UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 000-55430

Resource REIT, Inc.

(Exact name of registrant as specified in its charter)

Maryland	88-0854717
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1845 Walnut Street, 17th Floor, Philadelphia, PA 19103

(Address of principal executive offices) (Zip code)

(215) 231-7050

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
		Emerging growth company	☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

As of May 6, 2022, there were 166,259,239 shares of common stock of Resource REIT, Inc., $0.01 par value per share, outstanding.

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RESOURCE REIT, INC.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets – March 31, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Operations - Three Months Ended March 31, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) - Three Months Ended March 31, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2022 and 2021 (unaudited)	6
	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021 (unaudited)	8
	Notes to Consolidated Financial Statements – March 31, 2022 (unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37
PART II	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 6.	Exhibits	40
SIGNATURES		41

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Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events. Factors that could cause actual results to differ materially from these expectations include, but are not limited to, the continuing adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on our financial condition, results of operations, cash flows and performance, particularly our ability to collect rent, the personal financial condition of our tenants and their ability to pay rent, and the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts us and our tenants will depend on future developments, which cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2021 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. In addition, on January 23, 2022, we entered an agreement and plan of merger with Rapids Parent LLC and Rapids Merger Sub LLC, which are affiliates of Blackstone Real Estate Income Trust, Inc. (“BREIT”). The merger agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will be merged with and into Rapids Merger Sub LLC, with Rapids Merger Sub LLC surviving the merger. We can provide no assurances as to the timing of the transaction or whether it will close at all. In addition, the pendency of the merger may adversely affect our business, results of operations and financial condition. Actual results may differ materially from those contemplated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.

See the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC for a discussion of some, although not all, of the risks and uncertainties that could cause actual results to differ materially from those presented in our forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RESOURCE REIT, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except share data)

	March 31, 2022			December 31, 2021
ASSETS
Investments:
Rental properties, net	$	1,860,039		$	1,876,047
Assets held for sale - rental properties		—			150,176
Total investments		1,860,039			2,026,223
Cash		157,325			112,838
Restricted cash		8,670			10,420
Subtotal- cash and restricted cash		165,995			123,258
Tenant receivables, net of allowance of $1,594 and $1,621, respectively		1,049			1,121
Prepaid expenses and other assets		18,438			12,143
Goodwill		154,531			154,531
Total assets	$	2,200,052		$	2,317,276
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	1,150,888		$	1,408,851
Accounts payable and accrued expenses		20,086			22,664
Accrued real estate taxes		11,778			10,960
Tenant prepayments		1,912			2,231
Security deposits		4,615			4,975
Total liabilities	$	1,189,279		$	1,449,681
Equity:
Preferred stock, par value $.01; 10,000,000 shares authorized, none issued		—			—
Common stock, par value $.01; 1,000,000,000 shares authorized; 166,259,239 and 165,766,753 shares issued and outstanding (including 1,439,923 and 1,055,589 of unvested restricted shares, respectively)		1,663			1,658
Convertible stock; par value $.01; 50,000 shares authorized; 50,000 shares issued and outstanding		1			1
Additional paid-in capital		1,328,467			1,328,378
Accumulated other comprehensive income		2,983			262
Accumulated deficit		(322,341	)		(462,704	)
Total stockholders' equity		1,010,773			867,595
Total liabilities and equity	$	2,200,052		$	2,317,276

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

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RESOURCE REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31,
	2022			2021
Revenues:
Rental income	$	60,431		$	53,400
Property management fee income - related parties		—			342
Asset management fee income - related parties		—			833
Other revenue		—			37
Total revenues		60,431			54,612
Expenses:
Property operating expenses		14,582			14,811
Real estate taxes		7,511			7,225
Property management fees - third party		1,577			1,642
Transaction costs		5,013			—
Casualty loss		166			300
General and administrative- Property related		1,245			1,262
General and administrative- Corporate		10,237			7,834
Loss on disposal of assets		170			110
Depreciation and amortization expense		21,081			23,103
Total expenses		61,582			56,287
Loss before net gains on dispositions		(1,151	)		(1,675	)
Net gains on dispositions of properties		161,777			—
Income (loss) before other expenses		160,626			(1,675	)
Other income (expense):
Interest expense		(11,724	)		(14,532	)
Interest income		—			15
Gain on settlement of derivative		1,614			—
Insurance proceeds in excess of cost basis		1,487			18
Total other expense		(8,623	)		(14,499	)
Income (loss) before income taxes		152,003			(16,174	)
Provision for income taxes		—			(203	)
Net income (loss)	$	152,003		$	(16,377	)
Preferred return to preferred OP unit holders		—			(1,120	)
Net income (loss) after preferred return		152,003			(17,497	)
Less: Allocation of income to preferred unit holders attributable to noncontrolling interest		—			59
Less: Net loss attributable to noncontrolling interest		—			865
Net income (loss) attributable to common stockholders	$	152,003		$	(16,573	)
Weighted average common shares outstanding- basic		164,763			135,252
Weighted average common shares outstanding- diluted		165,102			135,252
Net income (loss) per common share- BASIC	$	0.92		$	(0.12	)
Net income (loss) per common share- DILUTED	$	0.92		$	(0.12	)

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

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RESOURCE REIT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2022		2021
Net income (loss)	$	152,003	$	(16,377	)
Other comprehensive income:
Reclassification adjustment for realized loss on designated derivatives		317		45
Designated derivatives, fair value adjustments		2,404		372
Total comprehensive income (loss)		154,724		(15,960	)
Preferred return to preferred OP unit holders		—		(1,120	)
Total comprehensive income (loss) after preferred return to preferred OP unit holders		154,724		(17,080	)
Net loss attributable to noncontrolling interest		—		865
Allocation of income to preferred unit holders attributable to noncontrolling interest		—		59
Total other comprehensive income attributable to noncontrolling interest		—		(22	)
Comprehensive loss attributable to noncontrolling interest		—		902
Comprehensive income (loss) attributable to common stockholders	$	154,724	$	(16,178	)

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

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RESOURCE REIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022

(in thousands)

(unaudited)

	Common Stock		Convertible Stock		Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Total Equity
	Shares	Amount	Shares	Amount
Balance at January 1, 2022	165,767	$1,658	50	$500	$1,328,378	$262	$(462,704)	$867,595
Stock-based compensation	—	—	—	—	900	—	—	900
Issuance of restricted stock	547	5	—	—	(5)	—	—	—
Distributions declared	—	—	—	—	—	—	(11,640)	(11,640)
Common stock redemptions	(55)	—	—	—	(806)	—	—	(806)
Other comprehensive income	—	—	—	—	—	2,721	—	2,721
Net income	—	—	—	—	—	—	152,003	152,003
Balance at March 31, 2022	166,259	$1,663	50	$500	$1,328,467	$2,983	$(322,341)	$1,010,773

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

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RESOURCE REIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(in thousands)

(unaudited)

	Common Stock		Convertible Stock		Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total Stockholders’ Equity	Noncontrolling Interest	Total Equity
	Shares	Amount	Shares	Amount
Balance at January 1, 2021	86,076	$861	50	$1	$618,074	$(391)	$(469,736)	$148,809	$127,811	$276,620
Resource REIT Merger	71,222	712	—	—	644,563	—	—	645,275	—	645,275
Common stock issued through the distribution reinvestment plan	289	3	—	—	2,487	—	—	2,490	—	2,490
Issuance of restricted stock	568	5	—	—	(5)	—	—	—	—	—
Stock-based compensation	—	—	—	—	3,022	—	—	3,022	—	3,022
Distributions declared	—	—	—	—	—	—	(11,029)	(11,029)	(555)	(11,584)
Common stock redemptions	(306)	(3)	—	—	(2,774)	—	—	(2,777)	—	(2,777)
Preferred return to preferred OP unit holders	—	—	—	—	—	—	(1,061)	(1,061)	(59)	(1,120)
Other comprehensive income	—	—	—	—	—	395	—	395	22	417
Net loss	—	—	—	—	—	—	(15,512)	(15,512)	(865)	(16,377)
Balance at March 31, 2021	157,849	$1,578	50	$1	$1,265,367	$4	$(497,338)	$769,612	$126,354	$895,966

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

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RESOURCE REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended
	March 31,
	2022			2021
Cash flows from operating activities:
Net income (loss)	$	152,003		$	(16,377	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on disposal of assets		170			110
Casualty losses, net of insurance proceeds received		342			—
Net gain on disposition of property		(161,777	)		—
Gain on settlement of derivative		(1,614	)		—
Loss on extinguishment of debt		1,156			1,462
Depreciation and amortization		21,081			23,103
Amortization of deferred financing costs		347			1,053
Amortization of debt premium (discount)		123			522
Realized loss on change in fair value of interest rate cap		63			45
Stock-based compensation		900			3,022
Changes in operating assets and liabilities:
Tenant receivables, net		72			(156	)
Prepaid expenses and other assets		2,489			481
Due to/from related parties, net		—			1,106
Accounts payable and accrued expenses		(2,290	)		(1,444	)
Tenant prepayments		(269	)		(966	)
Security deposits		77			140
Net cash provided by operating activities		12,873			12,101
Cash flows from investing activities:
Proceeds from disposal of property, net of closing costs		200,636			—
Cash acquired in connection with the Resource REIT Merger, net of acquisition costs		—			76,858
Capital expenditures		(3,713	)		(2,165	)
Payment of consideration related to Self-Management Transaction		—			(15,375	)
Net cash provided by investing activities		196,923			59,318
Cash flows from financing activities:
Redemptions of common and convertible stock		(806	)		(2,777	)
Payment of deferred financing costs		—			(4,340	)
Borrowings on mortgages		—			33,202
Principal repayments on mortgages		(156,619	)		(3,366	)
Proceeds from settlement of interest rate caps		2,006			—
Purchase of interest rate caps		—			(116	)
Distributions paid on common stock		(11,640	)		(9,067	)
Distributions paid to preferred OP unit holders		—			(1,120	)
Net cash (used in) provided by financing activities		(167,059	)		12,416
Net increase in cash and restricted cash		42,737			83,835
Cash and restricted cash at beginning of period		123,258			84,784
Cash and restricted cash at end of period	$	165,995		$	168,619
Reconciliation of cash and restricted cash
Cash	$	157,325		$	147,078
Restricted cash		8,670			21,541
Cash and restricted cash at end of period	$	165,995		$	168,619

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

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

(unaudited)

NOTE 1 - NATURE OF BUSINESS AND OPERATIONS

Resource REIT, Inc., (the "Company" or "REIT II") was organized in Maryland on September 28, 2012. The Company launched an initial public offering in February 2014, the primary portion of which terminated in February 2016. Substantially all of the business of the Company is conducted through RRE Opportunity OP II, LP (“OP II” or the “Operating Partnership”) in which Resource REIT, Inc. is the sole general partner.

The Company's objective is to make investments in apartment communities to provide investors with growing cash flow and increasing asset values. The Company has acquired and may continue to acquire underperforming apartments which it has or will renovate and stabilize in order to increase rents.

The Company elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ending December 31, 2014. Resource REIT, Inc. also operates its business in a manner intended to permit it to maintain its exemption from registration under the Investment Company Act of 1940, as amended.

On September 8, 2020, the Company entered into merger agreements to acquire each of Resource Real Estate Opportunity REIT, Inc. ("REIT I") and Resource Apartment REIT III, Inc. (“REIT III”) in stock-for-stock transactions whereby each of REIT I and REIT III were to be merged into one of the Company's wholly owned subsidiaries. The REIT I Merger and the REIT III Merger are referred to collectively herein as the Resource REIT Mergers. Each of the Resource REIT Mergers was intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended. The Resource REIT Mergers became effective as of January 28, 2021.

On September 8, 2020, REIT I, entered into a series of transactions to become self-managed (the “Self-Management Transaction”), and succeeded to the advisory, asset management and property management arrangements in place for the Company.

Blackstone Merger

On January 23, 2022, the Company, Rapids Parent LLC (“Parent”) and Rapids Merger Sub LLC (“Rapids Merger Sub”) entered into an Agreement and Plan of Merger (the “Blackstone Merger Agreement”). The Blackstone Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Rapids Merger Sub (the “Blackstone Merger”). Upon completion of the Blackstone Merger, Rapids Merger Sub will survive and the separate existence of the Company will cease. The Blackstone Merger and the other transactions contemplated by the Blackstone Merger Agreement were unanimously approved by the Company’s Board of Directors (the “Board”). Parent and Rapids Merger Sub are affiliates of Blackstone Real Estate Income Trust, Inc. (“BREIT”), which is an affiliate of Blackstone Inc.

Pursuant to the terms and conditions in the Blackstone Merger Agreement, at the effective time of the Blackstone Merger (the “Effective Time”), each share of common stock (or fraction thereof), $0.01 par value per share, of the Company that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled and converted into the right to receive an amount in cash equal to $14.75 (the “Common Stock Consideration”), without interest. In addition, at the Effective Time, each share of convertible stock (or fraction thereof), $0.01 par value per share, of the Company that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled and converted into the right to receive an amount in cash equal to $1,846.76, without interest.

The Blackstone Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to conduct its business in all material respects in the ordinary course of business and in a manner consistent with past practice, subject to certain exceptions, during the period between the execution of the Blackstone Merger Agreement and the consummation of the Blackstone Merger.

The Company expects the closing of the Blackstone Merger to occur on May 19, 2022, subject to the satisfaction of certain customary closing conditions, including, among others, approval of the Blackstone Merger by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to cast a vote on the Blackstone Merger (the “Stockholder Approval”). The Company will hold a special meeting on May 16, 2022 for the purpose of obtaining

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

the Stockholder Approval. In addition, the holders of at least two-thirds of the outstanding shares of the Company’s convertible stock entitled to vote on the Blackstone Merger have approved the Blackstone Merger by written consent in accordance with Maryland law and the Company's charter and bylaws.

As of March 31, 2022, approximately 166.3 million shares of common stock, including shares issued through the distribution reinvestment plan, remain outstanding.

The consolidated financial statements and the information and tables contained in the notes to the consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements as of and for the year ended December 31, 2021. The results of operations for the three months ended March 31, 2022 may not necessarily be indicative of the results of operations for the full year ending December 31, 2022. The Company has adopted a fiscal year ending December 31.

COVID-19 Pandemic

One of the most significant risks and uncertainties facing the Company and the real estate industry generally continues to be the effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business, including how the pandemic is impacting its tenants. The Company did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2022.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

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

Concentration of Risk

As of March 31, 2022, the Company's real estate investments in Texas, Georgia, Illinois, and Colorado represented 25%, 14%, 13%, and 11%, respectively, of the net book value of its rental property assets. Any adverse economic or real estate developments in these markets, such as the impact of the COVID-19 pandemic, business layoffs or downsizing, industry slowdowns, relocations of businesses, adverse weather events, changing demographics and other factors, or any decrease in demand for multifamily rentals resulting from the local business climate, could adversely affect the Company's operating results and its ability to make distributions to stockholders.

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.

Adoption of New Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848).” ASU No. 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. ASU 2020-06 addresses the complexity of guidance for certain financial (convertible) instruments with characteristics of liabilities and equity. ASU No. 2020-06 was effective for the Company January 1, 2022 and it had no effect on its consolidated financial statements and disclosures.

Assets Held for Sale

The Company presents rental property assets that qualify as held for sale separately in the consolidated balance sheets. Real estate assets held for sale are measured at the lower of carrying amount or fair value less cost to sell. Subsequent to classification of an asset as held for sale, no further depreciation is recorded. As of March 31, 2022, the Company had no rental properties included in assets held for sale. As of December 31, 2021, the Company had three rental properties included in assets held for sale.

Rental Properties

The Company records acquired rental properties at fair value on the acquisition date. The Company considers the period of future benefit of an asset to determine its appropriate useful life and depreciates the asset using the straight-line method. The Company anticipates the estimated useful lives of its assets by class as follows:

Buildings	27.5 years
Building improvements	5.0 to 27.5 years
Furniture, fixtures, and equipment	2.0 to 5.0 years
Tenant improvements	Shorter of lease term or expected useful life
Lease intangibles	Weighted average remaining term of related lease

Improvements and replacements are capitalized when they have a useful life greater than or equal to one year. Construction management fees are capitalized along with the related asset. Costs of repairs and maintenance are expensed as incurred.

Impairment of Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily investments in rental properties, for impairment indicators. The review considers factors such as past and expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for permanent impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. An impairment loss will be recorded to the extent that the carrying value exceeds the estimated

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

fair value of the property for properties to be held and used. For properties held for sale, the impairment loss would be the adjustment to fair value less the estimated cost to dispose of the asset.

There were no indications of impairment or impairment losses recorded on long-lived assets during the three months ended March 31, 2022 and 2021.

Allocation of the Purchase Price of Acquired and Foreclosed Assets

Acquisitions that do not meet the definition of a business under FASB Accounting Standards Codification ("ASC"), Business Combinations, ("ASC 805") are accounted for as asset acquisitions. In most cases, the Company believes acquisitions of real estate will no longer be considered business combinations, as in most cases substantially all of the fair value is concentrated in a single identifiable asset or group of tangible assets that are physically attached to each other (land and building). However, if the Company determines that substantially all of the fair value of the gross assets acquired is not concentrated in either a single identifiable asset or in a group of similar identifiable assets, the Company will then perform an assessment to determine whether the asset is a business by using the framework outlined in the ASU. If the Company determines that the acquired asset is not a business, the Company will allocate the cost of the acquisition, including transaction costs, to the assets acquired or liabilities assumed based on their relative fair value.

Upon the acquisition of real properties, the Company allocates the purchase price of properties to acquired tangible assets consisting of land, buildings, fixtures and improvements, identified intangible lease assets, consisting of the value of above-market and below-market leases, as applicable, the value of in-place leases, the value of tenant relationships, and liabilities, based in each case on their fair values.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases.

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if it were vacant. Management’s estimates of value are determined by independent appraisers. Factors to be considered in the analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

In estimating the fair value of both the tangible and intangible acquired assets, the Company also considers information obtained about each property as a result of its pre-acquisition due diligence. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of the Company’s existing relationships with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the average remaining term of the underlying leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building.

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12

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

The determination of the fair value of assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of the Company’s reported net income.

Goodwill

The Company records the excess of the cost of an acquired entity over the difference between the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit during the fourth quarter of each calendar year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There have been no such events or changes in circumstances during the three months ended March 31, 2022 and 2021.

Revenue Recognition and Receivables

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease, which is accounted for in accordance with ASC 842, Leases (“ASC 842”).

The future minimum rental payments to be received from noncancelable operating leases for residential rental properties are $100.4 million for the remainder of 2022 and $15.2 million for the twelve months ending December 31, 2023. The future minimum rental payments to be received from noncancelable operating leases for both commercial rental properties and antenna rentals are approximately $320,000 for the remainder of 2022 and approximately $389,000, $336,000, $253,000, and $184,000 for the years ending December 31, 2023 through December 31, 2026, respectively, and $1.1 million thereafter.

Revenue is primarily derived from the rental of residential housing units for which the Company receives minimum rents and utility reimbursements pursuant to underlying tenant lease agreements. The Company also receives other ancillary fees for administration of leases, late payments and amenities, and revenue sharing arrangements for cable income from contracts with cable providers at the Company's properties (discussed below). A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company records the utility reimbursement income and ancillary charges in the period when the performance obligation is completed, either at a point in time or on a monthly basis as the service is utilized.

The Company has revenue sharing arrangements for cable income from contracts with cable providers at the Company’s properties. Included in accounts payable and accrued expenses on the consolidated balance sheets as of March 31, 2022 and December 31, 2021 is a contract liability related to deferred revenue from contracts with cable providers of approximately $1.5 million and $1.7 million, respectively. The Company recognizes income on a straight-line basis over the contract period of 10 years to 12 years. During the three months ended March 31, 2022 and 2021, approximately $55,000 and $57,000, respectively, of revenue from the contract liability was recognized as income.

Following the Self-Management Transaction through the effective date of the Resource REIT Mergers on January 28, 2021, REIT I received asset management and property management fees from REIT II and REIT III. The monthly asset management fee was equal to one-twelfth of 1.0% of the cost of each asset held by REIT II and one-twelfth of 1.0% of the appraised value of each asset held by REIT III, without deduction for depreciation, bad debts or other non-cash reserves. The monthly property management fee was calculated based on 4.5% of the gross monthly receipts from REIT II's and REIT III’s properties. The Company recognized revenue for both asset and property management fees as earned on a monthly basis. The Company had determined under ASC 606 – Revenue from Contracts with Customers (“ASC 606”), that the performance obligation for asset and property management services are satisfied as the services are rendered. The Company was compensated for its services on a monthly basis and these services represent a series of distinct daily services in accordance with ASC 606. As a result of the Resource REIT Mergers, these fees are no longer being paid.

The Company evaluates its portfolio of operating leases for collectability at both the onset of the underlying leases and on an ongoing basis. Tenant receivables include amounts for which collectability was assessed as probable in accordance with the guidance in ASC 842-30. For tenant receivables, which include base rents, straight-line rentals, expense reimbursements and other revenue or income, the Company also estimates a general allowance for uncollectible accounts under ASC 450-20. The Company determines the collectability of its receivables related to rental revenue by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history,

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13

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

the tenants’ current ability to pay their obligations to the Company, and the condition of the general economy and the industry as a whole. If collectability is not probable, the Company adjusts rental income for the amount of the uncollectible revenue.

Due to the COVID-19 pandemic, some residents have experienced difficulty making rent payments and the Company’s receivables have increased compared to historical levels. As of both March 31, 2022 and December 31, 2021, the Company recorded $1.6 million allowance for bad debts to appropriately reflect management’s estimate for uncollectible accounts. The total adjustment to rental and other property income for the three months ended March 31, 2022 and 2021 was approximately $300,000 and $700,000, respectively, for provision for bad debt expense, net of recoveries. The provision for bad debts was recorded as a reduction to rental income in the Company’s consolidated statements of operations. The age of the receivables included in the allowance balance as of March 31, 2022 was: 11.6% less than 30 days past due, 10.5% 31-60 days past due, 15.0% 61-90 days past due and 62.9% over 90 days past due.

Leases

For operating leases where the Company is the lessor, the underlying leased asset is recognized as real estate on the balance sheet. The Company, as a lessor of multifamily apartment units, has nonlease components associated with these leases (i.e. common area maintenance, utilities, etc.). The Company combines nonlease component revenue streams and accounts for them as a combined component with leasing revenue.

For leases in which the Company is the lessee, primarily consisting of office leases, a parking lot lease, and office equipment leases, the Company recognizes a right-of-use (“ROU”) asset and a lease liability equal to the present value of the minimum lease payments. Operating leases are included in operating lease ROU assets and operating lease liabilities in the Company’s consolidated balance sheets. The Company uses a market rate for equipment leases, when readily determinable, in calculating the present value of lease payments. Otherwise, the incremental borrowing rate is used. The operating lease ROU asset includes any lease payments and excludes lease incentives. Operating lease terms may include options to extend the lease when it is reasonably certain the lease will be extended. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Income Taxes

The Company elected to be taxed as a REIT commencing with its taxable year ended December 31, 2014. To maintain its REIT qualification under the Code, the Company is generally required to distribute at least 90% of its taxable net income (excluding net capital gains) to its stockholders as well as comply with other requirements, including certain asset, income and stock ownership tests. As a REIT, the Company is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it is subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it fails its REIT qualification. Accordingly, the Company’s failure to qualify as a REIT could have a material adverse impact on its results of operations and amounts available for distribution to its stockholders.

The dividends-paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements. Generally, taxable income differs from GAAP net income because the determination of taxable income is based on tax provisions and not financial accounting principles.

The Company may elect to treat any of its subsidiaries as a taxable REIT subsidiary (“TRS”). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A TRS is subject to U.S. federal, state and local corporate income taxes. While a TRS may generate net income, a TRS can declare dividends to the Company which will be included in the Company's taxable income and necessitate a distribution to its stockholders. Conversely, if the Company retains earnings at a TRS level, no distribution is required and the Company can increase book equity of the consolidated entity. As of both March 31, 2022 and December 31, 2021, the Company treated one of its subsidiaries as a TRS.

The Company evaluates the benefits from tax positions taken or expected to be taken in its tax return. Only the largest amount of benefits from tax positions that will more likely than not be sustainable upon examination are recognized by the Company. The Company does not have any unrecognized tax benefits, nor interest and penalties, recorded in its consolidated

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14

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

financial statements and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next 12 months.

The Company is subject to examination by the U.S. Internal Revenue Service (“IRS”) and by the taxing authorities in states in which the Company has significant business operations. The Company is not currently undergoing any examinations by taxing authorities. The Company is not subject to IRS examination for tax return years 2017 and prior.

Earnings Per Share

Basic earnings per share is calculated on the basis of the weighted-average number of common shares outstanding during the year. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. Distributions declared per common share assume each share was issued and outstanding each day during the period or based upon the two-class method, whichever is more dilutive.

The following table sets forth the computation of basic and diluted earnings per share for the periods presented (in thousands, except per share amounts):

	For the Three Months Ended
	March 31,
	2022	2021
Numerator for earnings per share:
Net income (loss)	$152,003	$(16,377)
Preferred return to preferred OP unit holders	—	(1,120)
Net income (loss) after preferred return	152,003	(17,497)
Less: Allocation of income to preferred unit holders attributable to noncontrolling interest	—	59
Less: Net loss attributable to noncontrolling interest	—	865
Net income (loss) attributable to common stockholders	$152,003	$(16,573)
Denominator for earnings per share:
Weighted average common shares outstanding	164,763	135,252
Denominator for basic earnings per share	164,763	135,252
Weighted average unvested restricted stock	339	—
Denominator for diluted earnings per share	165,102	135,252
Earnings (loss) per weighted average common share:
Basic	$0.92	$(0.12)
Diluted	$0.92	$(0.12)

None of the shares of convertible stock (see Note 10) or 467,461 unvested performance awards are included in the diluted earnings per share calculations, because the necessary conditions for conversion have not been satisfied as of March 31, 2022 (were such date to represent the end of the contingency period). Additionally, due to loss for the three months ended March 31, 2021, the calculation of diluted earnings per share excludes 4,583 unvested restricted shares as their effect would be antidilutive.

Prior to their redemption and/or conversion, net losses attributable to outstanding OP Common Units and OP Preferred Units were included in net (income) loss attributable to noncontrolling interest, and therefore, were excluded from the calculation of income (loss) per common share, basic and diluted, for all periods presented.

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15

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION

The following table presents the Company's supplemental cash flow information (in thousands):

	Three Months Ended
	March 31,
	2022		2021
Non-cash financing and investing activities:
Stock issued from the distribution reinvestment plan	$	—	$	2,490
Repayments on borrowings through refinancing		—		461,968
Accruals for construction in progress		1,835		1,089
Non-cash activity related to dispositions:
Mortgage notes payable settled directly with proceeds from sale of rental property		102,877		—
Non-cash activity related to Resource REIT Merger:
Net assets acquired in REIT II Merger in exchange for common shares	$	—	$	543,840
Net assets acquired in REIT III Merger in exchange for common shares		—		101,435
Implied REIT I common stock issued in exchange for net assets acquired in Resource REIT Merger		—		645,275
Cash paid during the period for:
Interest	$	10,456	$	9,589

NOTE 4 - RESTRICTED CASH

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

	March 31, 2022		December 31, 2021
Real estate taxes	$	5,400	$	6,879
Insurance		1,353		1,486
Debt service reserve		135		157
Capital improvements		1,782		1,898
Total	$	8,670	$	10,420

NOTE 5 - INVESTMENTS IN REAL ESTATE

As of March 31, 2022, the Company's investments in rental properties consisted of 42 apartment properties that contain 12,667 units. The following table summarizes the Company's investments in rental properties (in thousands):

	March 31, 2022			December 31, 2021
Land	$	293,491		$	293,492
Building and improvements		1,806,685			1,799,028
Furniture, fixtures and equipment		55,845			53,438
Construction in progress		2,910			8,318
		2,158,931			2,154,276
Less: accumulated depreciation		(298,892	)		(278,229	)
Rental properties, net	$	1,860,039		$	1,876,047

Depreciation expense for the three months ended March 31, 2022 and 2021 was $21.1 million and $20.2 million, respectively.

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16

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

The Company disposed of three properties during the three months ended March 31, 2022. There were no dispositions during the three months ended March 31, 2021. The following table presents details of the Company's disposition activity during the three months ended March 31, 2022 (in thousands):

Multifamily Community	Location	Sale Date	Contract Sales Price		Net Gain on Disposition of Property		Revenue Attributable to Properties Sold		Net Income (Loss) Attributable to Properties Sold
The Bryant at Yorba Linda	Yorba Linda, CA	January 20, 2022	$	205,500	$	100,629	$	708	$	(148	)
Maxwell Townhomes	San Antonio, TX	January 20, 2022		48,000		30,318		474		660
Sunset Ridge	San Antonio, TX	March 22, 2022		60,750		30,830		1,156		(286	)
					$	161,777	$	2,338	$	226

NOTE 6 - DEBT

The following table presents a summary of the Company's debt (in thousands):

							Weighted Average Maturity in Years at
	March 31, 2022			December 31, 2021			March 31, 2022
Mortgage notes payable, net - variable rate	$	374,955		$	607,711			3.50
Mortgage notes payable, net - fixed rate		775,933			801,140			6.24
Total mortgage notes payable, net	$	1,150,888		$	1,408,851			5.34
Revolving credit facility	$	—		$	—			—
Weighted average interest rate on mortgages - variable		2.28	%		2.05	%
Weighted average interest rate on mortgages - fixed		2.93	%		2.96	%
Weighted average interest rate on revolving credit facility		—			—
Weighted average interest rate on total debt		2.72	%		2.56	%

The following table presents the Company's annual future principal payments on outstanding borrowings as of March 31, 2022 (in thousands):

Remainder 2022	$7,432
2023	35,393
2024	152,284
2025	164,938
2026	67,979
2027	188,491
Thereafter	539,308
	$1,155,825

Structured Credit Facility

On January 28, 2021, subsidiaries of the Company (collectively, “Borrower”) entered into a structured credit facility transaction with CBRE Multifamily Capital, Inc. for delivery of loans and/or advances to Fannie Mae (the “Facility”) for a term of 15 years (the “Facility Termination Date”). Pursuant to the terms of the loan documents for the Facility, the lender agreed to make advances at both fixed and variable rates to Borrower during the term of the Facility provided that Borrower satisfies certain customary conditions as set forth in the Facility loan documents (the “Loan Documents”), including debt service coverage tests and loan-to-value tests. The fixed rate advances in the Facility may have terms not less than five or more

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17

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

than 15 years from the closing of such advance and variable rate advances in the Facility may have terms not less than five or more than 10 years from the closing of such advance. All advances must have maturity dates that do not exceed the Facility Termination Date. Borrower has the option to convert variable rate advances to fixed rate advances beginning on the first day of the second year of the variable rate advance term and ending seven years prior to the Facility Termination Date, subject to the satisfaction of customary requirements set forth in the Loan Documents.

The Facility is non-recourse to the Borrower except for the customary exceptions to non-recourse provisions of the Loan Documents (“carve-outs”). The Borrower’s obligations for the carve-outs are guaranteed solely by the Borrowers. The Company is the key principal under the Facility and as such must continue to indirectly own an interest in each Borrower and is subject to certain transfer restrictions with respect to its ownership interest in each Borrower as provided in the Loan Documents. In addition, the Facility contains customary representations and warranties, financial and other covenants, events of default and remedies typical for this type of facility.

The initial advance of $495.2 million under the Facility occurred on January 28, 2021 and is secured by the following twelve multifamily properties located in Arizona, Colorado, Georgia, Oregon and Texas (including five properties formerly held by REIT II): Estates at Johns Creek, Heritage Pointe, Providence in the Park, South Lamar Village, Verona Apartments, Westside, 81 Fifty at West Hills, Adair off Addison I & II, Montclair Terrace, Palmer at Las Colinas, and Uptown Buckhead. The proceeds from the initial advance were used to refinance or pay off $462.0 million of the Company’s debt. Loans that were repaid in full were loans secured by Vista Apartment Homes, Cannery Lofts, Retreat at Rocky Ridge, Tech Center Square, and Aston at Cinco Ranch.

Additional information about the initial advance on the Facility, which is included in Mortgage notes payable, net on the Consolidated Balance Sheet as of March 31, 2022, is as follows (in thousands):

Collateral	Original Loan Amount		Maturity Date	Type	Annual Interest Rate
Fixed Advance 1	$	235,205	2/1/2031	Fixed	2.79%
Fixed Advance 2	$	235,205	2/1/2028	Fixed	2.62%
Floating Advance	$	24,760	2/1/2031	Floating (1)	2.11%

(1) Floating rate based on 30-day average Secured Overnight Financing Rate "SOFR" plus a fixed margin of 2.06%.

Revolving Credit Facility

On May 20, 2021, the Company entered into a Credit Agreement (the “Credit Facility”) for which BofA Securities, Inc. acted as sole book runner and sole lead arranger and Bank of America, N.A. acted as administrative agent and L/C issuer (the “Credit Agreement”). The Credit Facility is a secured revolving credit facility in the initial amount of $100 million, including $15 million available in letters of credit, subject to the Company's ability to increase the lenders’ aggregate commitment during the term of the Credit Agreement to a maximum of $500 million, subject to certain limitations. The availability of borrowings under the Credit Facility will be based on the value of a pool of eligible income-producing multifamily properties owned, directly or indirectly and from time to time, by the Company or subsidiaries of Company. The Credit Facility is a three-year interest-only facility with all outstanding principal due at maturity, subject to a one-year extension option. The Credit Facility may be prepaid or terminated at any time without penalty. The proceeds of the Credit Facility may be used for general corporate purposes, including refinancing existing indebtedness and working capital. The Credit Facility is guaranteed by the Company and certain subsidiaries of the Company, and secured by a pledge of the equity interests of certain of the Company’s subsidiaries.

Borrowings under the Credit Facility will bear interest, at the Company’s option, at either the Eurodollar Rate (defined as a rate equal to LIBOR or a comparable or successor rate) for a designated interest period plus an applicable margin, or the base rate (as defined as the highest of the Bank of America prime rate, the federal funds rate plus 0.50% or the Eurodollar Rate plus 1.0%) plus an applicable margin. The anticipated applicable margin for borrowings under the Credit Facility for base rate loans will range from 0.60% to 1.20% per annum and the applicable margin for Eurodollar Rate loans will range from 1.60% to 2.20% per annum, depending on the ratio of consolidated total indebtedness to total asset value (as such terms are defined in the Credit Agreement), with the lowest rate applying if such ratio is less than 45%, and the highest rate applying if such ratio is equal to or greater than 60%. The Company is also required to pay a fee to the lenders that is assessed on the unused portion

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18

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

of the facility. A default rate will apply on all obligations in the event of default under the Credit Facility at 2.0% above the otherwise applicable rate.

The Company is also subject to certain financial covenants, including (i) the ratio of the Company’s consolidated indebtedness to total asset value not to exceed 65% as of the last day of each of the first six fiscal quarters ending after May 20, 2021 and 60% as of the last day of each fiscal quarter thereafter; (ii) consolidated secured recourse indebtedness other than the Credit Facility not to exceed 5% of total asset value; (iii) consolidated fixed charge coverage ratio not less than 1.35x to 1.00x as of the last day of each of the first four fiscal quarters ending after May 20, 2021 and 1.50x to 1.00x as of the last day of each fiscal quarter thereafter; and (iv) tangible net worth not less $678.8 million, plus 75% of the net proceeds of any future equity issuances by the Company or any of its consolidated subsidiaries. The Company is in compliance with each of the applicable financial covenants as of March 31, 2022.

There were no borrowings under the Credit Facility during the three months ended March 31, 2022. As of March 31, 2022, availability under the Credit Facility was $100.0 million and was secured by six apartment communities: Vista Apartment Homes, Cannery Lofts, Aston at Cinco Ranch, Bay Club, Windbrooke and Perimeter 5550. The Company has $1.1 million of deferred finance costs for the Credit Facility which is included in Prepaid Expenses and Other Assets on the Consolidated Balance Sheet as of March 31, 2022, which is amortized over the term of the Credit Facility. During three months ended March 31, 2022 and 2021, approximately $93,000 and $0, respectively, of amortization of deferred financing costs related to the Credit Facility were included in interest expense. Accumulated amortization of deferred financing costs related to the Credit Facility as of March 31, 2022 was approximately $324,000 and the net book value of deferred financing costs related to the Credit Facility as of March 31, 2022 was approximately $798,000.

Other

Mortgage notes payable assumed as part of both the Resource REIT Mergers and the acquisitions of Point Bonita Apartment Homes were recorded at their fair values. The premium or discount is amortized over the remaining term of the loans and included in interest expense. The net premium or discount included in the consolidated balance sheets as of March 31, 2022 was approximately $39,000. For three months ended March 31, 2022 and 2021 interest expense increased by approximately $123,000 and $522,000, respectively, for the amortization of the premium or discount.

As of March 31, 2022, the Company owned 30 apartment communities that served as collateral for mortgages payable. All mortgage notes are collateralized by a first mortgage lien on the assets of the respective property. The amount outstanding on the mortgages may be prepaid in full during the entire term with a prepayment penalty on the majority of mortgages held.

The mortgage notes payable are recourse only with respect to the properties that secure the notes, subject to certain limited standard exceptions, as defined in each mortgage note. These exceptions are referred to as “carveouts.” The Company has guaranteed the carveouts under mortgage notes, other than the notes with respect to the Credit Facility, by executing a guarantee with respect to the properties. In general, carveouts relate to damages suffered by the lender for a borrower’s failure to pay rents, insurance or condemnation proceeds to lender, failure to pay water, sewer and other public assessments or charges, failure to pay environmental compliance costs or to deliver books and records, in each case as required in the loan documents. The exceptions also require the Company to guarantee payment of audit costs, lender’s enforcement of its rights under the loan documents and payment of the loan if the borrower voluntarily files for bankruptcy or seeks reorganization, or if a related party of the borrower does so with respect to the subsidiary. As of March 31, 2022, the Company believes that there are no material defaults or instances of noncompliance in regards to any of these mortgages payable.

Deferred financing costs incurred to obtain financing are amortized over the term of the related debt. During the three months ended March 31, 2022 and 2021, $1.4 million and $2.5 million, respectively, of amortization of deferred financing costs related to mortgages payable was included in interest expense. Accumulated amortization of deferred financing costs related to mortgages payable as of March 31, 2022 and December 31, 2021 was $2.4 million and $4.6 million, respectively and the net book value of deferred financing costs as of March 31, 2022 and December 31, 2021 related to mortgage notes payable was $4.9 million and $6.3 million, respectively.

During the three months ended March 31, 2022, the Company repaid four mortgage notes payable (Skyview, Meridian Pointe, Courtney Meadows and Indigo Creek) and paid approximately $1.3 million in prepayment penalties, included in Interest Expense on the Consolidated Statements of Operations.

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19

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

NOTE 7 - LEASES

As the lessee, the Company’s operating leases primarily consist of office leases, a parking lot lease and office equipment leases. These operating leases have remaining terms ranging from less than one year to six years. Some of the leases include options to extend the lease for up to an additional five years. Only those rental periods reasonably certain to be extended beyond the initial term expiration are included within the calculation of the operating lease liability. As of March 31, 2022, the payments due under the contractually-obligated portion of these leases totaled $2.6 million. The market rate is used for leases, when readily determinable, in calculating the present value of lease payments for the operating lease liability. Otherwise, the incremental borrowing rate based on the information available at commencement date is used. As of March 31, 2022, the weighted average remaining lease term was 4.45 years and the weighted average discount rate was 2.21% for the Company’s operating leases. As of March 31, 2022, the Company included approximately $2.5 million in its consolidated balance sheet for operating lease right-of-use operating lease assets.

The Company’s lease expense related to the parking lot lease for both the three months ended March 31, 2022 and 2021 was approximately $9,000, which is included in rental operating expenses in the consolidated statements of operations. The Company’s lease expense related to all other leases for the three months ended March 31, 2022 and 2021 was approximately $140,500 and $161,800, respectively, which is included in general and administrative expenses in the consolidated statements of operations.

The following table presents the Company’s annual payments for the operating lease liabilities (including reasonably assured extension periods) for each of the next five periods ending December 31, and thereafter (in thousands):

Remainder of 2022	$	439
2023		572
2024		573
2025		586
2026		448
Thereafter		—
	$	2,618

NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in each component of the Company's accumulated other comprehensive income for the three months ended March 31, 2022 and 2021 (in thousands):

Balance, January 1, 2022	$	262
Reclassification adjustment for realized loss on designated derivatives		317
Designated derivatives, fair value adjustments		2,404
Balance, March 31, 2022	$	2,983

Balance, January 1, 2021	$	(391	)
Reclassification adjustment for realized loss on designated derivatives		45
Designated derivatives, fair value adjustments		372
Balance before noncontrolling interest	$	26
Noncontrolling interest		(22	)
Balance, March 31, 2021	$	4

NOTE 9 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has ongoing relationships with several related parties.

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

Relationship with C-III and RAI

As of September 30, 2021, C-III and its subsidiary, Legacy Co, collectively own approximately 8.3 million common shares. Following the Self-Management Transaction and prior to September 14, 2021, C-III and Legacy Co collectively owned approximately 7.5 million OP Common Units and 319,965 OP Preferred Units and had the right to designate one individual to be included on the board of directors of the Company. In accordance with a letter agreement between the parties, on September 14, 2021, the Company redeemed 319,965 outstanding Series A Preferred Units collectively held by C-III and Legacy Co for $67.5 million and exchanged 7,539,737.53 common units collectively held by C-III and Legacy Co for an equivalent number of shares of common stock of the Company. In addition, the board nominee resigned his position as a member of the board of directors of the Company. Prior to the Self-Management Transaction, C-III controlled our Former Advisor as well as the external advisors to REIT II and REIT III, as indirect subsidiaries of RAI, and owned the property management entities for the Company, REIT II and REIT III.

On September 8, 2020, the Company entered into a Transitional Services Agreement with C-III, Advisor Contributor and RAI (the “Transitional Services Agreement”), pursuant to which, effective September 8, 2020 and for a one-year period, C-III provided to the Company and its affiliates and subsidiaries certain services in order to ensure an orderly transition and the continued conduct and operation of the advisory and property management business acquired by the Company in connection with the Self-Management Transaction. In connection with these services, the Company has paid C-III an agreed-upon monthly fee for each service provided, as well as reimbursement of out-of-pocket expenses incurred by C-III and RAI as a result of the provision of these services. C-III also reimbursed the Company for services provided by the Company’s employees to C-III during this period. In addition, C-III sublet from the Company a portion of the office space in Philadelphia until December 31, 2020.

Property loss policy. The Company participated (with other properties directly or indirectly managed by RAI and C-III) in a catastrophic insurance policy, which covered claims up to $250.0 million, after either a $25,000 or a $100,000 deductible per incident, depending on location and/or type of loss. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limits could have a material adverse effect on the Company's financial condition and operating results. This policy expired on March 1, 2021 and was replaced with similar coverage in the normal course of business independent of RAI and C-III.

General liability loss policy. The Company (with other properties directly managed by RAI) had an insured and dedicated limit for the general liability of $1,000,000 per occurrence. Total claims were limited to $2.0 million per premium year. In excess of these limits, the Company participated (with other properties directly or indirectly managed by RAI and C-III) in a $50.0 million per occurrence excess liability program. Therefore, the total insured limit per occurrence was $51.0 million for the general and excess liability program, after a $25,000 deductible per incident. This policy expired on March 1, 2021 and was replaced with similar coverage in the normal course of business independent of RAI and C-III.

Internal audit. Prior to the Self-Management Transaction, RAI performed internal audit services for the Company.

Directors and officers liability insurance. Prior to the Self-Management Transaction in September 2020, the Company participated in a liability insurance program for directors and officers coverage with other C-III managed entities and subsidiaries. Thereafter, until the effectiveness of the Resource REIT Merger, the Company participated in a liability insurance program for directors and officers coverage with REIT II and REIT III.

Other expenses. The Company utilizes the services of The Planning and Zoning Resource Company, an affiliate of C-III, for zoning reports for acquisitions.

Relationship with the Former Advisor

In September 2009, the Company entered into an advisory agreement, which has been amended at various times thereafter (the “Advisory Agreement”), pursuant to which the Former Advisor provided the Company with investment management, administrative and related services. The Advisory Agreement has a one-year term and may be renewed for an unlimited number of successive one-year terms. The current term of the Advisory Agreement expires on September 14, 2022. Under the Advisory Agreement, the Former Advisor received fees and was reimbursed for its expenses as set forth below. Following the Self-Management transaction, the Company is no longer externally advised and these fees are no longer being paid:

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

Acquisition fees. The Company paid the Former Advisor an acquisition fee of 2.0% of the cost of investments acquired on behalf of the Company, plus any capital expenditure reserves allocated, or the amount funded by the Company to acquire loans, including acquisition expenses and any debt attributable to such investments.

Asset management fees. The Company paid the Former Advisor a monthly asset management fee equal to one-twelfth of 1.0% of the higher of the cost or the independently appraised value of each asset, without deduction for depreciation, bad debts or other non-cash reserves. The asset management fee was based only on the portion of the costs or value attributable to the Company’s investment in an asset if the Company did not own all or a majority of an asset and does not manage or control the asset.

Disposition fees. The Former Advisor earned a disposition fee in connection with the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.75% of the contract sales price.

Debt financing fees. The Former Advisor earned a debt financing fee equal to 0.5% of the amount available under any debt financing obtained for which it provided substantial services.

Expense reimbursements. The Company also paid directly or reimbursed the Former Advisor for all of the expenses paid or incurred by the Former Advisor or its affiliates on behalf of the Company or in connection with the services provided to the Company in relation to its public offering, including its ongoing distribution reinvestment plan offering.

Reimbursements also included expenses the Former Advisor incurred in connection with providing services to the Company, including the Company’s allocable share of costs for Former Advisor personnel and overhead, out of pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not the Company ultimately acquires the investment. However, the Company did not reimburse the Former Advisor or its affiliates for employee costs in connection with services for which the Former Advisor earned acquisition or disposition fees.

Following the Self-Management Transaction, REIT I, as the indirect owner of the advisor to REIT II and REIT III, received asset management fees, property management fees and debt financing fees from REIT II and REIT III until the Resource REIT Merger in January 2021.

Relationship with Resource Real Estate Opportunity Manager

Prior to the Self-Management Transaction, Resource Real Estate Opportunity Manager (the “Manager”) managed the Company's real estate properties and real estate-related debt investments and coordinated the leasing of, and managed construction activities related to, some of the Company’s real estate properties pursuant to the terms of the management agreement with the Manager. On the date of the Self-Management Transaction, the Manager became an indirect subsidiary of the Company.

Property management fees. Prior to the Self-Management Transaction, the Manager earned 4.5% of the gross receipts from the Company's properties, provided that for properties that were less than 75% occupied, the manager received a minimum fee for the first 12 months of ownership for performing certain property management and leasing activities. The Manager subcontracted certain services to an unaffiliated third-party, Greystar, and paid for those services from its property management fee.

Construction management fees. The Manager earned a construction management fee of 5.0% of actual aggregate costs to construct improvements to, or to repair, rehab or reconstruct a property.

Debt servicing fees. The Manager earned a debt servicing fee of 2.75% on payments received from loans held by the Company for investment.

Information technology fees and operating expense reimbursement. During the ordinary course of business, the Manager or other affiliates of RAI paid certain shared information technology fees and operating expenses on behalf of the Company for which they were reimbursed.

Relationship with ACRES Commercial Realty Corp. (“ACR”)

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

The Company provided office space and other office-related services to ACRES Commercial Realty Corp. (f/k/a Exantas Capital Corp.) under a sublease that was assigned from RAI which terminated on March 31, 2021. In addition, three employees of the Company provided internal audit services until March 31, 2021 under an internal audit engagement letter that was assigned from RAI to Resource NewCo LLC, a subsidiary of the Company. The Company's Chief Financial Officer was a director of ACR until June 2021.

The following table presents the Company's fees earned by, and expenses paid to, such related parties (in thousands):

	Three Months Ended March 31,
	2022		2021
Fees earned / expenses paid to related parties:
REIT II (prior to 1/28/2021):
Asset management fee income	$	—	$	669
Property management fee income		—		275
Operating expense reimbursements (1)		—		371
Internal audit (3)		—		8
REIT III (prior to 1/28/2021):
Asset management fee income	$	—	$	164
Property management fee income		—		67
C-III/RAI:
Transition services paid to C-III(1)	$	—	$	2
Preferred unit distributions		—		1,120
ACR
Internal audit	$	—	$	37
Sublease rent reimbursement (1)		—		30

(1) Included in General and administrative on the consolidated statements of operations.

NOTE 10 - EQUITY

Preferred Stock

The Company’s charter authorizes the Company to issue 10.0 million shares of its $0.01 par value preferred stock. As of March 31, 2022 and December 31, 2021, no shares of preferred stock were issued and outstanding.

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

Common Stock

As of March 31, 2022, the Company had an aggregate 166.3 million shares of its $0.01 par value common stock outstanding including 1.4 million of unvested restricted shares. In accordance with the Company’s distribution reinvestment plan (“DRP”), participants in the DRP acquire shares of common stock under the plan at a price equal to 95% of the current estimated value per share of common stock. Commencing on March 31, 2021, participants acquired shares of the Company’s common stock under the plan at a price equal to $8.61 per share. The following table summarizes the activity (dollars in thousands):

	Shares Issued			Gross Proceeds
Shares issued through private offering		1,279,227		$	12,737
Shares issued through primary public offering		129,923,354			1,289,845
Shares issued through stock distributions		2,406,986			—
Shares issued through distribution reinvestment plan		29,042,460			279,519
Restricted shares issued to employees		1,918,126			—
Shares issued through conversion of common OP units		7,539,738			—
Shares issued in connection with the Resource REIT Merger		14,724,323			—
Total		186,834,214		$	1,582,101
Shares redeemed and retired		(20,574,975	)
Total shares issued and outstanding as of March 31, 2022		166,259,239

On January 23, 2022, the Company's board of directors approved an estimated value per share of its common stock of $14.75 based on the Common Stock Consideration provided for in the Blackstone Merger Agreement. As of the date of this filing, the Company is not aware of a material change in the value of its investments that would impact the overall estimated value per share. The Company is providing this estimated value per share to assist broker-dealers that participated in its public offerings in meeting their customer account statement reporting obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231.

Convertible Stock

As of March 31, 2022, the Company had 50,000 shares of $0.01 par value convertible stock outstanding which were owned by the Company and affiliated and formerly affiliated persons. The convertible stock will convert into shares of the Company’s common stock upon the occurrence of (a) the Company having paid distributions to common stockholders that in the aggregate equal 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 7% cumulative, non-compounded annual return on the shares at that price; or (b) if the Company lists its common stock on a national securities exchange and, on the 31st trading day after listing, the Company’s value based on the average trading price of its common stock since the listing, plus prior distributions, combine to meet the same 7% return threshold.

Each of these two events is a “Triggering Event.” Upon a Triggering Event, the Company's convertible stock will, unless its advisory agreement has been terminated or not renewed on account of a material breach by Resource Real Estate Opportunity Advisor II, LLC, a wholly-owned subsidiary of the Company, generally be converted into a number of shares of common stock equal to 1 / 50,000 of the quotient of:

(A) the lesser of

(i) 15% of the amount, if any, by which

(1) the value of the Company as of the date of the event triggering the conversion plus the total distributions paid to its stockholders through such date on the then-outstanding shares of its common stock exceeds

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

(2) the sum of the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or

(B) the value of the Company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion.

As of March 31, 2022, no Triggering Event has occurred. The consummation of the Blackstone Merger will result in a triggering event, and the Blackstone Merger Agreement accordingly provides that, at the Effective Time, each outstanding share of convertible stock (other than convertible stock held by the Company or any of its subsidiaries or by Parent or Rapids Merger Sub), including shares held by our directors and executive officers, will be automatically cancelled and converted into the right to receive an amount in cash equal to the convertible stock merger consideration of $1,846.76 per share, less any applicable withholding taxes. Such convertible stock merger consideration represents the amount of consideration that would have been received by the holder thereof had such share of convertible stock been converted into shares of our common stock under the terms of our charter immediately prior to the Effective Time.

Redemption of Securities

In connection with the Blackstone Merger Agreement, on January 23, 2022, the Board approved the suspension of the Amended Share Repurchase Program. Shares redeemed during the three months ended March 31, 2022 were repurchased from employees upon vesting of restricted stock awards in order to facilitate the payment of taxes by the employees.

Period	Total Number of Shares Redeemed	Average Price Paid per Share
January 2022	—	—
February 2022	54,689	$14.75
March 2022	—	—
	54,689

Distributions Paid to Common Stockholders

For the three months ended March 31, 2022, the Company paid common stockholders aggregate distributions of $11.6 million paid in cash as follows (in thousands):

Record Date	Per Common Share		Distribution Date	Net Cash Distribution
March 30, 2022	$	0.07	March 31, 2022	$	11,640

Share-Based Compensation

On January 4, 2022, the Compensation Committee (the “Committee”) of the Board of the Company approved performance-based long-term equity incentive awards pursuant to the 2020 LTIP.

After the actual amount of the performance-based award is determined (or earned), the earned shares will be fully vested and generally transferable. Dividends will be deemed to have accrued on all of the earned shares during the measuring period until the determination date. Such accrued dividends on earned shares will be paid to the awardee on the determination date. Thereafter, the awardee is entitled to receive dividends as declared and paid on the earned shares. The awardee will be entitled to vote the shares from the grant date.

Dividends on the performance-based awards of restricted stock will not be paid but will be accrued over the vesting period. The accrual as of March 31, 2022 was approximately $220,000 and was included in Accounts payable and accrued expenses on the consolidated balance sheets.

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

Employees were awarded 384,236 shares of three-year vesting restricted stock and the Company’s non-employee directors were awarded 28,696 shares of one-year vesting restricted stock during the three months ended March 31, 2022. The following table presents the changes in unvested restricted stock for the three months ended March 31, 2022:

	Performance Based Awards	Weighted Average Grant Date Fair Value	Time-Based Service Awards	Weighted Average Grant Date Fair Value	Total Awards
Unvested restricted shares, beginning of period	602,506		453,083		1,055,589
Granted	135,345	$14.75	412,932	$14.75	548,277
Forfeited	-		(1,103)		(1,103)
Vested	-		(162,840)		(162,840)
Unvested restricted shares, end of period	737,851		702,072		1,439,923

The Company recorded approximately $900,000 of compensation expense in the three months ended March 31, 2022. Unrecognized compensation expense as of March 31, 2022 was $14.8 million.

NOTE 11 - FAIR VALUE MEASURES AND DISCLOSURES

In analyzing the fair value of its investments accounted for on a fair value basis, the Company follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The fair value of cash, restricted cash, tenant receivables and accounts payable, approximate their carrying value due to their short nature. The hierarchy followed defines three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter; depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.

Derivatives (interest rate caps), which are reported at fair value in the consolidated balance sheets, are valued by a third-party pricing agent using an income approach with models that use, as their primary inputs, readily observable market parameters. This valuation process considers factors including interest rate yield curves, time value, credit and volatility factors. (Level 2)

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

The following table presents information about the Company's assets measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Level 1		Level 2		Level 3		Total
March 31, 2022
Assets:
Interest rate caps	$	—	$	3,548	$	—	$	3,548
	$	—	$	3,548	$	—	$	3,548
December 31, 2021
Assets:
Interest rate caps	$	—	$	1,282	$	—	$	1,282
	$	—	$	1,282	$	—	$	1,282

The following table presents the carrying amount and estimated fair value of the Company’s mortgage notes payable-outstanding borrowings (in thousands):

	March 31, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage notes payable- outstanding borrowings	$	1,155,825	$	1,056,022	$	1,415,321	$	1,358,503

The carrying amount of the mortgage notes payable presented is the outstanding borrowings excluding premium or discount and deferred finance costs, net. The fair value of the mortgage notes payable was estimated using rates available to the Company for debt with similar terms and remaining maturities. (Level 3)

NOTE 13 - DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

As a condition to certain of the Company’s financing facilities, from time to time the Company may be required to enter into certain derivative transactions as may be required by the lender. These transactions would generally be in line with the Company’s own risk management objectives and also serve to protect the lender.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company entered into a total of 11 interest rate caps that were designated as cash flow hedges. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2022, such derivatives were used to hedge the variable cash flows, indexed to USD-LIBOR and one loan indexed to SOFR, associated with existing variable-rate loan agreements.

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RESOURCE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (continued)

MARCH 31, 2022

(unaudited)

During the three months ended March 31, 2022, the Company settled 17 interest rate caps that were no longer associated with outstanding mortgages for $2.0 million and recognized a gain on settlement of $1.6 million.

During the three months ended March 31, 2022 and 2021, the Company recorded expenses of approximately $317,000 and $45,000, respectively, due to amortization of premiums paid for interest rate caps.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional approximate $555,000 will be reclassified as a decrease to interest expense.

The following table presents the Company's outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk as of March 31, 2022 and December 31, 2021 (dollars in thousands):

	Interest Rate Derivative	Number of Instruments		Notional Amount		Maturity Dates
March 31, 2022	Interest Rate Caps		11	$	388,203	May 1, 2022 to February 1, 2026
December 31, 2021	Interest Rate Caps		18	$	626,623	January 1, 2022 to February 1, 2026

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The following table presents the fair value of the Company’s derivative financial instruments on the consolidated balance sheets as of March 31, 2022 and December 31, 2021 (in thousands):

Asset Derivatives

Liability Derivatives

March 31, 2022

December 31, 2021

March 31, 2022

December 31, 2021

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Prepaid expenses and other assets

$

3,548

Prepaid expenses and other assets

$

1,282

—

$

—

—

$

—

NOTE 13 - SUBSEQUENT EVENTS

On May 2, 2022, in anticipation of the closing of the Blackstone Merger, the Company provided notice of termination effective as of May 17, 2022, with respect to the Credit Facility for which BofA Securities, Inc. acts as sole book runner and sole lead arranger and Bank of America, N.A., as administrative agent and L/C issuer. There are no borrowings under the Credit Facility and the Company will not incur any material termination penalties as a result of such termination.

The Company has evaluated subsequent events and determined that no events have occurred, other than as disclosed above or elsewhere in the financial statements, which would require an adjustment to or additional disclosure in the consolidated financial statements.

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Resource REIT, Inc. (f/k/a Resource Real Estate Opportunity REIT II, Inc. or REIT II) and the notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for Resource Real Estate Opportunity REIT I, Inc. included in the Amended Current Report on Form 8-K/A filed by Resource REIT, Inc. on April 8, 2021.

Overview

We were formed on September 28, 2012. We are a public, self-managed, non-traded REIT that has acquired a diversified portfolio of U.S. commercial real estate and real estate-related debt. As of March 31, 2022, our portfolio consisted of 42 multifamily properties in 12 states that contain 12,667 units. As of March 31, 2022, we had 40 employees and conducted our operations through RRE Opportunity OP II, LP, our operating partnership. We have contracted with Greystar, a third-party property management company to provide property management services at our properties. Our portfolio consists of multifamily rental properties to which we have added value with a capital infusion (referred to as “value add properties”). The primary portion of our initial public offering commenced in February 2014 and closed in February 2016.

Blackstone Merger

On January 23, 2022, we entered into an Agreement and Plan of Merger (the “Blackstone Merger Agreement”) with Rapids Parent LLC (“Parent”) and Rapids Merger Sub LLC (“Rapids Merger Sub”). The Blackstone Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Rapids Merger Sub (the “Blackstone Merger”). Upon completion of the Blackstone Merger, separate existence of the Company will cease. The transactions contemplated by the Blackstone Merger Agreement were unanimously approved by our board of directors. The Company expects the closing of the Blackstone Merger to occur on May 19, 2022, subject to the satisfaction of certain customary closing conditions, including, among others, approval of the Blackstone Merger by the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to cast a vote on the Blackstone Merger (the “Stockholder Approval”). The Company will hold a special meeting on May 16, 2022 for the purpose of obtaining the Stockholder Approval. In addition, the holders of at least two-thirds of the outstanding shares of the Company’s convertible stock entitled to vote on the Blackstone Merger have approved the Blackstone Merger by written consent in accordance with Maryland law and our charter and bylaws. Parent and Rapids Merger Sub are affiliates of Blackstone Real Estate Income Trust, Inc. (“BREIT”), which is an affiliate of Blackstone Inc.

Resource REIT Merger

On September 8, 2020, Resource Real Estate Opportunity REIT, Inc. (“REIT I”), REIT II, RRE Opportunity OP II, LP, REIT II’s operating partnership (“REIT II OP” or “OP II”), Resource Real Estate Opportunity OP, LP, a Delaware limited partnership (“REIT I OP” or “OP I”), and Revolution I Merger Sub, LLC, a wholly owned subsidiary of REIT II (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement” pursuant to which REIT I was to be merged with and into Merger Sub, with Merger Sub surviving as a direct wholly owned subsidiary of REIT II, in a stock-for-stock business combination (the “REIT I Company Merger”).

On January 26, 2021, at a special meeting of our stockholders, our stockholders approved Articles of Amendment to our charter (the “Articles of Amendment”) to remove certain provisions related to “Roll-Up Transactions” (and the associated definitions) from our charter in connection with the REIT I Company Merger. On January 27, 2021, we filed the Articles of Amendment with the State Department of Assessments and Taxation of Maryland, and the Articles of Amendment became effective on January 28, 2021.

Effective January 28, 2021, REIT I merged with and into Merger Sub, with Merger Sub surviving as a direct wholly owned subsidiary of Resource REIT, Inc. (the “Company Merger”) and OP I merged with and into OP II, with OP II surviving (the “Partnership Merger” and, together with the Company Merger, the “Mergers”). At such time, in accordance with the applicable provisions of the Maryland General Corporation Law, the Maryland Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership Act, the separate existence of both the Company and OP I ceased.

At the effective time of the Company Merger, each issued and outstanding share of our common stock (or a fraction thereof), $0.01 par value per share (“REIT I Common Stock”), converted into 1.22423 shares of Resource REIT’s common

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stock, $0.01 par value per share (“Resource REIT Common Stock”) and each issued and outstanding share of our convertible stock, $0.01 par value per share (“REIT I Convertible Stock”), converted into the right to receive $0.02 in cash, without interest.

At the effective time of the Partnership Merger, each common unit of partnership interests in OP I outstanding immediately prior to the effective time of the Partnership Merger converted into the right to receive 1.22423 common units of partnership interest in OP II and each Series A Cumulative Participating Redeemable Preferred Unit in OP I issued and outstanding immediately prior to the effective time of the Partnership Merger converted into the right to receive one Series A Cumulative Participating Redeemable Preferred Unit in OP II.

Resource Apartment REIT III, Inc. (“REIT III”) Merger

On September 8, 2020, REIT II, OP II, Revolution III Merger Sub, LLC, REIT II’s wholly-owned subsidiary (“Merger Sub III”), REIT III, and Resource Apartment OP III, LP (“OP III”), the operating partnership of REIT III, entered into an Agreement and Plan of Merger (the “REIT III Merger Agreement”).

Effective January 28, 2021, REIT III merged with and into Merger Sub III, with Merger Sub III surviving as REIT II’s direct, wholly-owned subsidiary (the “REIT III Company Merger”) and OP III merged with and into OP II (the “REIT III Partnership Merger” and, together with the REIT III Company Merger, the “REIT III Merger”), with OP II surviving the REIT III Partnership Merger. At such time, the separate existence of REIT III and OP III ceased. The REIT I Merger and the REIT III Merger are hereinafter together referred to as the “Resource REIT Mergers”.

At the effective time of the REIT III Company Merger, each issued and outstanding share of REIT III’s common stock (or fraction thereof) converted into the right to receive 0.925862 shares of the REIT II’s common stock. At the effective time of the REIT III Partnership Merger, each common unit of partnership interests in OP III outstanding immediately prior to the effective time of the REIT III Partnership Merger was retired and ceased to exist. In addition, for each share of REIT II’s common stock issued in the REIT III Company Merger, a common unit of partnership interest was issued to the Company by OP II.

The combined company after the Resource REIT Mergers is known as “Resource REIT, Inc.” The Resource REIT Mergers are intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.

Effective as of the close of the REIT I Merger, REIT II acquired Resource Real Estate Opportunity Advisor II, LLC and Resource Real Estate Opportunity Advisor, LLC and became a self-managed REIT. In connection with the Resource REIT Mergers, REIT II was the legal acquirer of both REIT I and REIT III, however, REIT I was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Resource REIT Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Resource REIT Mergers reflects REIT I’s results. For this reason, period to period comparisons may not be meaningful.

Unless the context requires otherwise, all references to the “Company,” “we,” “our,” and “us” herein mean REIT I, and one or more of REIT I’s subsidiaries for periods prior to the Resource REIT Mergers, and REIT II and one or more of REIT II’s subsidiaries for periods following the Resource REIT Mergers. Certain historical information of REIT II is included for background purposes.

Results of Operations

As of March 31, 2022, we owned interests in a total of 42 multifamily properties. The three combined REITs have acquired interests in 78 multifamily properties and as of March 31, 2022, have sold interests in 36 of these properties.

Through March 31, 2022, the COVID-19 pandemic has not significantly impacted our operating results; however, we have experienced some reductions in revenue during both the quarter and year to date as a result of waiving late fees and the suspension of evictions at our properties. We expect that as the impact of COVID-19 continues to be felt, the COVID-19 outbreak may adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, rental revenues and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are outside of our control.

Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

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The following table reflects the revenues, property operating expenses and net operating income, or NOI, (as defined below) for three months ended March 31, 2022 and 2021 for our Same Store and Non-Same Store properties (as defined below) (dollars in thousands, except per unit):

	For the Three Months Ended
	March 31, 2022 (2)			March 31, 2021			Increase / (Decrease)			% Change (1)
Number of properties:
Same Store		21			21			—			0	%
Non-Same Store		21			30			(9	)		-30	%
Total		42			51			(9	)		-18	%
Number of Units
Same Store		6,433			6,433			—
Non-Same Store		6,234			8,562			(2,328	)		-27	%
Total		12,667			14,995			(2,328	)		-16	%
Average Occupancy
Same Store		95.1	%		94.7	%					0.4	%
Non-Same Store		95.1	%		94.9	%					0.2	%
Total		95.1	%		94.8	%					0.3	%
Net effective rent, per occupied unit
Same Store	$	1,434		$	1,298		$	136			10	%
Non-Same Store		1,478			1,319			159			12	%
All properties		1,457			1,310			147			11	%
Revenues:
Same Store revenues	$	29,139		$	26,031		$	3,108			12	%
Non-Same Store revenues		31,292			27,369			3,923			14	%
Total Rental income		60,431			53,400			7,031			13	%
Expenses:
Same Store
Property operating expenses, including real estate taxes		10,527			10,691			(164	)		-2	%
Property management fees - third party		769			704			65			9	%
General and administrative - property		595			617			(22	)		-4	%
Same Store operating expenses		11,891			12,012			(121	)		-1	%
Non-Same Store
Property operating expenses, including real estate taxes		11,566			11,330			236			2	%
Property management fees - third party		808			938			(130	)		-14	%
General and administrative - property		650			660			(10	)		-2	%
Non-Same Store operating expenses		13,024			12,928			96			1	%
Total operating expenses		24,915			24,940			(25	)		0	%
Net Operating Income "NOI"
Same Store		17,248			14,019			3,229			23	%
Non-Same Store		18,268			14,441			3,827			27	%
Total NOI	$	35,516		$	28,460		$	7,056			25	%

(1) N/M- result not meaningful

(2) We have combined two properties; Adair off Addison and Adair off Addison II.

See reconciliation of Net income (loss) attributable to common stockholders to NOI table below:

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	For the Three Months Ended
	March 31, 2022			March 31, 2021			Increase / (Decrease)			% Change
Net income (loss) attributable to common stockholders	$	152,003		$	(16,573	)		168,576			-1017	%
Allocation of income to preferred unit holders attributable to noncontrolling interests		—			(59	)		59			-100	%
Net loss attributable to noncontrolling interests		—			(865	)		865			-100	%
Net income (loss) after preferred unit distributions		152,003			(17,497	)		169,500			-969	%
Preferred return to preferred OP unit holders		—			1,120			(1,120	)		-100	%
Net income (loss)	$	152,003		$	(16,377	)	$	168,380			-1028	%
Adjustments to reconcile net income (loss) to NOI:
Casualty loss		166			300			(134	)		-45	%
Transaction expenses		5,013			—			5,013			100	%
General and administrative - corporate		10,237			7,834			2,403			31	%
Loss on disposal of assets		170			110			60			55	%
Depreciation and amortization expense		21,081			23,103			(2,022	)		-9	%
Interest expense		11,724			14,532			(2,808	)		-19	%
Interest income		—			(15	)		15			-100	%
Gain on sale of rental property		(161,777	)		—			(161,777	)		100	%
Management fee and other income		—			(1,212	)		1,212			-100	%
Insurance proceeds in excess of cost basis		(1,487	)		(18	)		(1,469	)	N/M
Gain on settlement of derivative		(1,614	)		—			(1,614	)		100	%
Provision for income taxes		—			203			(203	)		-100	%
NOI	$	35,516		$	28,460			7,056

Net Operating Income or “NOI” is a non-GAAP financial measure, which we define as total rental property revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation and amortization, interest expense, related party management fees, casualty losses and gains, losses on disposal of assets and corporate general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.

We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods. The 22 properties formerly held by REIT II and REIT III which were acquired in the Resource REIT Mergers are included in Non-Same Store results and statistics for the three months ended March 31, 2022 and 2021.

Net effective rent, per occupied unit is equal to the average of gross potential rent net of gain/loss to lease, less vacancy, non-revenue units and concessions, divided by the average occupancy (in units) for the periods presented.

Average occupancy represents the daily average occupied units for the reporting period divided by the total number of units, expressed as a percentage.

Rental and other property revenue. Same store property revenue of the former REIT I portfolio, increased by approximately $3.1 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase was principally due to an approximate $2.8 million increase in rental income resulting from a 0.4% increase in average occupancy as well as a $136 increase in net effective monthly rent, per occupied unit. In addition, bad debt expense, net of recoveries decreased by approximately $184,000 for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. Utility income increased by approximately $101,000 due to increased utility charges to tenants. Non-same store results for the three months ended March 31, 2021 include the former REIT II and REIT III properties for the period from January 28, 2021 through March 31, 2021 due to the Resource REIT Mergers as well as the seven former REIT I properties that were sold.

Transaction Expenses. We recorded $5.0 million of expenses related to the Blackstone Merger in the three months ended March 31, 2022.

General and Administrative. Corporate general and administrative expenses increased by approximately $2.4 million for the three months ended March 31, 2022 as compared the three months ended March 31, 2021 principally due to a $3.7 million

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increase in franchise taxes relating to the properties sold as well as a decrease in payroll and benefit costs of approximately $1.7 million primarily due to decreased in compensation expense for restricted stock awards.

Depreciation and Amortization. Depreciation and amortization expense is comprised of the depreciation on our rental properties and amortization of intangible assets related to in-place apartment unit leases from the Resource REIT Mergers and in-place antennae leases. The decrease in depreciation and amortization expense during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was comprised primarily of the $2.0 million decrease in amortization of in-place apartment unit leases acquired in the Resource REIT Mergers.

Interest Expense. Interest expense decreased by approximately $2.8 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily due to the $2.3 million decline in prepayment penalties, accelerated amortization of deferred finance costs and accelerated fair value adjustment relating to mortgages refinanced in 2021 and mortgages repaid in 2022.

Gain on sale of rental property. We sold The Bryant at Yorba Linda, Maxwell Townhomes and Sunset Ridge in the three months ended March 31, 2022 and recognized an aggregate gain on sale of $161.8 million.

Gain on settlement of derivatives. We settled 17 interest rate caps with the issuer that we held but that were no longer associated with mortgage notes payable due to repayments or property sales for $2.0 million in the three months ended March 31, 2022, and recognized a $1.6 million gain.

Liquidity and Capital Resources

We have derived the capital required to purchase real estate investments and conduct our operations from the proceeds of our public offerings, secured financings from banks or other lenders, proceeds from the sale of assets, and cash flow generated from our operations.

Our ability to derive the capital needed to conduct our operations may be adversely affected by the impact of the COVID-19 pandemic as discussed above.

We allocate funds as necessary to support the future maintenance and viability of properties we acquire in order to preserve value for our investors. If such allocations and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties, debt investments or other assets we may hold. We cannot assure you that we will be able to access additional funds when we need them or upon acceptable terms.

During the three months ended March 31, 2021, we obtained REIT-level financing through a line of credit from Bank of America. Some of our assets serve as collateral for this debt. In addition to debt financing at the REIT-level, we have financed the acquisition costs of individual real estate investments, as well as the acquisition costs of all or a group of real estate investments acquired by us, by causing our subsidiaries to borrow directly from third-party financial institutions or other commercial lenders. We have also obtained mortgage financing which contains cross-collateralization or cross-default provisions whereby a default on a single property could affect multiple properties.

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Gross Offering Proceeds

As of March 31, 2022, we had an aggregate of 166.3 million shares of our $0.01 par value common stock outstanding including 1.4 million unvested restricted shares. The following table presents our shares issued (dollars in thousands):

	Shares Issued			Gross Proceeds
Shares issued through private offering		1,279,227		$	12,737
Shares issued through primary public offering		129,923,354			1,289,845
Shares issued through stock distributions		2,406,986			—
Shares issued through distribution reinvestment plan		29,042,460			279,519
Restricted shares issued to employees		1,918,126			—
Shares issued through conversion of common OP units		7,539,738			—
Shares issued in connection with the Resource REIT Merger		14,724,323			—
Total		186,834,214		$	1,582,101
Shares redeemed and retired		(20,574,975	)
Total shares issued and outstanding as of March 31, 2022		166,259,239

LIBOR

Central banks and regulators in a number of major jurisdictions (including both the U.S. and the U.K.) have convened working groups to find, and implement the transition to, suitable replacements for Interbank Offered Rates (IBORs), including LIBOR. The Financial Conduct Authority of the U.K. (the “FCA”), which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021, in the case of the 1-week and 2-month US dollar settings; and (ii) immediately after June 30, 2023, in the case of the remaining US dollar settings. The tenors that were extended to June 30, 2023 are more widely used and are the tenors used in our LIBOR-based debt.

We have exposure to IBORs through floating rate mortgage debt with maturity dates beyond 2021 for which the interest rates are tied to LIBOR. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Any changes in benchmark interest rates could increase our cost of capital, which could impact our results of operations, cash flows, and the market value of our real estate investments.

Distributions Paid to Common Stockholders

For the three months ended March 31, 2022, we paid a cash distribution to our common stockholders of $11.6 million as follows (in thousands, except per share data):

Record Date	Per Common Share		Distribution Date	Net Cash Distribution
March 30, 2022	$	0.07	March 31, 2022	$	11,640

Distributions paid, distributions declared and sources of distributions paid were as follows for the three months ended March 31, 2022 (dollars in thousands):

	Common Distributions Paid		Distributions Declared		Sources of Distributions Paid
2022	Cash	Cash Provided by Operating Activities	Total	Per Share	Operating Activities Amount Paid/Percent of Total	Property Dispositions Amount Paid/Percent of Total
1st Quarter	$11,640	$12,873	$11,640	$0.07	$11,640 / 100%	- / -

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Funds from Operations (FFO) and Core Funds from Operations (Core FFO)

Funds from operations, or FFO, is a non-GAAP financial measurement that is widely recognized as a measure of operating performance for a REIT. We calculate FFO as defined by the National Association of Real Estate Investment Trusts, or NAREIT, to be net income or loss, computed in accordance with GAAP, excluding:

•depreciation and amortization related to real estate;

•gains and losses from the sale of certain real estate assets; and

•impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

These reconciling items include adjustments related to noncontrolling interests.

We believe that FFO is helpful to our investors as a measure of operating performance because it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the use of FFO, together with the required GAAP presentations, is helpful to our investors in understanding our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, yields on cash held in accounts, interest rates on acquisition financing, and operating expenses. In addition, FFO will be affected by the types of investments in our portfolio.

Core FFO includes certain adjustments to FFO for non-routine items or items not considered core to business operations. Core FFO adjusts FFO to exclude equity compensation expense, losses on extinguishment of debt and modification costs, transaction (including Self-Management) costs, amortization of deferred financing costs, amortization of intangible lease assets, debt premium or discount amortization, realized losses on fair value adjustments related to interest rate caps, and casualty gains and losses. By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides investors with additional information to compare core operating and financial performance between periods.

FFO and Core FFO should not be considered as alternatives to net income or loss or any other GAAP measurement of performance, but rather should be considered as additional, supplemental measures. FFO and Core FFO do not represent cash generated from operating activities in accordance with GAAP, nor indicate funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. In addition, Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.

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The following table reconciles net loss attributable to common shareholders to FFO and Core FFO for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts). Amounts reported in the tables below include adjustments attributable to noncontrolling interests:

	Three Months Ended March 31,
	2022			2021
Net income (loss) attributable to common stockholders – GAAP	$	152,003		$	(16,573	)
Depreciation expense (1)		21,081			19,087
Net gains on disposition of properties, net		(161,777	)		—
FFO attributable to common stockholders		11,307			2,514
Stock compensation expense (2)		900			2,862
Debt prepayment costs (3)		1,577			2,307
Amortization of intangible lease assets (4)		—			2,796
Realized loss on change in fair value of interest rate cap(5)		63			43
Debt premium (discount) amortization (6)		123			494
Deferred financing costs amortization (7)		1,503			2,382
Casualty losses, net of casualty gains (8)		(1,321	)		267
Transaction expenses		5,013			—
Realized gain on settlement of interest rate caps		(1,614	)		—
Core FFO attributable to common stockholders	$	17,551		$	13,665
Basic and diluted net income (loss) per common share - GAAP	$	0.92		$	(0.12	)
FFO per diluted share (9)	$	0.07		$	0.02
Core FFO per diluted share (9)	$	0.11		$	0.10
Weighted average shares outstanding - basic		164,763			135,252
Weighted average shares outstanding - diluted (10)		165,102			135,256

(1) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $1.1 million.

(2) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $160,000.

(3) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $129,000.

(4) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $156,000.

(5) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $2,000.

(6) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $28,000.

(7) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $133,000.

(8) Includes allocation for noncontrolling interests for the three months ended March 31, 2021 of approximately $15,000.

(9) Calculated using weighted average shares outstanding – diluted.

(10) None of the shares of convertible stock and 467,461 unvested performance based restricted stock awards are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of either March 31, 2022 or 2021. Weighted average shares outstanding – diluted in this table, which was used to calculate FFO per share and Core FFO per share, includes 4,583 weighted average unvested restricted shares outstanding for the three months ended March 31, 2021 however, these restricted shares were excluded from the calculation of diluted net loss per common share – GAAP because their effect would be antidilutive for the three months ended March 31, 2021. Income (loss) attributable to outstanding OP Common and Preferred units issued in the Self-Management Transaction prior to their redemption and or conversion were included in net (income) loss attributable to noncontrolling interest, and therefore, excluded from the calculation of earnings (loss) per common share, basic and diluted, for all periods presented.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a discussion of our critical accounting policies and estimates, see the discussion in our Annual Report on Form 10-K for the year ended December 31, 2021 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies.”

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Off-Balance Sheet Arrangements

As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements or obligations.

Subsequent Events

On May 2, 2022, in anticipation of the closing of the Blackstone Merger, we provided notice of termination effective as of May 17, 2022, with respect to the Credit Facility, dated as of May 20, 2021, for which BofA Securities, Inc. acts as sole book runner and sole lead arranger and Bank of America, N.A., as administrative agent and L/C issuer. There are no borrowings under the Credit Facility and we will not incur any material termination penalties as a result of such termination.

We have evaluated subsequent events and determined that no events have occurred, other than as disclosed above, which would require an adjustment to or additional disclosure in the consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from our financial instruments primarily from changes in market interest rates. We do not have exposure to any other significant market risks. We monitor interest rate risk as an integral part of our overall risk management, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. Our operating results are affected by changes in interest rates, primarily changes in LIBOR as a result of borrowings under our outstanding mortgage loans.

We enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we entered into a total of 11 interest rate caps that were designated as cash flow hedges. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

As of March 31, 2022 and December 31, 2021, we had $378.6 million and $613.0 million, respectively, in variable rate outstanding borrowings. If interest rates on the variable rate outstanding borrowings had been 100 basis points higher during the three months ended March 31, 2022 and the year ended December 31, 2021, our interest expense would have increased by $1.0 million and $7.0 million, respectively.

In addition, changes in interest rates affect the fair value of our fixed rate outstanding borrowings. As of March 31, 2022 and December 31, 2021, the face value of fixed rate outstanding borrowings was $777.3 million and $802.3 million, respectively. As of March 31, 2022 and December 31, 2021, our fixed rate outstanding borrowings had an estimated aggregate fair value of $713.3 million and $782.5 million, respectively. Fair value is computed using rates available to us for debt with similar terms and remaining maturities. If interest rates had been 100 basis points higher during the three months ended March 31, 2022 and the year ended December 31, 2021, the fair value of these fixed rate outstanding borrowings would have decreased by $39.3 million and $43.7 million, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our principal executive officer and principal financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as of March 31, 2022.

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Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Redemption of Securities

During the three months ended March 31, 2022, we redeemed shares of our common stock as follows:

Period	Total Number of Shares Redeemed (1)		Average Price Paid per Share		Year-to-Date Number of Shares Purchased as Part of a Publicly Announced Plan or Program (2)	Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2022		—	$	—	—	(3)
February 2022		54,689	$	14.75	—	(3)
March 2022		—	$	—	—	(3)
		54,689

(1) The shares redeemed in February 2022 were repurchased from employees upon vesting of restricted stock awards in order to facilitate the payment of taxes by the employees.

(2) The share redemption program commenced on June 16, 2010 and was subsequently amended on September 29, 2011, March 28, 2018, and February 3, 2021.

(3) We currently limit the dollar value and number of shares that may yet be redeemed under our program as described below.

On January 23, 2022, our board of directors suspended our share redemption program due to the pending Blackstone Merger. Our board of directors, in its sole discretion, may suspend, terminate or amend our share redemption program without stockholder approval upon 30 days' notice if it determines that such suspension, termination or amendment is in our best interest. Our board may also reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund our share redemption program are needed for other purposes. These limitations apply to all redemptions, including redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(a) There have been no defaults with respect to any of our indebtedness.

(b) Not applicable.

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ITEM 6. EXHIBITS

Exhibit No.	Description
2.1	Agreement and Plan of Merger dated September 8, 2020, by and among the Company, OP II, Revolution I Merger Sub LLC, REIT I and OP I, (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed September 11, 2020)
2.2	Agreement and Plan of Merger, dated as of September 8, 2020, by and among the Company, OP II, Revolution III Merger Sub, LLC, OP III and REIT III (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed September 11, 2020)
2.3	Agreement and Plan of Merger, dated as of January 23, 2022, by and among Rapids Parent LLC, Rapids Merger Sub LLC, and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 24, 2022)
3.1	Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed February 5, 2021)
3.2	Second Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 2, 2021)
4.1	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to the Company’s Registration Statement on Form S-11 (No. 333-184476) filed October 17, 2012)
4.2	Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Appendix A to the prospectus included in the Company’s Post-Effective Amendment No. 9 to the Registration Statement on Form S-11 on Form S-3 (No. 333-184476) filed February 16, 2016)
10.1	2022 Employee Retention/Transaction Bonus Plan, dated as of January 23, 2022 (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed March 25, 2022)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Principal Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Fifth Amended and Restated Share Redemption Program (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K filed February 5, 2021)
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RESOURCE REIT, INC.
May 12, 2022	By:	/s/ Alan F. Feldman
		ALAN F. FELDMAN
		Chief Executive Officer, President and Director
		(Principal Executive Officer)
May 12, 2022	By:	/s/ Thomas C. Elliott
		THOMAS C. ELLIOTT
		Chief Financial Officer, Executive Vice
		President and Treasurer (Principal Financial Officer)
May 12, 2022	By:	/s/ Steven R. Saltzman
		STEVEN R. SALTZMAN
		Chief Accounting Officer and Vice President
		(Principal Accounting Officer)

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