10-Q 1 rpt10q-2018q1.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 March 31, 2018
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 May 10, 2018, the registrant had 3,692,081 shares of Class A common stock, $.01 par value, outstanding, 4,772,663 shares of Class I common stock, $.01 par value, outstanding, 106,612 shares of Class T common stock, $.01 par value, outstanding, and no shares of 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 March 31, 2018

TABLE OF CONTENTS
 
 


2


PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RREEF PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
 
March 31, 2018 (unaudited)
 
December 31, 2017
ASSETS

 

Investment in real estate assets:

 

Land
$
37,238,612

 
$
37,238,612

Buildings and improvements, less accumulated depreciation of $12,545,630 and $11,476,041, respectively
91,098,044

 
92,160,948

Furniture, fixtures and equipment, less accumulated depreciation of $231,007 and $211,727, respectively
222,195

 
239,225

Acquired intangible lease assets, less accumulated amortization of $16,430,086 and $15,510,271, respectively
20,365,248

 
21,285,063

Total investment in real estate assets, net
148,924,099

 
150,923,848

Investment in marketable securities
10,821,218

 
10,046,177

Total investment in real estate assets and marketable securities, net
159,745,317

 
160,970,025

Cash and cash equivalents
2,833,458

 
2,441,853

Receivables, net of allowance for doubtful accounts of $6,233 and $9,586, respectively
2,066,839

 
2,615,939

Deferred leasing costs, net of amortization of $240,922 and $201,108, respectively
2,124,813

 
1,833,527

Prepaid and other assets
1,753,370

 
1,454,988

Total assets
$
168,523,797

 
$
169,316,332

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Line of credit, net
$
61,921,863

 
$
63,022,061

Mortgage loans payable, net
27,263,262

 
27,254,431

Accounts payable and accrued expenses
1,334,905

 
768,049

Due to affiliates
3,705,244

 
4,375,191

Note to affiliate, net of unamortized discount of $1,473,732 and $1,509,753, respectively
7,476,268


7,440,247

Acquired below market lease intangibles, less accumulated amortization of $3,114,286 and $3,016,239, respectively
5,569,469

 
5,667,516

Distributions payable
269,821

 
258,542

Other liabilities
1,089,655

 
1,190,779

Total liabilities
108,630,487

 
109,976,816

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; 3,681,060 and 3,666,927 issued and outstanding, respectively
36,811

 
36,670

Class I common stock, $0.01 par value; 200,000,000 shares authorized; 4,593,620 and 4,352,050 issued and outstanding, respectively
45,937

 
43,521

Class T common stock, $0.01 par value; 250,000,000 shares authorized; 91,250 and 71,316 issued and outstanding, respectively
912

 
713

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
90,028,095

 
86,813,276

Deficit
(30,218,445
)
 
(28,290,303
)
Accumulated other comprehensive income

 
735,639

Total stockholders' equity
59,893,310

 
59,339,516

Total liabilities and stockholders' equity
$
168,523,797

 
$
169,316,332

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 March 31,
 
2018
 
2017
Revenues

 
 
Rental and other property income
$
3,824,997

 
$
3,797,133

Tenant reimbursement income
678,523

 
537,200

Investment income on marketable securities
88,852

 
43,876

Total revenues
4,592,372

 
4,378,209

Expenses

 
 
General and administrative expenses
511,005

 
383,130

Property operating expenses
1,412,493

 
1,351,130

Advisory fees
279,455

 
247,348

Depreciation
1,088,869

 
1,081,321

Amortization
906,804

 
928,247

Total operating expenses
4,198,626

 
3,991,176

Net realized (loss) gain upon sale of marketable securities
(253,480
)
 
54,702

Net unrealized loss on investment in marketable securities
(500,518
)
 

Operating (loss) income
(360,252
)
 
441,735

Interest expense
(903,550
)
 
(825,479
)
Net loss
$
(1,263,802
)
 
$
(383,744
)


 
 
Basic and diluted net loss per share of Class A common stock
$
(0.15
)
 
$
(0.05
)
Basic and diluted net loss per share of Class I common stock
$
(0.15
)
 
$
(0.05
)
Basic and diluted net loss per share of Class T common stock
$
(0.15
)
 
$
(0.05
)

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 March 31,
 
2018
 
2017
Net loss
$
(1,263,802
)
 
$
(383,744
)
Other comprehensive loss for the three months ended March 31, 2017:

 

Reclassification of previous unrealized gain on marketable securities into net realized loss

 
(54,702
)
Unrealized loss on marketable securities for the three months ended March 31, 2017

 
(21,231
)
Total other comprehensive loss for the three months ended March 31, 2017

 
(75,933
)
Comprehensive loss
$
(1,263,802
)
 
$
(459,677
)

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, 2017

$

 
3,666,927

$
36,670

 
4,352,050

$
43,521

 
71,316

$
713

 

$

 

$

 
$
86,813,276

 
$
(28,290,303
)
 
$
735,639

 
$
59,339,516

Cumulative effect adjustment for change in accounting principle (see Note 2)


 


 


 


 


 


 

 
735,639

 
(735,639
)
 

Balance, January 1, 2018, as adjusted


 
3,666,927

36,670

 
4,352,050

43,521

 
71,316

713

 


 


 
86,813,276

 
(27,554,664
)
 

 
59,339,516

Issuance of common stock


 
55,887

559

 
273,546

2,736

 
19,256

192

 


 


 
4,839,713

 

 

 
4,843,200

Issuance of common stock through the distribution reinvestment plan


 
22,714

227

 
21,479

215

 
678

7

 


 


 
619,019

 

 

 
619,468

Redemption of common stock


 
(64,468
)
(645
)
 
(53,455
)
(535
)
 


 


 


 
(1,621,913
)
 

 

 
(1,623,093
)
Distributions to investors


 


 


 


 


 


 

 
(1,399,979
)
 

 
(1,399,979
)
Other offering costs


 


 


 


 


 


 
(622,000
)
 

 

 
(622,000
)
Net loss


 


 


 


 


 


 

 
(1,263,802
)
 

 
(1,263,802
)
Balance, March 31, 2018

$

 
3,681,060

$
36,811

 
4,593,620

$
45,937

 
91,250

$
912

 

$

 

$

 
$
90,028,095

 
$
(30,218,445
)
 
$

 
$
59,893,310


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



6


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

 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net loss
$
(1,263,802
)
 
$
(383,744
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation
1,088,869

 
1,081,321

Net realized loss (gain) upon sale of marketable securities
253,480

 
(54,702
)
Net unrealized loss on marketable securities
500,518

 

Amortization of intangible lease assets and liabilities
861,582

 
889,924

Amortization of deferred financing costs
101,613

 
118,441

Allowance for doubtful accounts
(3,353
)
 
653

Straight line rent
555,830

 
(310,895
)
Amortization of discount on note to affiliate
36,021

 
35,331

Changes in assets and liabilities:

 

Receivables
(58,382
)
 
17,026

Deferred leasing costs

 
(1,000
)
Prepaid and other assets
(286,382
)
 
(239,199
)
Accounts payable and accrued expenses
271,643

 
143,281

Other liabilities
(135,873
)
 
129,429

Due to affiliates
(602,134
)
 
(168,554
)
Net cash provided by operating activities
1,319,630

 
1,257,312

Cash flows from investing activities:

 

Improvements to real estate assets
(8,933
)
 
(50,774
)
Investment in marketable securities
(5,565,108
)
 
(2,833,935
)
Proceeds from sale of marketable securities
3,986,668

 
2,794,954

Net cash used in investing activities
(1,587,373
)
 
(89,755
)
Cash flows from financing activities:

 

Repayments of line of credit
(700,000
)
 

Proceeds from issuance of common stock
4,905,200

 
2,383,619

Payment of financing costs
(492,980
)
 

Payment of offering costs
(660,547
)
 
(604,617
)
Distributions to investors
(1,388,700
)
 
(1,227,421
)
Redemption of common stock
(1,623,093
)
 
(869,654
)
Common stock issued through the distribution reinvestment plan
619,468

 
518,614

Net cash provided by financing activities
659,348

 
200,541

Net increase in cash and cash equivalents
391,605

 
1,368,098

Cash and cash equivalents, beginning of period
2,441,853

 
1,493,256

Cash and cash equivalents, end of period
$
2,833,458

 
$
2,861,354


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


7


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

 
Three Months Ended March 31,
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
2018
 
2017
Distributions declared and unpaid
$
269,821


$
247,846

Net unrealized loss on marketable securities, three months ended March 31, 2017


75,933

Purchases of marketable securities not yet paid
66,639


140,602

Proceeds from sale of marketable securities not yet received
86,783


129,913

Proceeds from issuance of common stock not yet received
153,483


25,000

Redemption of common stock not yet paid


115,044

Accrued offering costs not yet paid
462,336

 
338,724

Supplemental Cash Flow Disclosures:

 

Interest paid
$
742,555


$
626,188

 
 
 
 

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


8


RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(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.
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.
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.

9

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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 three months ended March 31, 2018 except for the adoption of Accounting Standards Updates ("ASU") noted below in Note 2. The interim financial data as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 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.

Real Estate Investments and Lease Intangibles
    
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 previous implementation guidance, real estate was broadly interpreted to be a business, which required, 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 consolidated balance sheet. The Company adopted ASU 2017-01 on its effective date of January 1, 2018, which did not have an impact on the Company's consolidated financial statements. Acquisitions of real estate investments after January 1, 2018 will be evaluated based on ASU 2017-01 and may result in the capitalization of acquisition related costs for those acquisitions deemed to be asset acquisitions.

Investments in Marketable Securities

Effective January 1, 2018, the Company adopted ASU 2016-01, Financial Statements - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities, which improves certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 revised the accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. Since the Company's inception and prior to adoption of ASU 2016-01, 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. Beginning January 1, 2018, the net unrealized change in the fair value of the Company's investments in marketable securities is recorded in earnings as part of operating income or loss.

The Company adopted ASU 2016-01 using a modified retrospective approach that resulted in recording, on January 1, 2018, a cumulative effect adjustment of $735,639 of net unrealized gain on its investments in marketable securities as of December 31, 2017 into deficit in the accompanying consolidated financial statements.

The Company has reclassified the $54,702 of net realized gain upon sale of marketable securities on the accompanying consolidated statement of operations for the three months ended March 31, 2017 to include it in

10

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


operating income or loss for comparative purposes. This reclassification has not changed the Company's net loss for the three months ended March 31, 2017.

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 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 March 31, 2018 and December 31, 2017, the Company has accrued $2,284,367 and $2,238,576, respectively, in Trailing Fees to be payable in the future, which was included in due to affiliates on the consolidated balance sheets.

Revenue Recognition

In May 2014, the 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. The Company adopted ASU 2014-09, as amended, on its effective of January 1, 2018, using the cumulative effect adjustment method in the period of adoption. The adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements.

Net Earnings or Loss Per Share

11

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)



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 8), 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. Since the Company’s inception, the Company has not issued any participating securities.

Concentration of Credit Risk

As of March 31, 2018 and December 31, 2017, 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.

Recent Accounting Pronouncements

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 until such 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 March 31, 2018, the Company is not a lessee under any lease contracts. As of March 31, 2018, 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.

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,

12

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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 amount of the Company's line of credit, exclusive of deferred financing costs, approximated its fair value of $62,400,000 and $63,100,000 at March 31, 2018 and December 31, 2017, respectively. The Company estimated the fair value of the Company's mortgage loans payable at $26,231,379 and $26,610,378 as of March 31, 2018 and December 31, 2017, 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 $2,400,000 as of March 31, 2018 and December 31, 2017.
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 three months ended March 31, 2018 and 2017.

NOTE 5 — RENTALS UNDER OPERATING LEASES

As of March 31, 2018 and 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. All leases at the Company's properties have been classified as operating leases. The Company's rental and other property income from its real estate investments for the three months ended March 31, 2018 and 2017 is comprised of the following:
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Rental revenue
$
4,335,607

 
$
3,447,915

Straight-line revenue
(555,830
)
 
310,895

Above- and below-market lease amortization, net
70,775

 
63,878

Lease incentive amortization
(25,555
)
 
(25,555
)
Rental and other property income
$
3,824,997

 
$
3,797,133

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 months ended March 31, 2018 and 2017 are shown below.

13

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


 
 
Percent of actual gross rental revenues
Property
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Allied Drive, Dedham, MA
 
17.4
%
 
16.5
%
Loudoun Gateway, Sterling, VA
 
17.2

 
18.3

Flats at Carrs Hill, Athens, GA
 
16.8

 
17.2

Anaheim Hills Office Plaza, Anaheim, CA
 
12.7

 
12.1

Terra Nova Plaza, Chula Vista, CA
 
12.2

 
11.9

Commerce Corner, Logan Township, NJ
 
10.4

 
10.2

Total
 
86.7
%
 
86.2
%
 
 
 
 
 
 
 
Percent of actual gross rental revenues
Tenant
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Orbital ATK Inc. - Loudoun Gateway
 
17.2
%
 
18.3
%
New England Baptist Hospital - Allied Drive
 
14.7

 
13.9

Total
 
31.9
%
 
32.2
%
 
The Company's tenants representing more than 10% of in-place annualized base rental revenues as of March 31, 2018 and 2017 were as follows:
 
 
Percent of in-place annualized base rental revenues as of
Property
 
March 31, 2018
 
March 31, 2017
Orbital ATK Inc. - Loudoun Gateway
 
20.3
%
 
18.7
%
New England Baptist Hospital - Allied Drive
 
11.3

 
10.7

Total
 
31.6
%
 
29.4
%

NOTE 6 — MARKETABLE SECURITIES
The following is a summary of the Company's marketable securities held as of March 31, 2018 and December 31, 2017, which consisted entirely of publicly-traded shares of common stock in REITs as of each date. All marketable securities held as of December 31, 2017 were available-for-sale securities and none were considered impaired on an other-than-temporary basis. Pursuant to ASU 2016-01 adopted by the Company (see Note 2), beginning on January 1, 2018, changes in fair value of the Company's investments in marketable securities are recorded in earnings.
 
March 31, 2018
 
December 31, 2017
Marketable securities—cost
$
10,586,097

 
$
9,310,538

   Unrealized gains
457,318

 
832,651

   Unrealized losses
(222,197
)
 
(97,012
)
Net unrealized gain
235,121

 
735,639

Marketable securities—fair value
$
10,821,218

 
$
10,046,177


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 March 31, 2018 and 2017, marketable securities sold

14

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


generated proceeds of $4,000,182 and $2,840,534, respectively, resulting in gross realized gains of $79,180 and $137,206, respectively, and gross realized losses of $332,660 and $82,504, respectively.

NOTE 7 — 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 had 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. As of December 31, 2017, the outstanding balance was $63,100,000 and the weighted average interest rate was 3.16%. As of December 31, 2017, the maximum borrowing capacity was $69,900,795, and the Company was in compliance with all covenants.

On February 27, 2018, the Company, as guarantor, and certain of the wholly-owned subsidiaries of the Operating Partnership, as co-borrowers, entered into an amended and restated secured revolving credit facility (the “Revised Wells Fargo Line of Credit”) with Wells Fargo Bank, National Association, as administrative agent, and other lending institutions that may become parties to the credit agreement. The Revised Wells Fargo Line of Credit has a three-year term maturing February 27, 2021. The Company has two one-year extension options following the initial term subject to satisfaction of certain conditions and payment of applicable extension fees.
The interest rate under the Revised Wells Fargo Line of Credit is based on the 1-month LIBOR with a spread of 160 to 180 basis points depending on the debt yield as defined in the agreement. In addition, the Revised 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 $200,000,000 upon satisfaction of specified conditions. Each requested expansion must be for at least $25,000,000 and may result in the Revised Wells Fargo Line of Credit being syndicated. As of March 31, 2018, the outstanding balance was $62,400,000 and the weighted average interest rate was 3.38%.

At any time, the borrowing capacity under the Revised 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 10% based on the in-place net operating income of the collateral pool as defined, or (3) the maximum capacity of the Revised Wells Fargo Line of Credit. Proceeds from the Revised 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 March 31, 2018, the Company's maximum borrowing capacity was $75,186,201.

The Revised 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 March 31, 2018.

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.


15

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


Hartford Life Insurance Loan

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 line of credit and mortgage loans payable as of March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
December 31, 2017
Line of credit
$
62,400,000

 
$
63,100,000

Deduct: Deferred financing costs, less accumulated amortization
(478,137
)
 
(77,939
)
Line of credit, net
$
61,921,863

 
$
63,022,061

 
 
 
 
Mortgage loans payable
$
27,500,000

 
$
27,500,000

Deduct: Deferred financing costs, less accumulated amortization
(236,738
)
 
(245,569
)
Mortgage loans payable, net
$
27,263,262

 
$
27,254,431

Aggregate future principal payments of mortgage loans payable as of March 31, 2018 are as follows:
Year
 
Amount
Remainder of 2018
 
$

2019
 
253,331

2020
 
262,106

2021
 
271,185

2022
 
280,578

Thereafter
 
26,432,800

Total
 
$
27,500,000


NOTE 8 — 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, 2019. 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 comprised of two components as described below.

16

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


1.
The fixed component accrues daily in an amount equal to 1/365th of 1.0% of the NAV of the outstanding shares of each class of common stock 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 common stock 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 (the “Hurdle Amount”), RREEF America will receive up to 10% of the aggregate total return allocable to such class with a Catch-Up (defined below) calculated as follows: first, if the total return for the applicable period exceeds the Hurdle Amount, 25% of such total return in excess of the Hurdle Amount (the “Excess Profits”) until the total return reaches 10% (commonly referred to as a “Catch-Up”); and second, to the extent there are remaining Excess Profits, 10% of such remaining Excess Profits. 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 performance component is calculated daily on a year-to-date basis by reference to a proration of the per annum hurdle as of the date of calculation. Any resulting performance component as of a given date is deducted from the published NAV per share for such date. At each interim balance sheet date, the Company considers the estimated performance component that is probable to be due as of the end of the current calendar year in assessing whether the calculated performance component as of the interim balance sheet date meets the threshold for recognition in accordance with GAAP in the Company's consolidated financial statements. The ultimate amount of the performance component as of the end of the current calendar year, if any, may be more or less than the amount recognized by the Company as of any interim date and will depend on a variety of factors, including but not limited to, the performance of the Company's investments, interest rates, capital raise and redemptions. The Company considers the estimated performance component as of March 31, 2018 to not be sufficiently probable to warrant recognition of the calculated performance component as of March 31, 2018 in the Company's consolidated financial statements. The fixed component earned by RREEF America, and the calculated performance component recognized by the Company, for the three months ended March 31, 2018 and 2017, are shown below.
 
Three Months Ended March 31,
 
2018
 
2017
Fixed component
$
279,455

 
$
247,348

Performance component

 

 
$
279,455

 
$
247,348


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 March 31, 2018 and 2017, RREEF America incurred $82,138 and $64,951 of reimbursable operating expenses and offering costs, respectively, that were subject to reimbursement under the Advisory Agreement. As of March 31, 2018 and December 31, 2017, the Company had a payable to RREEF America of $128,336 and $58,874, respectively, of operating expenses and offering costs reimbursable under the Advisory Agreement.

17

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)



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 March 31, 2018 and 2017, the Company reimbursed RREEF America $227,628 and $227,628, respectively.
The amount of Deferred O&O payable to RREEF America is shown below.
 
 
March 31, 2018
 
December 31, 2017
Total Deferred O&O
 
$
4,618,318

 
$
4,618,318

Cumulative reimbursements made to RREEF America
 
(3,917,730
)
 
(3,690,102
)
Remaining Deferred O&O reimbursable to RREEF America
 
$
700,588

 
$
928,216


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 date upon which the aggregate Expense Payments by RREEF America exceed $9,200,000. As of 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. The Company has not received any Expense Payments since December 31, 2015.
In accordance with the Expense Support Agreement, the Company was to reimburse RREEF America $250,000 per quarter (the "Quarterly Reimbursement"), representing a non-interest bearing note due to RREEF America ("Note to Affiliate") which was subject to the imputation of interest. In accordance therewith, on 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.
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 in the form of the Note to Affiliate. 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

18

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


an interest rate of 1.93%. For the three months ended March 31, 2018 and 2017, the Company amortized $36,021 and $35,331, 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

On July 1, 2016, the Company and its Operating Partnership entered into a new dealer manager agreement (the "Dealer Manager Agreement") with DWS Distributors, Inc. (formerly known as Deutsche 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 March 31, 2018 and December 31, 2017, the Company has accrued $69,469 and $67,279, respectively, in Trailing Fees currently payable to the Dealer Manager, and $2,284,367 and $2,238,576, 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 months ended March 31, 2018 and 2017, the Dealer Manager earned upfront selling commissions and upfront dealer manager fees totaling $33,133 and $17,062, 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 or the Dealer Manager, 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 months ended March 31, 2018 and 2017, the Dealer Manager incurred $103,000 and $66,203, respectively, in such costs on behalf of the Company. As of March 31, 2018 and December 31, 2017, the Company had payable to the Dealer Manager $425,145 and $315,622, 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.

19

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


 
Deferred O&O - RREEF America
 
Expense Payments - O&O Portion
 
Other organization and offering costs (1)
 
Total organization and offering costs
Balance, March 31, 2018 and December 31, 2017
$
4,618,318

 
$
3,775,369

 
$
7,031,029

 
$
15,424,716

(1) Includes $1,218,323 and $1,355,890 of estimated accrued Trailing Fees payable in the future as of March 31, 2018 and December 31, 2017, respectively.

As of March 31, 2018, in the Follow-On Public Offering, the Company had raised $30,975,531 in gross proceeds and incurred total organization and offering costs of $3,792,781, including estimated accrued Trailing Fees payable in the future of $1,066,044.
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, 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 March 31, 2018, total operating expenses of the Company were $3,494,075 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 March 31, 2018 and December 31, 2017, the Company owed its affiliates the following amounts:
 
March 31, 2018
 
December 31, 2017
Deferred O&O
$
700,588

 
$
928,216

Reimbursable under the Advisory Agreement
128,336

 
58,874

Reimbursable under the Dealer Manager Agreement
425,145

 
315,622

Advisory fees
97,339

 
766,624

Accrued Trailing Fees
2,353,836

 
2,305,855

Due to affiliates
$
3,705,244

 
$
4,375,191

 
 
 
 
Note to Affiliate
$
8,950,000

 
$
8,950,000

Unamortized discount
(1,473,732
)
 
(1,509,753
)
Note to Affiliate, net of unamortized discount
$
7,476,268

 
$
7,440,247


NOTE 9 — 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 board of directors is authorized to amend its charter from time

20

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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. 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.

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

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

21

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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 months ended March 31, 2018 and 2017, redemptions were as shown below. The Company funded these redemptions with cash flow from operations, proceeds from its public offerings or borrowings on the line of credit. The weighted average redemption prices are shown before allowing for any applicable 2% short-term trading discounts.
Three Months Ended March 31, 2018
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
64,468

 
$
13.72

 
$
884,603

Class I
 
53,455

 
13.82

 
738,490

Class T
 

 

 


Three Months Ended March 31, 2017
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
31,107

 
$
13.34

 
$
413,761

Class I
 
37,851

 
13.45

 
509,119

Class T
 
4,043

*
15.29

 
61,818

* Repurchased in Private Transactions

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

22

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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 10 - 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. RREEF America may earn a performance component of the advisory fee (see Note 8) which may impact the net earnings or loss of each class of common stock differently. The calculated performance component for three months ended March 31, 2018 and 2017, and the impact on each class of common stock, are shown below. 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.
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.



Three Months Ended March 31, 2018


Class A

Class I

Class T
Basic and diluted net loss per share:






 
Allocation of net loss before performance fee
 
$
(565,922
)
 
$
(685,707
)
 
$
(12,173
)

Allocation of performance fees







Total Numerator

$
(565,922
)

$
(685,707
)

$
(12,173
)

Denominator - weighted average number of common shares outstanding

3,686,669


4,467,002


79,305

Basic and diluted net loss per share:

$
(0.15
)

$
(0.15
)

$
(0.15
)











Three Months Ended March 31, 2017


Class A

Class I

Class T
Basic and diluted net loss per share:






 
Allocation of net loss before performance fee
 
$
(187,273
)
 
$
(196,386
)
 
$
(85
)

Allocation of performance fees







Total Numerator

$
(187,273
)

$
(196,386
)

$
(85
)

Denominator - weighted average number of common shares outstanding

3,650,176


3,827,801


1,662

Basic and diluted net loss per share:

$
(0.05
)

$
(0.05
)

$
(0.05
)

NOTE 11 — 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

23

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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.
Shown below are details of the Company's distributions for the three months ended March 31, 2018 and 2017.
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Declared daily distribution rate, before adjustment for class-specific fees
$
0.00189004

 
$
0.00183555

Distributions paid or payable in cash
$
780,511

 
$
716,755

Distributions reinvested
619,468

 
518,614

Distributions declared
$
1,399,979

 
$
1,235,369

Class A Shares issued upon reinvestment
22,714

 
23,567

Class I Shares issued upon reinvestment
21,479

 
15,152

Class T Shares issued upon reinvestment
678

 


Shown below are details by share class of the Company's distributions for the three months ended March 31, 2018 and 2017 .
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
Class A
$
593,300

 
$
572,184

Class I
794,033

 
662,918

Class T
12,646

 
267

Distributions declared
$
1,399,979

 
$
1,235,369


NOTE 12 — 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.

24

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)



Net worth and similar taxes paid to certain states where the Company owns real estate properties were $6,700 and $1,256 for the three months ended March 31, 2018 and 2017, respectively.

NOTE 13 — SEGMENT INFORMATION

For the three months ended March 31, 2018 and 2017, 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 March 31, 2018 and December 31, 2017 and net loss for the three months ended March 31, 2018 and 2017.
 
 
Real Estate Properties
 
Real Estate Equity Securities
 
Total
Carrying value as of March 31, 2018
$
148,924,099

 
$
10,821,218

 
$
159,745,317

 
 
 
 
 
 
 
Reconciliation to total assets of March 31, 2018
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
159,745,317

 
Corporate level assets
 
 
 
 
8,778,480

 
Total assets
 
 
 
 
$
168,523,797

 
 
 
 
 
 
 
Carrying value as of December 31, 2017
$
150,923,848

 
$
10,046,177

 
$
160,970,025

 
 
 
 
 
 
 
Reconciliation to total assets of December 31, 2017
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
160,970,025

 
Corporate level assets
 
 
 
 
8,346,307

 
Total assets
 
 
 
 
$
169,316,332



25

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


Three Months Ended March 31, 2018
Real Estate Properties

Real Estate Equity Securities

Total
Rental and other property income
$
3,824,997

 
$

 
$
3,824,997

Tenant reimbursement income
678,523

 

 
678,523

Investment income on marketable securities

 
88,852

 
88,852

Total revenues
4,503,520

 
88,852

 
4,592,372

Segment operating expenses
1,412,493

 
11,279

 
1,423,772

Net realized loss upon sale of marketable securities

 
(253,480
)
 
$
(253,480
)
Net unrealized loss on investment in marketable securities(1)

 
(500,518
)
 
(500,518
)
Operating income (loss) - segments
$
3,091,027

 
$
(676,425
)
 
$
2,414,602

(1) Net unrealized gain or loss on investment in marketable securities included pursuant to adoption of ASU 2016-01. See Note 2.
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
 
 
 
Rental and other property income
$
3,797,133

 
$

 
$
3,797,133

Tenant reimbursement income
537,200

 

 
537,200

Investment income on marketable securities

 
43,876

 
43,876

Total revenues
4,334,333

 
43,876

 
4,378,209

Segment operating expenses
1,351,130

 
9,461

 
1,360,591

Net realized gain upon sale of marketable securities

 
54,702

 
54,702

Operating income - segments
$
2,983,203

 
$
89,117

 
$
3,072,320

 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
Reconciliation to net loss
 
 
2018
 
2017
Operating income - segments

 
$
2,414,602

 
$
3,072,320

General and administrative expenses
 
 
(499,726
)
 
(373,669
)
Advisory expenses
 
 
(279,455
)
 
(247,348
)
Depreciation
 
 
(1,088,869
)
 
(1,081,321
)
Amortization
 
 
(906,804
)
 
(928,247
)
Operating (loss) income
 
 
(360,252
)
 
441,735

Interest expense
 
 
(903,550
)
 
(825,479
)
Net loss
 
 
$
(1,263,802
)
 
$
(383,744
)
 
 
 
 
 
 
 
NOTE 14 — 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.
NOTE 15 — COMMITMENTS AND CONTINGENCIES

26

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
March 31, 2018
(Unaudited)


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 16 — SUBSEQUENT EVENTS

On April 2, 2018, the Company disclosed that its board of directors declared a daily cash distribution equal to $0.00190140 per share of common stock (before adjustment for applicable class-specific fees) for all such shares of record on each day from April 1, 2018 through June 30, 2018. As of April 1, 2018, there were no Class D Shares or Class N Shares outstanding.




27


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, 2017. 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

28


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, 2017.

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 apartment 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, 2019.

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 offering terminated on July 1, 2016. We raised a total of $102,831,442 in proceeds from our initial 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 DWS Distributors, Inc. (formerly known as Deutsche 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 Property Portfolio
    
As of March 31, 2018, we owned eight properties diversified across geography and sector, including one medical office property and one student housing (a subset of apartment). Excluding The Flats at Carrs Hill, our

29


apartment property with leases that roll over every year, as of March 31, 2018, our weighted average remaining lease term was 6.4 years. The following table sets forth certain additional information about the properties we owned as of March 31, 2018:
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

 
66.2

   Loudoun Gateway
 
Sterling, VA
 
102,015

 
1

 
100.0

Allied Drive
 
Dedham, MA
 
64,127

 
5

 
100.0

Office Total
 
 
 
334,267

 
10

 
92.5

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

 
5

 
100.0

   Terra Nova Plaza
 
Chula Vista, CA
 
96,114

 
2

 
100.0

Retail Total
 
 
 
126,875

 
7

 
100.0

Industrial Property
 
 
 
 
 
 
 
 
   Commerce Corner
 
Logan Township, NJ
 
259,910

 
2

 
100.0

Industrial Total
 
 
 
259,910

 
2

 
100.0

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

 
138

 
100.0

Apartment Total
 
 
 
135,864

 
138

 
100.0

Grand total
 
 
 
856,916

 
19/138

 
97.1
%
            
(1) Occupancy is based on executed leases as of March 31, 2018.
(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 March 31, 2018, our real estate equity securities portfolio consisted of publicly-traded common stock of 39 REITs with a value of $10,821,218. 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 March 31, 2018:


30


chart-371ea283585d98abd53.jpg
As of March 31, 2018, our top ten holdings in our real estate equity securities portfolio were as follows:

Security
 
Percent of Securities Portfolio
Prologis, Inc.
 
6.9
%
Simon Property Group, Inc.
 
6.9

Alexandria Real Estate Equities, Inc.
 
5.3

Extra Space Storage, Inc.
 
4.6

Camden Property Trust
 
4.4

Equinix, Inc.
 
4.3

Douglas Emmett, Inc.
 
4.0

Equity Lifestyle Properties
 
3.8

Equity Residential
 
3.8

CubeSmart
 
3.7

Total
 
47.7
%

Market Outlook

U.S. real estate started 2018 on a positive note. After slipping in 2016, unlevered core real estate returns stabilized in 2017 and edged higher, to 7.1% (trailing four quarters) in the first quarter of 2018, as represented by the National Council of Real Estate Investment Fiduciaries ("NCREIF") Property Index ("NPI"). Further, according to NCREIF, capitalization rates, or yields, were relatively stable as persistent institutional demand offset pressure from rising interest rates. We believe capital gains were well supported by underlying cash flows, which, according to

31


NCREIF, increased 3.5% (year-over-year, four-quarter moving average) as occupancy rates settled near 16-year highs.

We believe that the asset class is positioned to deliver attractive returns through at least 2019. Since the early 1950s (the earliest data available), U.S. commercial real estate prices have never materially declined outside of an economic downturn, per the Federal Reserve (real estate prices) and National Bureau of Economic Research (recession dates). In our view, fiscal stimulus and a strong global economy have buoyed America’s growth prospects, and leading indicators such as the yield curve continue to signal little risk of recession (while the yield curve has flattened as the Federal Reserve has hiked short-term rates, it remains upward sloping). Accordingly, we believe that the likelihood of a drop in commercial real estate prices over the next two years is low.

Reasons for optimism stem primarily from the fundamentals: in our view, job creation should continue to stimulate occupational demand for apartments, offices, retail property, and warehouses. Meanwhile, according to the Bureau of Labor Statistics and the Bureau of Economic Analysis, construction starts have started to ebb, due in part to labor shortages as well as rising commodity prices (exacerbated by tariffs on lumber, steel, and aluminum). We expect that 2018 will mark the peak year for new supply in this cycle, leading to lower deliveries in subsequent years. Set against a backdrop of low existing vacancy rates (according to NCREIF), this combination of steady or improving demand and constrained new supply should, in our view, continue to drive solid rent growth.

While the outlook is generally bright, the skies are not entirely clear. Specifically, we believe rising interest rates are a potential headwind to valuations. At least in theory, a rising cost of capital can weigh on demand from levered investors (higher debt costs), listed REITs (lower share prices), and foreigners (increased currency-hedging costs). Yet perhaps counterintuitively, evidence from NCREIF and the Federal Reserve indicates that real estate has historically displayed little correlation with interest rates, which we believe results from any adverse effects being offset by positive impulses, such as stronger economic growth (which promote occupational demand) or inflation (which draw investors to hard assets). In a similar vein, we believe that a mix of strong fundamentals and rising interest rates will translate into moderate, income-driven returns.

We believe broad real estate trends mask substantial disparities across sectors and geographies. Per CBRE Econometric Advisors, at a sector level, industrial remains a star performer, as we estimate that e-commerce is generating occupational demand that is 40%-50% above levels we would expect given economic growth alone. Further, CBRE Econometric Advisors notes that while developers are building inventory to meet this need in the national distribution hubs (i.e., Chicago, Dallas, Atlanta, and the Inland Empire), conditions remain tight in most other markets. We believe the office sector faces headwinds from corporate densification as well as new supply in a handful of markets, and with unemployment plumbing generational lows, the scope for gains in office-using employment may be limited. In our view, retail and apartments are mixed, in that e-commerce is an existential threat to commodity-heavy retail formats (including malls and power centers) in demographically weak locations, but convenience and service oriented centers should continue to hold up better. Further, we believe that although the apartment sector has been saddled with excess supply, a gradual pullback in new construction, coupled with support from tax reform (which reduced breaks for homeownership), have improved the sector’s prospects.

From a geographic perspective, we believe that certain markets have the potential to deliver outsized returns. In our view, large coastal cities have outperformed over the long term thanks to their density, which has facilitated superior rent and price appreciation over time. Indeed, we expect that Los Angeles and Boston will fare well, supported by dynamic technology industries. However, we believe prices and construction in New York, Washington D.C., and San Francisco have increased to levels that diminish their near-term return prospects (although there are important exceptions, such as New York industrial property). We believe that at this juncture, more attractive opportunities may be found in Seattle and Portland, as well as Sunbelt markets with strong demographics, including Texas, Florida, and Atlanta.

Results of Operations

Since our inception on May 30, 2013, we have acquired eight properties and invested in real estate equity securities as described above under "Portfolio Information." We expect to continue to raise additional capital,

32


increase our borrowings and make future investments in our targeted segments of real estate properties, real estate equity securities and real estate loans, which we believe will have a significant impact on our future results of operations.

We review our stabilized operating results, measured by contractual rental revenue, including tenant reimbursement income, less property operating expenses, which we refer to as net operating income, for properties that we owned for the entirety of both the current and prior year reporting periods, which we refer to as “same store” properties. We believe that net operating income, a non-GAAP financial measure, in combination with net loss and cash flows from operating activities, as defined by GAAP, is a useful supplemental performance measure that helps us evaluate our operating performance. We believe this metric is useful to our stockholders and other users of our reports because it provides additional information regarding our property acquisitions and their impact on our portfolio. Net operating income should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and is not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information, and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations.

Three Months Ended March 31, 2018 and 2017

All eight properties were owned for the entirety of both the three months ended March 31, 2018 and 2017, and therefore all properties are same store properties. As such, for simplicity, references to same store and non-same store portfolio in the table, discussion and analysis below have been removed. The following table illustrates the changes in property operating revenues, property operating expenses, and net operating income for the three months ended March 31, 2018 and 2017. For purposes of comparative analysis, the table below reconciles the net operating income to net loss determined in accordance with GAAP for the three months ended March 31, 2018 and 2017.


33


 
Three Months Ended March 31,
 
 
 
2018
 
2017
 
Change
Property operating revenue
 
 
 
 
 
Contractual rental revenue and other property income
$
4,335,607

 
$
3,447,915

 
$
887,692

Tenant reimbursement income
678,523

 
537,200

 
141,323

Total property operating revenue
5,014,130

 
3,985,115

 
1,029,015

 
 
 
 
 
 
Total property operating expenses
1,412,493

 
1,351,130

 
61,363

 
 
 
 
 
 
Total net operating income
3,601,637

 
2,633,985

 
967,652

 
 
 
 
 
 
Adjustments to property operating revenue
 
 
 
 
 
     Straight line adjustment
(555,830
)
 
310,895

 
(866,725
)
Amortization of above- and below-market lease intangibles, net
70,775

 
63,878

 
6,897

Amortization of lease incentive
(25,555
)
 
(25,555
)
 

Depreciation
(1,088,869
)
 
(1,081,321
)
 
(7,548
)
Amortization
(906,804
)
 
(928,247
)
 
21,443

General and administrative expenses
(511,005
)
 
(383,130
)
 
(127,875
)
Advisory fees
(279,455
)
 
(247,348
)
 
(32,107
)
Interest expense
(903,550
)
 
(825,479
)
 
(78,071
)
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
Investment income on marketable securities
88,852

 
43,876

 
44,976

Net realized (loss) gain on marketable securities
(253,480
)
 
54,702

 
(308,182
)
Net unrealized loss on marketable securities
(500,518
)
 

 
(500,518
)
Net loss
$
(1,263,802
)
 
$
(383,744
)
 
$
(880,058
)

Property Operations

Our total net operating income for the three months ended March 31, 2018 and 2017 reflects all eight properties in the portfolio. Property operating revenue for the three months ended March 31, 2018 increased from the same period in 2017 primarily due to lease modification income of $742,000 related to the modification of the lease with Gateway One Lending and Finance at our Anaheim Hills Office Plaza property. In this modification, Gateway One Lending and Finance reduced their occupied space from 50,000 square feet to 25,000 square feet. In addition, property operating revenue for the three months ended March 31, 2018 includes approximately $156,000 more rental revenue for Dick's Sporting Goods, Inc. at Terra Nova Plaza as compared to the 2017 period as this tenant's lease provided free rent until March 2017. Tenant reimbursement income for the three months ended March 31, 2018 was higher than the three months ended March 31, 2017 due to higher operating expenses in 2018 being

34


reimbursed by tenants at Terra Nova Plaza, Commerce Corner, and Allied Drive. In addition, as noted above, Dick's Sporting Goods, Inc. was not paying tenant reimbursement income until March 2017.

Property operating expenses for the three months ended March 31, 2018 increased from the same period in 2017 primarily due to higher costs at The Flats at Carrs Hill for marketing, higher engineering payroll costs at Anaheim Hills Office Plaza due to the addition of a full-time engineer, increased utilities expenses generally, and higher administrative costs at Allied Drive.

Straight Line Adjustment

The change in the straight line rent adjustment for the three months ended March 31, 2018 compared to the 2017 period was due to the aforementioned $742,000 of lease modification income received from Gateway One Lending and Finance in the first quarter of 2018 which is being recognized on a straight line basis over the remaining term of the lease under GAAP.
    
Lease Intangible Amortization

During the three months ended March 31, 2018, the net amount of above- and below-market lease amortization is higher than the same period in 2017 primarily due to the rollover of an acquired lease at Anaheim Hills Office Plaza into a renewal period. Lease incentive amortization represents amortization of the lease incentive paid to Dick's Sporting Goods, Inc.

Depreciation and Amortization

The depreciation and amortization on properties remained consistent in the 2018 period compared to the 2017 period since there were limited changes in the investment basis.

General and Administrative

Our general and administrative expenses include a variety of corporate expenses, the largest of which were directors and officers insurance, audit fees, professional fees and independent director compensation. The amount for the three months ended March 31, 2018 increased from the same periods in 2017 primarily due to the 2017 reimbursement by RREEF America of approximately $149,000 for total operating expenses, as defined in our charter, that were in excess of the 2%/25% guidelines for the four fiscal quarters ended December 31, 2016. Excluding the reimbursement, general and administrative expenses decreased due to lower costs including legal and audit fees, slightly offset by an increase in professional fees.

Advisory Fees

The fixed component of the advisory fee pursuant to the advisory agreement is equal to 1% per annum of the NAV for each share class and is calculated and accrued daily and reflected in our NAV per share. For the three months ended March 31, 2018 and 2017, the advisory fee was comprised of the fixed and performance components. The fixed component of the advisory fee was higher in the 2018 period compared to the 2017 period which is commensurate with the overall increase in our NAV, as we continue to raise and invest capital.

In accordance with our advisory agreement, our advisor can earn the performance component of the advisory fee when the total return to stockholders exceeds a required 6% per annum hurdle. The performance component is calculated separately for each share class and is comprised of the distributions paid to stockholders in each share class combined with the change in price of each share class. For any calendar year in which the total return per share allocable to a class exceeds 6% per annum (the “Hurdle Amount”), RREEF America will receive up to 10% of the aggregate total return allocable to such class with a Catch-Up (defined below) calculated as follows: first, if the total return for the applicable period exceeds the Hurdle Amount, 25% of such total return in excess of the Hurdle Amount (the “Excess Profits”) until the total return reaches 10% (commonly referred to as a “Catch-Up”); and second, to the extent there are remaining Excess Profits, 10% of such remaining Excess Profits. The performance

35


component of the advisory fee is payable annually based on the results for the entire calendar year. The actual performance component that our advisor could earn in the current calendar year depends on several factors, including but not limited to the performance of our investments, our expenses and interest rates. No performance component of the advisory fee was recognized in accordance with GAAP for the three months ended March 31, 2018 and 2017.

Interest Expense

The increase in interest expense in the three months ended March 31, 2018 over the same periods in 2017 was primarily due to higher LIBOR rates in the 2018 period, despite decreases in the weighted average outstanding aggregate loan balances. The weighted average outstanding aggregate loan balances were $62,583,333 and $65,200,000 for the three months ended March 31, 2018 and 2017, respectively. In addition, 1-month LIBOR rate increased approximately 89 basis points in the past 12 months which increased the interest expense on our line of credit. The all-in interest rates on the Wells Fargo line of credit averaged approximately 3.26% and 2.52% for the three months ended March 31, 2018 and 2017, respectively. The overall increase was partially offset by decreased amortization of loan financing costs. We expect our interest expense to increase in future periods because we anticipate acquiring additional properties with borrowings in the future, both by utilizing additional property-specific debt as a form of permanent financing along with continuing to use the line of credit.

Marketable Securities

During the three months ended March 31, 2018, we invested an additional $1,500,000 into our real estate securities portfolio, which when combined with the $1,000,000 invested in the third quarter of 2017, increased our cost basis for the three months ended March 31, 2018 by approximately 29% when compared to the three months ended March 31, 2017. The increase in investment income for the three months ended March 31, 2018 compared to the 2017 period is due in part to the larger investment basis, but also to certain securities providing larger dividend amounts during 2018. Our portfolio of investments in publicly-traded REIT securities is actively managed and thus is regularly adjusted by increasing and decreasing specific holdings primarily based upon changes in sector allocations and to a lesser degree based upon performance of specific securities. These continual portfolio refinements generate realized gains and losses by using the highest cost method whereby a sale of any particular security is first attributed to the shares of that security with the highest cost basis. The REIT securities market was near a peak at the end of 2017 and into January 2018, and portfolio refinements made during the subsequent declines in the REIT securities market during February and March 2018 lead to net realized and unrealized losses for the three months ended March 31, 2018.

Pursuant to the adoption of Accounting Standards Update 2016-01, net unrealized gains and losses on our investments in marketable securities are now recognized in the consolidated statement of operations beginning January 1, 2018. Previously, such amounts were recognized as part of other comprehensive loss. The net unrealized loss for the three months ended March 31, 2018 was significantly larger than the net unrealized loss for the three months ended March 31, 2017 due to the aforementioned general market malaise during the 2018 period.

Inflation

The real estate property sector has not been affected significantly by inflation in the past several years due to the relatively low inflation rate. With the exception of leases with tenants in apartment properties, we will seek to include provisions in our tenant leases designed to protect us from the impact of inflation. These provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases, annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market. Leases in apartment properties generally turn over on an annual basis and do not typically present the same concerns regarding inflation protection due to their short-term nature.

NAV per Share


36


Our NAV per share is calculated in accordance with the valuation guidelines approved by our board of directors for the purposes of establishing a price for shares sold in our public offering as well as establishing a redemption price. The following table provides a breakdown of the major components of our total NAV and NAV per share as of March 31, 2018:
Components of NAV
 
Total NAV
 
Per Class A Share

Per Class I Share
 
Per Class T Share
Investments in real estate (1)
 
$
193,000,000

 
$
22.98


$
23.14


$
23.05

Investments in real estate equity securities (2)
 
10,821,218

 
1.29


1.30


1.29

Other assets, net
 
5,780,864

 
0.68


0.70


0.66

Line of credit
 
(62,400,000
)
 
(7.43
)

(7.48
)

(7.45
)
Mortgage loans payable
 
(27,500,000
)
 
(3.27
)

(3.30
)

(3.28
)
Other liabilities, net
 
(3,581,554
)
 
(0.42
)

(0.43
)

(0.41
)
Net asset value
 
$
116,120,528

 
$
13.83

 
$
13.93

 
$
13.86

Note: No Class D or Class N shares were outstanding as of March 31, 2018.
 
 
            
(1)
The value of our investments in real estate was approximately 12.3% more than their historical cost.
(2)
The value of our investments in real estate securities was approximately 2.2% more than their historical cost.

The table below sets forth a reconciliation of our stockholders' equity to our NAV, which we calculate for the purpose of establishing the purchase and redemption price for our shares, as of March 31, 2018.
 
Total NAV
 
Per Class A Share

Per Class I Share

Per Class T Share
Total stockholders' equity
$
59,893,310

 
$
7.15

 
$
7.19

 
$
7.14

Plus:


 

 
 
 
 
   Unrealized gain on real estate investments
21,187,199

 
2.52

 
2.54

 
2.53

   Accumulated depreciation
12,776,637

 
1.52

 
1.53

 
1.53

   Accumulated amortization
13,556,722

 
1.61

 
1.63

 
1.62

   Deferred costs and expenses
10,098,887

 
1.20


1.21


1.21

Less:

 

 

 

   Deferred rent receivable
(1,392,227
)
 
(0.17
)

(0.17
)

(0.17
)
Net asset value
$
116,120,528

 
$
13.83

 
$
13.93

 
$
13.86

Note: No Class D or Class N shares were outstanding as of March 31, 2018.
 
 

With respect to the unrealized gain on real estate investments reflected above, as of March 31, 2018, all properties had been appraised by a third-party appraisal firm in addition to our independent valuation advisor. Set forth below are the weighted averages of the key assumptions used in the appraisals of the office and retail properties as of March 31, 2018. Once we own more than one property for each of the industrial and apartment property types, we will include the key assumptions for these property types.
 
Discount Rate
 
Exit Capitalization Rate
Office properties
7.52%
 
6.54%
Retail properties
6.50%
 
6.16%

These assumptions are determined by our independent valuation advisor or by separate third-party appraisers. A change in these assumptions would impact the calculation of the value of our property investments. For example,

37


assuming all other factors remain unchanged, an increase in the weighted-average discount rate used as of March 31, 2018 of 0.25% would yield a decrease in the total office property investment value of 1.8% and a decrease in the retail property investment value of 1.8%. Similarly, an increase in the weighted-average exit capitalization rate used as of March 31, 2018 of 0.25% would yield a decrease in the total office property investment value of 2.2% and would yield a decrease in the total retail property investment value of 2.2%.

The deferred costs and expenses of $10,098,887 includes amounts that are initially excluded from the NAV calculation. This includes $7,981,406 payable to our advisor, which is less than the total amount payable to our advisor as reflected on our consolidated balance sheet, because (1) certain amounts payable to our advisor as of March 31, 2018 were recorded as assets and as such have no impact on our NAV as of March 31, 2018, and (2) the amount payable to our advisor as reflected in due to affiliates and note to affiliate on our consolidated balance sheet includes accrued advisory fees and other amounts due under the advisory agreement. The deferred amounts will be included in the NAV calculation as such costs are reimbursed to our advisor, in accordance with the advisory agreement, the expense support agreement and the ESA letter agreement dated April 25, 2016 amending the advisory agreement and expense support agreement (defined below). Through March 31, 2018, we reimbursed our advisor for $3,917,730 of deferred offering costs and expenses, which have been included as a deduction to our NAV calculation in a pro rata amount on a daily basis since these reimbursements began in January 2014. The deferred costs and expenses above additionally includes $2,284,367 in estimated trailing fees that will be deducted from the NAV on a daily basis as and when they become payable to DWS Distributors, Inc., or the dealer manager.

Limitations and Risks

As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different NAV per share. Accordingly, with respect to our NAV per share, we can provide no assurance that:

a stockholder would be able to realize this NAV per share upon attempting to resell his or her shares;
we would be able to achieve, for our stockholders, the NAV per share, upon a listing of our shares of common stock on a national securities exchange, selling our real estate portfolio, or merging with another company; or
the NAV per share, or the methodologies relied upon to estimate the NAV per share, will be found by any regulatory authority to comply with any regulatory requirements.

Furthermore, the NAV per share was calculated as of a particular point in time. The NAV per share will fluctuate over time in response to, among other things, changes in real estate market fundamentals, capital markets activities, and attributes specific to the properties and leases within our portfolio.

Funds from Operations and Modified Funds from Operations

We believe that funds from operations, or FFO, FFO as adjusted and modified funds from operations, or MFFO, in combination with net loss and cash flows from operating activities, as defined by GAAP, are useful supplemental performance measures that we use to evaluate our operating performance. However, these supplemental, non-GAAP measures should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information, and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations. In addition, other REITs may define FFO and similar measures differently and thus choose to treat certain accounting line items in a manner different from us due to differences in investment and operating strategy or for other reasons.

As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO is a non-GAAP supplemental financial performance measure that excludes certain items such as real estate-related depreciation and amortization and the impact of certain non-recurring items such as realized gains and losses on sales of real estate. We believe FFO is a meaningful supplemental financial performance measure of our operating performance that is

38


useful to investors because depreciation and amortization in accordance with GAAP implicitly assume that the value of real estate assets diminishes predictably over time. Additionally, realized gains and losses on sales of real estate generally occur infrequently. As a result, excluding these items from FFO aids our analysis of our ongoing operations. We use FFO as an indication of our operating performance and as a guide to making decisions about future investments.

As defined by the Institute for Portfolio Alternatives, or IPA, MFFO is a non-GAAP supplemental financial performance measure used to assist us in evaluating our operating performance. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Compared to FFO, MFFO additionally excludes items such as acquisition-related costs (if expensed in accordance with GAAP), non-cash amounts related to straight-line rent, amortization of above- and below-market lease intangibles and mark to market valuation adjustments on securities. In addition, there are certain other MFFO adjustments as defined by the IPA that are not applicable to us at this time and are not included in our presentation of MFFO. We believe that excluding acquisition costs from MFFO, if such costs were expensed in accordance with GAAP, provides investors with supplemental performance information that is consistent with our analysis of the operating performance of our portfolio over time, including periods after our acquisition stage.

Effective January 1, 2018, we adopted Financial Accounting Standards Board Accounting Standard Update 2016-01, Financial Statements - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01), which revised the accounting related to the classification and measurement of investments in equity securities. Since our inception and prior to adoption of ASU 2016-01, we accounted for our investments in equity securities as available for sale securities, with unrealized changes in fair value recognized in other comprehensive income or loss. Beginning January 1, 2018, under ASU 2016-01 the net unrealized change in the fair value of our investments in marketable securities for the period presented is recorded in earnings as part of operating income or loss. As a result, under the current NAREIT definition of FFO, the net unrealized change in the fair value of our investments in marketable securities is included in our FFO. Our investment objective with our investments in marketable securities is to generate consistent income while providing an opportunity for long term price appreciation. Additionally, 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 our overall investment portfolio some flexibility with near-term liquidity as well as potentially enhance our NAV over a longer period. The securities portfolio is regularly reviewed and evaluated to determine whether the marketable securities held at any time continue to serve their original intended purposes. In accordance with our objectives, it is our view that providing FFO as adjusted for the net unrealized change in the fair value of our securities portfolio, will enhance an investor's understanding of the impact of our securities portfolio on our ongoing operations. The IPA definition of MFFO includes an adjustment for mark to market valuations on marketable securities, and as such the adoption of ASU 2016-01 had no impact on our MFFO.

We use FFO, MFFO and FFO as adjusted, among other things: (i) to evaluate and compare the potential performance of the portfolio after the acquisition phase is complete, and (ii) as metrics in evaluating our ongoing distribution policy. We believe investors are best served if the information that is made available to them allows them to align their analyses and evaluation with these same performance metrics used by us in planning and executing our business strategy. We believe that these performance metrics will assist investors in evaluating the potential performance of the portfolio after the completion of the acquisition phase. However, these supplemental, non-GAAP measures are not necessarily indicative of future performance and should not be considered as an alternative to net loss or to cash flows from operating activities and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. Neither the SEC, NAREIT, nor any regulatory body has passed judgment on the acceptability of the adjustments used to calculate FFO as adjusted or MFFO. In the future, the SEC, NAREIT, or a regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry at which point we may adjust our calculation and characterization of FFO as adjusted or MFFO.

The following unaudited table presents a reconciliation of net loss to FFO, FFO as adjusted, and MFFO. For comparative purposes, the prior period information is presented both as originally reported, and on a pro forma basis

39


as if ASU 2016-01 was effective in those prior periods.
 
Three Months Ended March 31,
 
2018
 
2017
As reported
 
2017, Pro forma for ASU 2016-01
Net loss
$
(1,263,802
)
 
$
(383,744
)
 
$
(459,677
)
 
 
 
 
 
 
Real estate related depreciation
1,088,869

 
1,081,321

 
1,081,321

Real estate related amortization
906,804

 
928,247

 
928,247

NAREIT defined FFO
731,871

 
1,625,824

 
1,549,891

Net unrealized loss on investments in marketable securities
500,518

 

 
75,933

FFO as adjusted
1,232,389

 
1,625,824

 
1,625,824

 
 
 
 
 
 
Additional adjustments:
 
 
 
 
 
Straight line rents, net
555,830

 
(310,895
)
 
(310,895
)
Amortization of above- and below-market lease intangibles, net
(70,775
)
 
(63,878
)
 
(63,878
)
Amortization of lease incentive
25,555


25,555

 
$
25,555

IPA defined MFFO
$
1,742,999

 
$
1,276,606

 
$
1,276,606


Liquidity and Capital Resources

Our primary needs for liquidity and capital resources are to fund our investments in accordance with our investment strategy and policies, make distributions to our stockholders, redeem shares of our common stock pursuant to our redemption plan, pay our offering and operating fees and expenses and pay interest on any outstanding indebtedness.

Over time, we generally intend to fund our cash needs for items, other than asset acquisitions and material capital improvements, from operations. Our cash needs for acquisitions and material capital improvements will be funded primarily from the sale of shares of our common stock in our offerings, and the amount we may raise in such offerings is uncertain. We commenced our follow-on offering on July 12, 2016. We intend to contribute any additional net proceeds from our offerings that are not used or retained to pay the fees and expenses attributable to our operations to our operating partnership. Since our inception through March 31, 2018, we raised $126,334,197 from the sale of shares of our common stock, of which $10,200,000 of our Class I shares were purchased by RREEF America.

We may also satisfy our cash needs for acquisitions and material capital improvements through the assumption or incurrence of debt. On February 27, 2018 we entered into an amended and restated secured revolving line of credit with Wells Fargo Bank, National Association, which we refer to as the Wells Fargo line of credit. The Wells Fargo line of credit has a three-year term with two one-year extension options exercisable by us upon satisfaction of certain conditions and payment of applicable extension fees. The first extension option becomes exercisable in November 2020. The interest rate under the Wells Fargo line of credit is based on the 1-month LIBOR with a spread of 160 to 180 basis points depending on the debt yield as defined in the agreement. The Wells Fargo line of credit has a current capacity of $100,000,000, and we have the option to expand the Wells Fargo line of credit up to a maximum capacity of $200 million upon satisfaction of specified conditions. Each requested expansion must be for at least $25 million and may result in the Wells Fargo line of credit being syndicated. As of March 31, 2018, the outstanding balance and weighted average interest rate were $62,400,000 and 3.38%, respectively.

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The Wells Fargo line of credit has as co-borrowers certain of the wholly owned subsidiaries of our operating partnership, with the Company serving as the guarantor. 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 10% 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 our redemption plan and for any other corporate purpose. As of March 31, 2018, our maximum borrowing capacity was $75,186,201. 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 the collateral pool must also meet specified concentration provisions, unless waived by the lender. In addition, the guarantor must meet tangible net worth hurdles. As of March 31, 2018, we were in compliance with all covenants.

On March 1, 2016, we, through an indirect wholly-owned subsidiary as borrower, entered into a credit agreement providing for a $14,500,000 secured, fully non-recourse loan with Nationwide Life Insurance Company, or Nationwide. The Nationwide loan is secured by The Flats at Carrs Hill, our 138 unit student housing apartment property in Athens, Georgia. The interest rate for the Nationwide loan is fixed at 3.63% with interest-only payments for the full term of the loan. The maturity date of the Nationwide loan is March 1, 2026 with no extension options. The Nationwide loan permits voluntary prepayment of the full amount of the loan at any time subject to payment of the applicable prepayment premium, which is (a) the greater of a yield maintenance calculation or 1.0% of the principal amount outstanding for prepayments occurring up to and including the 96th month of the term, (b) 2.0% of the principal amount outstanding for prepayments occurring during months 97 through 102 of the term, or (c) 1.0% of the principal amount outstanding for prepayments occurring during months 103 through 114 of the term. The Nationwide loan is prepayable at par during the last six months of the term. Additionally, the Nationwide loan contains a one-time option to be assumed by a new borrower subject to satisfaction, in Nationwide's sole discretion, of specified conditions and payment of a fee equal to 1.0% of the outstanding balance of the loan. Proceeds of $14,500,000 were applied to our initial Wells Fargo line of credit that was originated in March 2015. Prior to closing of the Nationwide loan, The Flats at Carrs Hill served as additional collateral under the initial Wells Fargo line of credit.

On December 1, 2016, we, through an indirect wholly-owned subsidiary as borrower, entered into a credit agreement with Hartford Life Insurance Company, or Hartford. Proceeds of $13,000,000 obtained from Hartford were used to repay outstanding balances under the initial Wells Fargo line of credit, thereby releasing Commerce Corner from the initial Wells Fargo line of credit. The Hartford loan is a secured, fully non-recourse loan with a term of seven years and 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, followed by principal and interest payments for the remainder of the term, based upon a 30-year amortization schedule.

In the future, as our assets increase, it may not be commercially feasible or we may not be able to secure an adequate line of credit to fund acquisitions, redemptions or other needs. Moreover, actual availability may be reduced at any given time if the values of our real estate or our marketable securities portfolio decline.

Expense Payments by Our Advisor
    
In connection with our advisory agreement, RREEF America agreed to pay all of our organization and offering costs through January 3, 2013, and certain of our organization and offering costs through January 3, 2014, all of which were incurred on our behalf and which we refer to as the Deferred O&O. These costs amounted to $4,618,318. The total of the Deferred O&O is being reimbursed to RREEF America on a pro