agreement (the "Letter Agreement"). The Letter Agreement provides, in part, that the Company's obligations to reimburse RREEF America for Expense Payments under the Expense Support Agreement are suspended until the first calendar month following the month in which the Company has reached $500,000,000 in offering proceeds from the offerings (the "ESA Commencement Date"). The Company currently owes $8,950,000 to RREEF America under the Expense Support Agreement. Beginning the month following the ESA Commencement Date, the Company will make monthly reimbursement payments to RREEF America in the amount of $416,667 for the first 12 months and $329,166 for the second 12 months, subject to monthly reimbursement payment limitations described in the Letter Agreement. The execution of the Letter Agreement represented a modification of the Note to Affiliate, and as such, the unamortized discount on the Note to Affiliate as of April 25, 2016 is instead being amortized over the estimated repayment period pursuant to the Letter Agreement. In accordance therewith, the Company is amortizing the remaining discount using an interest rate of 1.93%. For the three months ended June 30, 2017 and 2016, the Company amortized $35,502 and $47,892, respectively, of the discount on the Note to Affiliate into interest expense. For the six months ended June 30, 2017

19

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


and 2016, the Company amortized $70,833 and $139,618, respectively, of the discount on the Note to Affiliate into interest expense.
In addition, pursuant to the Letter Agreement, if RREEF America is serving as the Company's advisor at the time that the Company or the Operating Partnership undertakes a liquidation, the Company's remaining obligations to reimburse RREEF America for the unpaid Deferred O&O under the Advisory Agreement and the unreimbursed Expense Payments under the Expense Support Agreement shall be waived.

Dealer Manager Agreement

Effective July 1, 2016, the Company and the Operating Partnership terminated the amended and restated dealer manager agreement, dated as of January 26, 2016, with SC Distributors, Inc. On July 1, 2016, the Company and its Operating Partnership entered into a new dealer manager agreement (the "Dealer Manager Agreement") with Deutsche AM Distributors, Inc., an affiliate of the Company's sponsor and advisor (the "Dealer Manager"). The Dealer Manager Agreement governs the distribution by the Dealer Manager of the Company’s Class A Shares, Class I Shares, Class N Shares and Class T Shares in the Follow-On Public Offering and any subsequent registered public offering. In connection with the ongoing Trailing Fees to be paid in the future, the Company and the Dealer Manager entered into an agreement whereby the Company will pay to the Dealer Manager the Trailing Fees that are attributable to the Company's shares issued in the Company's initial public offering that remain outstanding. In addition, the Company is obligated to pay to the Dealer Manager Trailing Fees that are attributable to the Company's shares issued in the Follow-On Public Offering. As of June 30, 2017 and December 31, 2016, the Company has accrued $61,841 and $60,514, respectively, in Trailing Fees currently payable to the Dealer Manager, and $2,340,382 and $2,352,711, respectively, in Trailing Fees estimated to become payable in the future to the Dealer Manager, both of which are included in due to affiliates on the consolidated balance sheets. We also pay the Dealer Manager upfront selling commissions and upfront dealer manager fees in connection with our Offerings, as applicable. For the three and six months ended June 30, 2017, the Dealer Manager earned upfront selling commissions and upfront dealer manager fees totaling $18,172 and $35,234, respectively.

Under the Dealer Manager Agreement, the Company is obligated to reimburse the Dealer Manager for certain offering costs incurred by the Dealer Manager on the Company's behalf, including but not limited to broker-dealer sponsorships, attendance fees for retail seminars conducted by broker-dealers, and travel costs for certain personnel of the Dealer Manager who are dedicated to the distribution of the Company's shares of common stock. For the three and six months ended June 30, 2017, the Dealer Manager incurred $82,000 and $148,203, respectively, in such costs on behalf of the Company. As of June 30, 2017 and December 31, 2016, the Company had payable to the Dealer Manager $298,335 and $150,132, respectively, of such costs which was included in due to affiliates on the consolidated balance sheets.

Reimbursement Limitations

Organization and Offering Costs
The Company will not reimburse RREEF America under the Advisory Agreement or the Expense Support Agreement and will not reimburse the Dealer Manager under the Dealer Manager Agreement for any organization and offering costs which would cause the Company's total organization and offering costs with respect to a public offering to exceed 15% of the gross proceeds from such public offering. Further, the Company will not reimburse RREEF America or the Dealer Manager for any underwriting compensation (a subset of organization and offering costs) which would cause the Company's total underwriting compensation with respect to a public offering to exceed 10% of the gross proceeds from the primary portion of such public offering. The Company raised $102,831,442 in gross proceeds from its initial public offering that ended on June 30, 2016. A summary of the Company's total organization and offering costs for its initial public offering is shown below.

20

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


 
Deferred O&O - RREEF America
 
Expense Payments - O&O Portion
 
Other organization and offering costs (1)
 
Total organization and offering costs
Balance, June 30, 2017 and December 31, 2016
$
4,618,318

 
$
3,775,369

 
$
7,031,029

 
$
15,424,716

(1) Includes $1,680,770 and $2,010,409 of estimated accrued Trailing Fees payable in the future as of June 30, 2017 and December 31, 2016, respectively.

As of June 30, 2017, in the Follow-On Public Offering, the Company had raised $15,400,322 in gross proceeds and incurred total organization and offering costs of $2,135,308, including estimated accrued Trailing Fees payable in the future of $659,612.
Operating Expenses
Pursuant to the Company’s charter, the Company may reimburse RREEF America, at the end of each fiscal quarter, for total operating expenses incurred by RREEF America, whether under the Expense Support Agreement or otherwise. However, commencing with the quarter ended June 30, 2014, the Company may not reimburse RREEF America at the end of any fiscal quarter for total operating expenses (as defined in the Company’s charter) that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of average invested assets or 25% of net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company's assets for that period (the “2%/25% Guidelines”). Notwithstanding the foregoing, the Company may reimburse RREEF America for expenses in excess of the 2%/25% Guidelines if a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended June 30, 2017, total operating expenses of the Company were $3,080,474 which did not exceed the amount prescribed by the 2%/25% Guidelines.
Due to Affiliates and Note to Affiliate
In accordance with all the above, as of June 30, 2017 and December 31, 2016, the Company owed its affiliates the following amounts:
 
June 30, 2017
 
December 31, 2016
Deferred O&O
$
1,393,589

 
$
1,851,375

Reimbursable under the advisory agreement
96,173

 
72,200

Reimbursable under Dealer Manager Agreement
298,335

 
150,132

Advisory fees
85,842

 
357,985

Accrued Trailing Fees
2,402,223

 
2,413,225

Due to affiliates
$
4,276,162

 
$
4,844,917

 
 
 
 
Note to Affiliate
$
8,950,000

 
$
8,950,000

Unamortized discount
(1,581,275
)
 
(1,652,108
)
Note to Affiliate, net of unamortized discount
$
7,368,725

 
$
7,297,892



21

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


NOTE 8 — CAPITALIZATION

Under the Company's charter, as most recently amended on February 16, 2017, the Company has the authority to issue 1,000,000,000 shares of common stock and 50,000,000 shares of preferred stock. All shares of such stock have a par value of $0.01 per share. The Company's authorized shares of common stock are allocated between classes as follows:
Common Stock
 
No. of Authorized Shares
Class A Shares
 
200,000,000

Class I Shares
 
200,000,000

Class T Shares
 
250,000,000

Class D Shares
 
50,000,000

Class N Shares
 
300,000,000

 
 
1,000,000,000


Class A Shares are subject to selling commissions of up to 3% of the purchase price, and annual dealer manager fees of 0.55% and distribution fees of 0.50% of NAV, both paid on a trailing basis. Class I Shares are subject to annual dealer manager fees of 0.55% of NAV paid in a trailing basis, but are not subject to any selling commissions or distribution fees. Class T Shares are subject to selling commissions of up to 3% of the purchase price, an up-front dealer manager fee of 2.50% of the purchase price, and annual distribution fees of 1.0% of NAV paid on a trailing basis for approximately three years. Class D shares sold in the Private Offering are subject to selling commissions of up to 1.0% of the purchase price, but do not incur any dealer manager or distribution fees.

Class N Shares are not sold in the primary Follow-On Public Offering, but will be issued upon conversion of an investor's Class T Shares once (i) the investor's Class T Share account for a given offering has incurred a maximum of 8.5% of commissions, dealer manager fees and distribution fees; (ii) the total underwriting compensation from whatever source with respect to the Follow-On Public Offering exceeds 10% of the gross proceeds from the primary portion of the Follow-On Public Offering; (iii) a listing of the Class N Shares; or (iv) the Company's merger or consolidation with or into another entity or the sale or other disposition of all or substantially all of the Company's assets. The Company's board of directors is authorized to amend its charter from time to time, without the approval of the stockholders, to increase or decrease the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.

Distribution Reinvestment Plan

The Company has adopted a distribution reinvestment plan that allows stockholders to have the cash distributions attributable to the class of shares that the stockholder owns automatically invested in additional shares of the same class. Shares are offered pursuant to the Company's distribution reinvestment plan at the NAV per share applicable to that class, calculated as of the distribution date and after giving effect to all distributions. Stockholders who elect to participate in the distribution reinvestment plan, and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of the Company's common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions used to purchase those shares of the Company's common stock in cash.

Redemption Plan


22

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


In an effort to provide the Company's stockholders with liquidity in respect of their investment in shares of the Company's common stock, the Company has adopted a redemption plan whereby on a daily basis stockholders may request the redemption of all or any portion of their shares. The redemption price per share is equal to the Company's NAV per share of the class of shares being redeemed on the date of redemption, subject to a short-term trading discount, if applicable. The total amount of redemptions in any calendar quarter will be limited to shares whose aggregate value (based on the redemption price per share on the date of the redemption) is equal to 5% of the Company's combined NAV for all classes of shares as of the last day of the previous calendar quarter. In addition, if redemptions do not reach the 5% limit in a calendar quarter, the unused portion generally will be carried over to the next quarter and not any subsequent quarter, except that the maximum amount of redemptions during any quarter may never exceed 10% of the combined NAV for all classes of shares as of the last day of the previous calendar quarter. If the quarterly volume limitation is reached on or before the third business day of a calendar quarter, redemption requests during the next quarter will be satisfied on a stockholder by stockholder basis, which the Company refers to as a per stockholder allocation, instead of a first-come, first-served basis. Pursuant to the per stockholder allocation, each stockholder would be allowed to request redemption at any time during such quarter of a total number of shares not to exceed 5% of the shares of common stock the stockholder held as of the end of the prior quarter. The per stockholder allocation requirement will remain in effect for each succeeding quarter for which the total redemptions for the immediately preceding quarter exceeded 4% of the Company's NAV on the last business day of such preceding quarter. If total redemptions during a quarter for which the per stockholder allocation applies are equal to or less than 4% of the Company's NAV on the last business day of such preceding quarter, then redemptions will again be satisfied on a first-come, first-served basis for the next succeeding quarter and each quarter thereafter.

Each redemption request will be evaluated by the Company in consideration of rules and regulations promulgated by the Internal Revenue Service with respect to dividend equivalent redemptions. Redemptions that may be considered dividend equivalent redemptions may adversely affect the Company or its stockholders. Accordingly, the Company may reject any redemption request that it reasonably believes may be treated as a dividend equivalent redemption.

While there is no minimum holding period, shares redeemed within 365 days of the date of the investor's initial purchase of the Company's shares will be redeemed at the Company's NAV per share of the class of shares being redeemed on the date of redemption less a short-term trading discount equal to 2% of the gross proceeds otherwise payable with respect to the redemption.

In the event that any stockholder fails to maintain a minimum balance of $500 worth of shares of common stock, the Company may redeem all of the shares held by that stockholder at the redemption price per share in effect on the date it is determined that the stockholder has failed to meet the minimum balance, less the short-term trading discount of 2%, if applicable. Minimum account redemptions will apply even in the event that the failure to meet the minimum balance is caused solely by a decline in the Company's NAV.

During the three and six months ended June 30, 2017 and 2016, redemptions were as shown below. The Company funded these redemptions with cash flow from operations, proceeds from our public offerings or borrowings on the Wells Fargo Line of Credit. The weighted average redemption prices are shown before allowing for any applicable 2% short-term trading discounts.
Three Months Ended June 30, 2017
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
59,342

 
$
13.32

 
$
790,678

Class I
 
24,673

 
13.40

 
330,712

Class T
 

 

 



23

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


Six Months Ended June 30, 2017
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
90,449

 
$
13.33

 
$
1,204,439

Class I
 
62,524

 
13.43

 
839,831

Class T
 
4,043

*
15.29

 
61,818

* Repurchased in private transactions.
 
 

Three Months Ended June 30, 2016
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
130,377

 
$
12.91

 
$
1,683,167

Class I
 
22,658

 
13.12

 
297,273

Class T
 

 

 


Six Months Ended June 30, 2016
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
587,623

 
$
12.88

 
$
7,568,584

Class I
 
43,288

 
13.09

 
566,640

Class T
 

 

 


The Company's board of directors has the discretion to suspend or modify the redemption plan at any time, including in circumstances in which it (1) determines that such action is in the best interest of the Company's stockholders, (2) determines that it is necessary due to regulatory changes or changes in law or (3) becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are redeemed. In addition, the Company's board of directors may suspend the Offerings and the redemption plan, if it determines that the calculation of NAV is materially incorrect or there is a condition that restricts the valuation of a material portion of the Company's assets. If the board of directors materially amends (including any reduction of the quarterly limit) or suspends the redemption plan during any quarter, other than any temporary suspension to address certain external events unrelated to the Company's business, any unused portion of that quarter’s 5% limit will not be carried forward to the next quarter or any subsequent quarter.

NOTE 9 - NET LOSS PER SHARE

The Company computes net earnings or loss per share of Class A, Class I and Class T common stock using the two-class method. The Company’s advisor may earn a performance component of the advisory fee (see Note 7) which may impact the net earnings or loss of each class of common stock differently. In periods where no performance component of the advisory fee is recognized in the Company’s consolidated statement of operations, the net earnings or loss per share will be the same for each class of common stock. For the three and six months ended June 30, 2017 and 2016, no performance component of the advisory fee was recognized in the Company’s consolidated statements of operations.

Basic and diluted net loss per share for each class of common stock is computed using the weighted-average number of common shares outstanding during the period for each class of common stock. The Company has not issued any dilutive or potentially dilutive securities, and thus the basic and diluted net loss per share for a given class of common stock is the same for each period presented.

The following table sets forth the computation of basic and diluted net loss per share for each of the Company’s Class A, Class I and Class T common stock.



24

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)





Three Months Ended June 30, 2017


Class A

Class I

Class T
Basic and diluted net loss per share:







Numerator - Allocation of net loss

$
(266,707
)

$
(288,988
)

$


Denominator - weighted average number of common shares outstanding

3,699,115


4,008,144



Basic and diluted net loss per share:

$
(0.07
)

$
(0.07
)

$












Six Months Ended June 30, 2017


Class A

Class I

Class T
Basic and diluted net loss per share:







Numerator - Allocation of net loss

$
(454,595
)

$
(484,742
)

$
(102
)

Denominator - weighted average number of common shares outstanding

3,674,781


3,918,471


826

Basic and diluted net loss per share:

$
(0.12
)

$
(0.12
)

$
(0.12
)











Three Months Ended June 30, 2016


Class A

Class I

Class T
Basic and diluted net loss per share:







Numerator - Allocation of net loss

$
(512,890
)

$
(492,566
)

$
(602
)

Denominator - weighted average number of common shares outstanding

3,444,743


3,308,240


4,043

Basic and diluted net loss per share:

$
(0.15
)

$
(0.15
)

$
(0.15
)







Six Months Ended June 30, 2016


Class A

Class I

Class T
Basic and diluted net loss per share:







Numerator - Allocation of net loss

$
(1,241,771
)

$
(1,172,775
)

$
(1,394
)

Denominator - weighted average number of common shares outstanding

3,375,968


3,188,392


3,790

Basic and diluted net loss per share:

$
(0.37
)

$
(0.37
)

$
(0.37
)

NOTE 10 — DISTRIBUTIONS

In order to qualify as a REIT, the Company is required, among other things, to make distributions each taxable year of at least 90% of its taxable income determined without regard to the dividends-paid deduction and excluding net capital gains, and to meet certain tests regarding the nature of the Company's income and assets. The Company expects that its board of directors will continue to declare distributions with a daily record date, payable monthly in arrears. Any distributions the Company makes will be at the discretion of its board of directors, considering factors such as its earnings, cash flow, capital needs and general financial condition and the requirements of Maryland law. The Company commenced operations on May 30, 2013 and elected taxation as a REIT for the year ended December 31, 2013. Distributions for each month are payable on or before the first business day of the following month. However, any distributions reinvested by the stockholders in accordance with the Company's dividend reinvestment plan are reinvested at the per share NAV of the same class determined at the close of business on the last business day of the month in which the distributions were accrued.

25

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


Shown below are details of the Company's distributions for the three months ended March 31, 2017 and 2016 as well as three months and six months ended June 30, 2017 and 2016.
 
Three Months Ended
 
Six Months Ended June 30, 2017
 
March 31, 2017
 
June 30, 2017
 
Declared daily distribution rate, before adjustment for class-specific fees
$
0.00183555

 
$
0.00183207

 
 
Distributions paid or payable in cash
$
716,755

 
$
742,522

 
$
1,459,277

Distributions reinvested
518,614

 
541,538

 
1,060,152

Distributions declared
$
1,235,369

 
$
1,284,060

 
$
2,519,429

Class A Shares issued upon reinvestment
23,567

 
23,806

 
47,373

Class I Shares issued upon reinvestment
15,152

 
16,611

 
31,763

Class T Shares issued upon reinvestment

 

 


 
Three Months Ended
 
Six Months Ended June 30, 2016
 
March 31, 2016
 
June 30, 2016
 
Declared daily distribution rate, before adjustment for class-specific fees
$
0.00179534

 
$
0.00177203

 
 
Distributions paid or payable in cash
$
633,913

 
$
631,393

 
$
1,265,306

Distributions reinvested
407,009

 
457,276

 
864,285

Distributions declared
$
1,040,922

 
$
1,088,669

 
$
2,129,591

Class A Shares issued upon reinvestment
18,860

 
21,726

 
40,586

Class I Shares issued upon reinvestment
12,476

 
13,284

 
25,760

Class T Shares issued upon reinvestment

 

 



NOTE 11 — INCOME TAXES

The Company believes that it has operated in such a manner to qualify to be taxed as a REIT for federal income tax purposes beginning with the taxable year ended December 31, 2013, when it first elected REIT status. In each calendar year that the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax to the extent it meets certain criteria and distributes its REIT taxable income to its stockholders. Distributions declared and paid by the Company may consist of ordinary income, qualifying dividends, return of capital, capital gains or a combination thereof. The characterization of the distributions into these various components will impact how the distributions are taxable to the stockholder who received them. Distributions that constitute a return of capital generally are non-taxable and will reduce the stockholder's basis in the shares. The characterization of the distributions is generally determined during the month of January following the close of the tax year.


26

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


NOTE 12 — SEGMENT INFORMATION

For the six months ended June 30, 2017 and 2016, the Company had two segments with reportable information: Real Estate Properties and Real Estate Equity Securities. The Company organizes and analyzes the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment and investment strategies and objectives. The following tables set forth the carrying value, revenue and the components of operating income of the Company's segments reconciled to total assets as of June 30, 2017 and December 31, 2016 and net loss for the three and six months ended June 30, 2017 and 2016.
 
 
Real Estate Properties
 
Real Estate Equity Securities
 
Total
Carrying value as of June 30, 2017
$
154,846,995

 
$
8,781,071

 
$
163,628,066

 
 
 
 
 
 
 
Reconciliation to total assets of June 30, 2017
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
163,628,066

 
Corporate level assets
 
 
 
 
9,108,530

 
Total assets
 
 
 
 
$
172,736,596

 
 
 
 
 
 
 
Carrying value as of December 31, 2016
$
158,837,707

 
$
8,609,212

 
$
167,446,919

 
 
 
 
 
 
 
Reconciliation to total assets of December 31, 2016
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
167,446,919

 
Corporate level assets
 
 
 
 
6,742,528

 
Total assets
 
 
 
 
$
174,189,447


27

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


Three Months Ended June 30, 2017
Real Estate Properties

Real Estate Equity Securities

Total
Revenues
 
 
 
 
 
 
Rental and other property income
$
3,784,351

 
$

 
$
3,784,351

 
Tenant reimbursement income
530,623

 

 
530,623

 
Investment income on marketable securities

 
76,980

 
76,980

 
Total revenues
4,314,974

 
76,980

 
4,391,954

Operating expenses
 
 
 
 
 
 
Property operating expenses
1,296,348

 

 
1,296,348

 
Total segment operating expenses
1,296,348

 

 
1,296,348

Operating income - segments
$
3,018,626

 
$
76,980

 
$
3,095,606

 
 
 
 
 
 
Three Months Ending June 30, 2016
 
 
 
 
 
Revenues

 

 


Rental and other property income
$
3,260,003

 
$

 
$
3,260,003


Tenant reimbursement income
284,746

 

 
284,746


Investment income on marketable securities

 
73,813

 
73,813


Total revenues
3,544,749

 
73,813

 
3,618,562

Operating expenses

 

 


Property operating expenses
1,189,689

 

 
1,189,689


Total segment operating expenses
1,189,689

 

 
1,189,689

Operating income - Segments
$
2,355,060

 
$
73,813

 
$
2,428,873

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
Reconciliation to net loss
 
 
2017
 
2016
Operating income - segments

 
$
3,095,606

 
$
2,428,873

 
General and administrative expenses
 
 
(481,617
)
 
(521,181
)
 
Advisory expenses
 
 
(257,054
)
 
(218,791
)
 
Depreciation
 
 
(1,087,167
)
 
(911,360
)
 
Amortization
 
 
(932,102
)
 
(1,456,936
)
Operating income (loss)
 
 
337,666

 
(679,395
)
 
Interest expense
 
 
(886,455
)
 
(550,654
)
 
Net realized (loss) gain upon sale of marketable securities
 
(6,906
)
 
223,991

Net loss
 
 
$
(555,695
)
 
$
(1,006,058
)







28

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


 
 
 
 
 
 
 
Six Months Ended June 30, 2017
Real Estate Properties
 
Real Estate Equity Securities
 
Total
Revenues
 
 
 
 
 
 
Rental and other property income
$
7,581,484

 
$

 
$
7,581,484

 
Tenant reimbursement income
1,067,823

 

 
1,067,823

 
Investment income on marketable securities

 
120,856

 
120,856

 
Total revenues
8,649,307

 
120,856

 
8,770,163

Operating expenses
 
 
 
 
 
 
Property operating expenses
2,647,479

 

 
2,647,479

 
Total segment operating expenses
2,647,479

 

 
2,647,479

Operating income - Segments
$
6,001,828

 
$
120,856

 
$
6,122,684

 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
 
 
 
 
Revenues
 
 
 
 
 
 
Rental and other property income
$
6,498,902

 
$

 
$
6,498,902

 
Tenant reimbursement income
640,142

 

 
640,142

 
Investment income on marketable securities

 
264,329

 
264,329

 
Total revenues
7,139,044

 
264,329

 
7,403,373

Operating expenses
 
 
 
 
 
 
Property operating expenses
2,563,360

 

 
2,563,360

 
Total segment operating expenses
2,563,360

 

 
2,563,360

Operating income - Segments
$
4,575,684

 
$
264,329

 
$
4,840,013

 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
Reconciliation to net loss
 
 
2017
 
2016
Operating income - segments
 
 
$
6,122,684

 
$
4,840,013

 
General and administrative expenses
 
 
(864,746
)

(1,109,657
)
 
Advisory expenses
 
 
(504,402
)

(424,728
)
 
Depreciation
 
 
(2,168,488
)

(1,820,380
)
 
Amortization
 
 
(1,860,349
)

(2,913,873
)
Operating income (loss)
 
 
724,699

 
(1,428,625
)
 
Interest expense
 
 
(1,711,934
)

(1,116,361
)
 
Net realized gain upon sale of marketable securities
 
47,796


129,046

Net loss
 
 
$
(939,439
)
 
$
(2,415,940
)
NOTE 13 — ECONOMIC DEPENDENCY
The Company depends on RREEF America and the Dealer Manager for certain services that are essential to the Company, including the sale of the Company's shares of common stock, asset acquisition and disposition decisions and other general and administrative responsibilities. In the event that RREEF America or the Dealer Manager is unable to provide such services, the Company would be required to find alternative service providers.

29

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
June 30, 2017
(Unaudited)


NOTE 14 — COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company may be involved in legal actions relating to the ownership and operations of real estate investments. In the Company's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
The Company, as an owner of real estate, is subject to various environmental laws of federal and local governments. All of the Company's properties were subject to assessments, involving visual inspections of the properties and their neighborhoods. The Company carries environmental liability insurance on its properties that provides coverage for remediation liability and pollution liability for third-party bodily injury and property damage claims. The Company does not believe such environmental assessments will have a material adverse impact on the Company's consolidated financial position or results of operations in the future.

NOTE 15 — SUBSEQUENT EVENTS

On July 3, 2017, the Company announced that its board of directors declared a daily cash distribution equal to $0.00185445 per share of common stock (before adjustment for applicable class-specific fees) for all such shares of record on each day from July 1, 2017 through September 30, 2017. As of July 1, 2017, there were no Class D, N or T Shares outstanding.

On July 21, 2017, the Company purchased $1,000,000 in marketable securities.











30


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q, or this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2016. We further invite you to visit our website, www.rreefpropertytrust.com, where we routinely post additional information about our Company, such as, without limitation, our daily net asset value, or NAV, per share. The contents of our website are not incorporated by reference. The terms “we,” “us,” “our” and the “Company” refer to RREEF Property Trust, Inc. and its subsidiaries.

The NAV per share is published daily via NASDAQ's Mutual Fund Quotation System under the symbols ZRPTAX, ZRPTIX and ZRPTTX for our Class A shares, Class I shares and Class T shares, respectively.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, or Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guaranty of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “plan,” “potential,” “predict” or other similar words.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

our ability to raise and effectively deploy the proceeds raised in our public offering;
changes in economic conditions generally and the real estate and securities markets specifically;
legislative or regulatory changes (including changes to the laws governing the taxation of REITs);
the effect of financial leverage, including changes in interest rates, availability of credit, loss of flexibility due to negative and affirmative covenants, refinancing risk at maturity and generally the increased risk of loss if our investments fail to perform as expected;
our ability to access sources of liquidity when we have the need to fund redemptions of common stock in excess of the proceeds from the sales of shares of our common stock in our continuous offering and the consequential risk that we may not have the resources to satisfy redemption requests; and
changes to accounting principles generally accepted in the United States of America, or GAAP.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission, or the SEC. We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q. Additionally, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. The forward-looking statements should be read in light of the risk factors identified in “Risk Factors” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016.


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Overview

We are a Maryland corporation formed on February 7, 2012, our inception date, to invest in a diversified portfolio of high quality, income-producing commercial real estate properties and other real estate-related assets. We are an externally advised, perpetual-life corporation that believes that it has operated in such a manner to qualify to be taxed as a REIT for federal income tax purposes beginning with the taxable year ended December 31, 2013, when we first elected REIT status. We invest primarily in the office, industrial, retail and multifamily sectors of the commercial real estate industry in the United States. We may also invest in real estate-related assets, which include common and preferred stock of publicly-traded REITs and other real estate companies, which we refer to as “real estate equity securities,” and debt investments backed by real estate, which we refer to as “real estate loans.” We hold our properties, real estate-related assets and other investments through RREEF Property Operating Partnership, LP, or our operating partnership, of which we are the sole general partner.

Our board of directors will at all times have ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to our advisory agreement, our board has delegated to RREEF America L.L.C., or our advisor, authority to manage our day-to-day business in accordance with our investment objectives, strategy, guidelines, policies and limitations. Our advisory agreement is renewable annually upon approval by our board of directors, including a majority of the independent board members. The current term expires January 20, 2018.

Our initial public offering commenced on January 3, 2013, pursuant to our Registration Statement on Form S-11 (File No. 333-180356) under which we offered up to $2,500,000,000 of shares of our common stock in any combination of Class A and Class I shares, which we refer to as the initial offering. On May 30, 2013, upon receipt of purchase orders from our sponsor for $10,000,000 of Class I shares of our common stock and the release to us of funds in the escrow account, we commenced operations. Our initial public offering terminated on July 1, 2016. We raised a total of $102,831,442 in proceeds from our initial public offering.

On January 15, 2016, we filed articles supplementary to our articles of incorporation to add a newly-designated Class D common stock, $0.01 par value per share, or our Class D shares. On January 20, 2016, we commenced a private offering of up to a maximum of $350,000,000 in Class D shares.

On July 12, 2016, the SEC declared effective our Registration Statement on Form S-11 (File No. 333-208751) for our follow-on public offering for up to $2,300,000,000 of shares of our common stock in any combination of our Class A, Class I, Class T and Class N shares, which we refer to as our follow-on offering. Our follow-on offering includes up to $2,100,000,000 in shares in our primary offering and up to $200,000,000 in shares in our distribution reinvestment plan. Class T shares contain a conversion feature whereby upon the occurrence of a specified event (generally related to a Class T stockholder's account having incurred a maximum of 8.5% of underwriting compensation), Class T shares owned in a stockholder's account will automatically convert to Class N shares.

We have engaged Deutsche AM Distributors, Inc., an affiliate of our advisor, to serve as our dealer manager for our follow-on offering pursuant to our dealer manager agreement. Our initial offering and our follow-on offering are each referred to as an offering.
Portfolio Information

Real Estate Portfolio
    
As of June 30, 2017, our real estate portfolio was comprised of eight properties diversified across geography and sector. Details of the properties acquired since January 1, 2016 are shown below.

2016 Acquisition

On September 27, 2016, we acquired a fee simple interest in a medical office building located in Dedham, Massachusetts, which we refer to as Allied Drive, for a purchase price of $34,000,000, exclusive of closing costs. We funded the acquisition with cash on hand and a $32,400,000 borrowing from our Wells Fargo line of credit (as described below). Of the $32,400,000 borrowed, approximately $13,100,000 was from existing borrowing capacity on previously acquired properties, while approximately $19,300,000 was allocated to Allied Drive. Allied Drive is a two-story, 64,127 rentable square foot Class A medical office building approximately 20 miles outside of Boston. The property is located at Allied Drive in Dedham, Massachusetts directly off of Route 128 / Interstate 95, providing easy

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vehicular access to a network of highways and other commuter thoroughfares that connect to the broader Boston metropolitan region. Allied Drive is also accessible via the commuter rail MBTA stop, which services Boston in less than 10 minutes. Legacy Place, University Station, Dedham Mall and Hilton Boston - Dedham are within short driving distances of Allied Drive, offering tenants a multitude of dining, entertainment and lodging options. Newly constructed in 2013, Allied Drive was built with a full spectrum of orthopedic-related services, featuring eight state-of-the-art operating rooms, a hospital-quality post-anesthesia care unit, diagnostic imaging and ancillary service space and Class A medical office suites. The site provides parking spaces with a ratio of 3.9 spaces per 1,000 square feet.

Excluding The Flats at Carrs Hill, our multifamily property, as of June 30, 2017, our weighted average remaining lease term was 6.6 years. The following table represents certain additional information about the properties we owned as of June 30, 2017:
Property
 
Location
 
Rentable Square Feet
 
Number of Leases/Units
 
Occupancy(1)
Office Property
 
 
 
 
 
 
 
 
   Heritage Parkway
 
Woodridge, IL
 
94,233

 
1

 
100.0
%
   Anaheim Hills Office Plaza
 
Anaheim, CA
 
73,892

 
3

 
100.0

   Loudoun Gateway
 
Sterling, VA
 
102,015

 
1

 
100.0

Allied Drive
 
Dedham, MA
 
64,127

 
5

 
100.0

Total
 
 
 
334,267

 
10

 
100.0

Retail Property
 
 
 
 
 
 
 
 
   Wallingford Plaza(2)
 
Seattle, WA
 
30,761

 
5

 
100.0

   Terra Nova Plaza
 
Chula Vista, CA
 
96,114

 
2

 
100.0

Total
 
 
 
126,875

 
7

 
100.0

Industrial Property
 
 
 
 
 
 
 
 
   Commerce Corner
 
Logan Township, NJ
 
259,910

 
2

 
100.0

Total
 
 
 
259,910

 
2

 
100.0

Multifamily Property
 
 
 
 
 
 
 
 
   The Flats at Carrs Hill
 
Athens, GA
 
135,864

 
138

 
100.0

Total
 
 
 
135,864

 
138

 
100.0

Grand total
 
 
 
856,916

 
19/138

 
100.0
%
            
(1) Occupancy is based on executed leases as of June 30, 2017.
(2) Wallingford Plaza is ground floor retail plus two floors of office space. The retail portion comprises the majority of the rental revenue for the property.

Real Estate Equity Securities Portfolio

As of June 30, 2017, our real estate equity securities portfolio consisted of publicly-traded common stock of 37 REITs with a value of $8,781,071. We believe that investing a portion of our proceeds from our offerings into a diversified portfolio of common and preferred shares of REITs and other real estate operating companies will provide the overall portfolio some flexibility with near-term liquidity as well as potentially enhance our NAV over a longer period. The portfolio is regularly reviewed and evaluated to determine whether the marketable securities held at any time continue to serve their original intended purposes.

The following chart summarizes our marketable securities by property type as of June 30, 2017:


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rpt-2016q1_chartx40366a04a14.jpg
As of June 30, 2017, our top ten holdings in our real estate equity securities portfolio were as follows:

Security
 
Percent of Securities Portfolio
Welltower, Inc.
 
6.6
%
Avalonbay Communities, Inc.
 
6.3

Public Storage
 
5.7

Equinix, Inc.
 
5.4

Essex Property Trust, Inc.
 
5.1

Alexandria Real Estate Equity, Inc.
 
4.7

Ventas, Inc.
 
4.2

Duke Realty Corp
 
4.0

Camden Property Trust
 
3.9

Vornado Realty Trust
 
3.5

Total
 
49.4
%

Market Outlook

Commercial real estate prices continued to rise in the second quarter of 2017. Total returns to unlevered core real estate slipped to 7% (trailing four quarters) from 8% in 2016 and more than 13% in 2015, as measured by the NCREIF Property Index. We believe the reasons for this drop include, but are not limited to, interest-rate volatility after the U.S. election and a modest slowdown of rental income growth. However, monthly data indicated that prices firmed in the spring, tentatively signaling a stabilization of returns near current levels.

We believe the outlook for commercial real estate remains positive. Fundamentals are on a solid footing: vacancy rates are near 15-year lows; an expanding economy continues to generate demand from residential and corporate occupiers; and new supply remains generally disciplined. From a valuations perspective, we believe real estate continues to deliver an attractive yield relative to interest rates. We expect that these favorable conditions will remain largely intact: reliable leading indicators such as the yield curve suggest that the likelihood of a recession in

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the next 18 months is low. Construction starts appear to have peaked, constrained by rising labor costs and banks’ increasing aversion to financing development. While interest rates might rise, low global rates should ensure that any increase is gradual.

Despite this view, we also believe there are pockets of weakness. Oversupply has caused rents to stall or slip in some multifamily markets and store closures have challenged some retail formats. A handful