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EX-31.2 - EXHIBIT 31.2 - RREEF Property Trust, Inc.rpt-20160930xex31x2.htm
EX-32.1 - EXHIBIT 32.1 - RREEF Property Trust, Inc.rpt-2016093030xex32x1.htm
EX-31.1 - EXHIBIT 31.1 - RREEF Property Trust, Inc.rpt-20160930xex31x1.htm
EX-10.3 - EXHIBIT 10.3 - RREEF Property Trust, Inc.psa40allieddriveassignment.htm
EX-10.2 - EXHIBIT 10.2 - RREEF Property Trust, Inc.psa40allieddrive.htm
EX-10.1 - EXHIBIT 10.1 - RREEF Property Trust, Inc.allieddrive_amendedloanagr.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
Form 10-Q
_________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____

Commission file number 000-55598
__________________________________________ 
RREEF Property Trust, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________
Maryland
45-4478978
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
345 Park Avenue, 26th Floor, New York, NY 10154
(212) 454-6260
(Address of principal executive offices; zip code)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 ________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o  (Do not check if smaller reporting company)
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of November 10, 2016, the registrant had 3,663,882 shares of Class A common stock, $.01 par value, outstanding, 3,623,070 shares of Class I common stock, $.01 par value, outstanding, and 4,043 shares of Class T common stock, $.01 par value, outstanding.
 
 
 
 
 





RREEF PROPERTY TRUST, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2016

TABLE OF CONTENTS
 
 


2


PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS




















































3


RREEF PROPERTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
 
September 30, 2016 (unaudited)
 
December 31, 2015
ASSETS

 

Investment in real estate assets:

 

Land
$
37,238,612

 
$
31,754,687

Buildings and improvements, less accumulated depreciation of $6,160,930 and $3,497,151, respectively
97,252,040

 
80,061,236

Furniture, fixtures and equipment, less accumulated depreciation of $103,329 and $26,166, respectively
290,570

 
339,735

Acquired intangible lease assets, less accumulated amortization of $10,734,410 and $4,782,000, respectively
26,060,924

 
23,149,688

Total investment in real estate assets, net
160,842,146

 
135,305,346

Investment in marketable securities
8,718,930

 
8,569,004

Total investment in real estate assets and marketable securities, net
169,561,076

 
143,874,350

Cash and cash equivalents
2,233,714

 
1,936,870

Receivables, net of allowance for doubtful accounts of $27,726 and zero, respectively
1,286,292

 
1,112,429

Deferred leasing costs, net of amortization of $11,339 and zero, respectively
145,137

 

Prepaids and other assets
1,533,718

 
1,142,624

Total assets
$
174,759,937

 
$
148,066,273

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Line of credit, net
$
79,969,804

 
$
71,784,456

Mortgage loan payable, net
14,349,804

 

Accounts payable and accrued expenses
1,786,916

 
295,488

Due to affiliates
4,801,217

 
12,041,732

Note to affiliate, net of unamortized discount of $1,687,270 at September 30, 2016
7,262,730



Acquired below market lease intangibles, less accumulated amortization of $2,523,322 and $669,589, respectively
6,160,433

 
7,858,949

Distributions payable
218,600

 
192,435

Other liabilities
1,558,220

 
3,816,498

Total liabilities
116,107,724

 
95,989,558

Stockholders' Equity:

 

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

 

Class A common stock, $0.01 par value; 200,000,000 shares authorized; 3,672,589 and 3,077,546 issued and outstanding, respectively
36,727

 
30,776

Class I common stock, $0.01 par value; 200,000,000 shares authorized; 3,437,266 and 2,914,314 issued and outstanding, respectively
34,373

 
29,143

Class T common stock, $0.01 par value; 250,000,000 shares authorized; 4,043 and zero issued and outstanding, respectively
40

 

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

 

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

 

Additional paid in capital
76,335,694

 
62,760,361

Accumulated deficit
(18,399,239
)
 
(11,439,005
)
Accumulated other comprehensive income
644,618

 
695,440

Total stockholders' equity
58,652,213

 
52,076,715

Total liabilities and stockholders' equity
$
174,759,937

 
$
148,066,273


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

4


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues

 
 
 
 
 
 
Rental and other property income
$
4,811,868

 
$
1,827,487

 
$
11,310,771

 
$
5,460,402

Tenant reimbursement income
298,642

 
282,349

 
938,783

 
752,693

Investment income on marketable securities
100,314

 
68,310

 
364,643

 
175,101

Total revenues
5,210,824

 
2,178,146

 
12,614,197

 
6,388,196

Expenses

 
 
 
 
 

General and administrative expenses
484,966

 
412,090

 
1,594,622

 
1,520,999

Property operating expenses
1,196,943

 
481,691

 
3,760,305

 
1,336,528

Advisory expenses
445,066

 
168,000

 
869,794

 
421,829

Acquisition related expenses
158,762

 
424,549

 
158,762

 
424,549

Depreciation
920,562

 
487,367

 
2,740,942

 
1,456,422

Amortization
2,946,851

 
519,930

 
5,860,724

 
1,545,813

Total operating expenses
6,153,150

 
2,493,627

 
14,985,149

 
6,706,140

Operating loss
(942,326
)
 
(315,481
)
 
(2,370,952
)
 
(317,944
)
Interest expense
(541,561
)
 
(249,343
)
 
(1,657,922
)
 
(970,104
)
Net realized gain (loss) upon sale of marketable securities
243,689

 
(71,771
)
 
372,736

 
24,429

Net loss
$
(1,240,198
)
 
$
(636,595
)
 
$
(3,656,138
)
 
$
(1,263,619
)
Weighted average number of common shares outstanding:

 
 
 
 
 
 
Basic and diluted
7,046,836

 
5,251,033

 
6,727,867

 
4,723,267

Net loss per common share:

 
 
 

 
 
Basic and diluted
$
(0.18
)
 
$
(0.12
)
 
$
(0.54
)
 
$
(0.27
)


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



5


RREEF PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(1,240,198
)
 
$
(636,595
)
 
$
(3,656,138
)
 
$
(1,263,619
)
Other comprehensive income:

 

 

 

Reclassification of previous unrealized loss (gain) on
marketable securities into net realized (gain) loss
(243,689
)
 
71,771

 
(372,736
)
 
(24,429
)
Unrealized gain (loss) on marketable securities
(342,239
)
 
201,775

 
321,914

 
(433,620
)
Total other comprehensive income (loss)
(585,928
)
 
273,546

 
(50,822
)
 
(458,049
)
Comprehensive loss
$
(1,826,126
)
 
$
(363,049
)
 
$
(3,706,960
)
 
$
(1,721,668
)

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


6


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


Preferred Stock

Class A Common Stock

Class I Common Stock

Class T Common Stock

Class D Common Stock
 
Class N Common Stock
 
Additional Paid in Capital

Accumulated deficit

Accumulated other comprehensive income (loss)

Total
Stockholders'
Equity

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value

Number of
Shares
Par
Value
 
Number of
Shares
Par
Value
 
Balance, December 31, 2015

$


3,077,546

$
30,776


2,914,314

$
29,143



$



$



$

 
$
62,760,361


$
(11,439,005
)

$
695,440

 
$
52,076,715

Issuance of common stock



1,183,954

11,840


561,568

5,616


4,043

40




 


 
23,033,275





 
23,050,771

Issuance of common stock through the distribution reinvestment plan



64,737

647


39,919

399







 


 
1,367,259





 
1,368,305

Redemption of common stock



(653,648
)
(6,536
)

(78,535
)
(785
)






 


 
(9,453,304
)




 
(9,460,625
)
Distributions to investors














 


 


(3,304,096
)


 
(3,304,096
)
Dealer - manager fees














 


 
(312,679
)




 
(312,679
)
Other offering costs














 


 
(2,921,098
)




 
(2,921,098
)
Discount on note to affiliate


 


 


 


 


 


 
1,861,880

 



 
1,861,880

Comprehensive loss














 


 


(3,656,138
)

(50,822
)
 
(3,706,960
)
Balance, September 30, 2016

$

 
3,672,589

$
36,727

 
3,437,266

$
34,373

 
4,043

$
40



$

 

$

 
$
76,335,694

 
$
(18,399,239
)
 
$
644,618

 
$
58,652,213


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



7


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

 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(3,656,138
)
 
$
(1,263,619
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation
2,740,942

 
1,456,422

Net realized gain upon sale of marketable securities
(372,736
)
 
(24,429
)
Amortization of intangible lease assets and liabilities
4,110,016

 
1,265,693

Amortization of deferred financing costs
257,159

 
300,210

Allowance for doubtful accounts
27,726

 

Straight line rent
(210,205
)
 
(336,850
)
Amortization of discount on note to affiliate
174,610



Changes in assets and liabilities:

 

Receivables
49,593

 
(37,774
)
Deferred leasing costs
(156,475
)
 

Prepaids and other assets
(152,468
)
 
(114,653
)
Accounts payable and accrued expenses
706,810

 
(192,451
)
Other liabilities
(156,867
)
 
91,741

Due to affiliates
342,288

 
1,003,232

Net cash provided by operating activities
3,704,255

 
2,147,522

Cash flows from investing activities:

 

Investment in real estate and related assets
(33,761,415
)
 
(27,004,401
)
Improvements to real estate assets
(74,935
)
 

Investment in marketable securities
(9,456,559
)
 
(9,418,127
)
Proceeds from sale of marketable securities
10,355,353

 
7,233,337

Net cash used in investing activities
(32,937,556
)
 
(29,189,191
)
Cash flows from financing activities:

 

Proceeds from line of credit
36,100,000

 
72,926,851

Repayments of line of credit
(28,000,000
)
 
(63,826,851
)
Proceeds from notes payable
14,500,000



Proceeds from issuance of common stock
23,050,771

 
24,621,532

Payment of offering costs
(4,178,368
)
 
(1,185,106
)
Repayment of note to affiliate
(250,000
)


Distributions to investors
(3,277,931
)
 
(2,169,818
)
Repurchase of shares
(9,460,625
)

(3,157,690
)
Common stock issued through the distribution reinvestment plan
1,368,305

 
980,084

Deferred financing costs paid
(322,007
)
 
(809,345
)
Net cash provided by financing activities
29,530,145

 
27,379,657

Net increase in cash and cash equivalents
296,844

 
337,988

Cash and cash equivalents, beginning of period
1,936,870

 
2,119,387

Cash and cash equivalents, end of period
$
2,233,714

 
$
2,457,375


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


8


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

 
Nine Months Ended September 30,
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
2016
 
2015
Accrued offering costs payable to affiliates
$


$
2,236,157

Distributions declared and unpaid
218,600


170,998

Unrealized loss on marketable securities
(50,822
)

(458,049
)
Purchases of marketable securities not yet paid
786,477


31,417

Proceeds from sale of marketable securities not yet received
65,643


62,146

Proceeds from issuance of common stock not yet received


132,233

Discount on note to affiliate
1,861,880



Accrued dealer manager and distribution fees
687,257



 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid
$
1,164,346

 
$
619,607

 
 
 
 
 
 
 
 
In connection with the purchase of investments in real estate and related assets, the Company also assumed certain non-real estate assets and liabilities:
 
 
 
Purchase price
$
34,000,000

 
$
27,000,000

Prepaids and other assets assumed
(7,055
)
 
75,832

Other liabilities assumed
(231,530
)
 
(71,431
)
Investment in real estate and related assets
$
33,761,415

 
$
27,004,401


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


9


RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(Unaudited)

NOTE 1 — ORGANIZATION
RREEF Property Trust, Inc. (the “Company”) was formed on February 7, 2012 as a Maryland corporation and has elected to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. On February 14, 2012, RREEF America L.L.C., a Delaware limited liability company (“RREEF America”), the Company's sponsor and advisor, purchased 16,667 shares of the Company’s Class B common stock for a total cash consideration of $200,000 to provide the Company’s initial capitalization. Substantially all of the Company's business is conducted through RREEF Property Operating Partnership, LP, the Company's operating partnership (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and contributed $199,000 to the Operating Partnership in exchange for its general partner interest. RREEF Property OP Holder, LLC (the “OP Holder”), a wholly-owned subsidiary of the Company and the initial limited partner of the Operating Partnership, contributed $1,000 to the Operating Partnership. As the Company completes the settlement for purchase orders for shares of its common stock in its continuous public offering, it will continue to transfer substantially all of the proceeds to the Operating Partnership.
The Company was organized to invest primarily in a diversified portfolio consisting primarily of high quality, income-producing commercial real estate located in the United States, including, without limitation, office, industrial, retail and multifamily properties (“Real Estate Properties”). Although the Company intends to invest primarily in Real Estate Properties, it also intends to acquire common and preferred stock of REITs and other real estate companies (“Real Estate Equity Securities”) and debt investments backed principally by real estate (“Real Estate Loans” and, together with Real Estate Equity Securities, “Real Estate-Related Assets”).
On January 3, 2013, the Securities and Exchange Commission ("SEC") declared effective the Company's registration statement on form S-11 (File No. 333-180356), filed under the Securities Act of 1933, as amended (the "Registration Statement"). Pursuant to the Registration Statement, the Company offered for sale up to $2,250,000,000 of shares of its common stock in its primary offering and up to $250,000,000 of shares of its common stock pursuant to its distribution reinvestment plan (the “Public Offering”). On May 30, 2013, RREEF America purchased $10,000,000 of the Company's Class B shares, $0.01 par value per share ("Class B Shares"), in the Public Offering, and the Company’s board of directors authorized the release of the escrowed funds to the Company, thereby allowing the Company to commence operations. Initially, the Company offered to the public two classes of shares of its common stock, Class A shares, $0.01 par value per share ("Class A Shares") and Class B Shares, in any combination of Class A Shares and Class B Shares with a dollar value up to the maximum offering amount.

On January 15, 2016, the Company filed articles supplementary to its articles of incorporation to add a newly-designated Class D common stock, $0.01 par value per share ("Class D shares"). On January 20, 2016, the Company commenced a private offering of up to a maximum of $350,000,000 in Class D shares (the "Private Offering," and together with the Public Offering and the Follow-On Public Offering (defined below), the "Offerings"). On January 27, 2016, the Company filed articles supplementary and articles of amendment to its articles of incorporation to (a) change the name of its Class B shares to Class I shares, (b) add a newly-designated Class T common stock, $0.01 par value per share ("Class T shares") and (c) add a newly-designated Class N common stock, $0.01 par value per share ("Class N shares"). On February 2, 2016, the Company filed an amendment to the Registration Statement to add the Class T shares to the Public Offering, and that amendment to the Registration Statement was declared effective by the SEC on February 9, 2016. Class T shares contain a conversion feature whereby upon the occurrence of a specified event (generally related to a Class T stockholder's account having incurred a maximum of 10% of underwriting compensation), Class T shares owned in a shareholder's Class T account for a given offering will automatically convert to Class N shares.
Shares of the Company’s common stock are sold at the Company’s net asset value (“NAV”) per share, plus, for Class A, T and D shares only, applicable selling commissions. Each class of shares may have a different NAV per

10

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

share because of certain class-specific fees and expenses, such as a distribution fee. NAV per share is calculated by dividing the NAV at the end of each business day for each class by the number of shares outstanding for that class on such day.
On December 23, 2015, the Company filed a registration statement on Form S-11 (File No. 333-208751) registering $2,300,000,000 in shares of its common stock to be sold on a "best efforts" basis in any combination of Class A, Class I, Class T or Class N common stock for the Company's follow-on offering (the "Follow-On Public Offering"). On July 1, 2016, the Company and its Operating Partnership entered into a new dealer manager agreement (the “New Dealer Manager Agreement”) with Deutsche AM Distributors, Inc. (the “New Dealer Manager”), a registered broker-dealer and an affiliate of RREEF America. Also see Note 7. On July 12, 2016, the registration statement for the Company's Follow-On Public Offering was declared effective by the SEC.
The Company's NAV per share for its Class A, Class I and Class T shares is posted to the Company's website at www.rreefpropertytrust.com after the stock market close each business day. Additionally, the Company's NAV per share for its Class A, Class I and Class T shares is published daily via NASDAQ's Mutual Fund Quotation System under the symbols ZRPTAX, ZRPTIX and ZRPTTX for its Class A shares, Class I shares and Class T shares, respectively.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, these consolidated financial statements do not include all the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of the Company's management, the accompanying consolidated financial statements include all adjustments and eliminations, consisting only of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of operating results for a full year. The unaudited information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015. The Company adjusted its accounting for trailing fees, as described below, which resulted in an immaterial correction to the consolidated financial statements. Otherwise, there have been no significant changes to the Company's critical accounting policies during the nine months ended September 30, 2016.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Organization and Offering Expenses

Organizational expenses and other expenses which do not qualify as offering costs are expensed as incurred from and after the commencement of operations. Offering costs are those costs incurred by the Company, RREEF America and its affiliates on behalf of the Company which relate directly to the Company’s activities of raising capital in the Offerings, preparing for the Offerings, the qualification and registration of the Offerings and the marketing and distribution of the Company’s shares. This includes, but is not limited to, accounting and legal fees, including the legal fees of the dealer managers for the public offerings, costs for registration statement amendments and prospectus supplements, printing, mailing and distribution costs, filing fees, amounts to reimburse RREEF America as the Company’s advisor or its affiliates for the salaries of employees and other costs in connection with preparing supplemental sales literature, amounts to reimburse the dealer managers for amounts that it may pay to reimburse the bona fide due diligence expenses of any participating broker-dealers supported by detailed and itemized invoices, telecommunication costs, fees of the transfer agent, registrars, trustees, depositories and experts,

11

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

the cost of educational conferences held by the Company (including the travel, meal and lodging costs of registered representatives of any participating broker-dealers) and attendance fees and cost reimbursement for employees of affiliates to attend retail seminars conducted by broker-dealers. Offering costs will be paid from the proceeds of the Offerings. These costs will be treated as a reduction of the total proceeds. Total organization and offering costs incurred by the Company in relation to each of the Public Offering and the Follow-On Public Offering will not exceed 15% of the gross proceeds from the Public Offering or the Follow-On Public Offering, respectively. In addition, the Company will not reimburse RREEF America or the dealer managers for any underwriting compensation (a subset of organization and offering costs) which would cause the Company’s total underwriting compensation to exceed 10% of the gross proceeds from the primary portion of the Public Offering or the Follow-On Public Offering, as applicable.

Included in offering costs are (1) distribution fees paid on a trailing basis at the rate of (a) 0.50% per annum on the NAV of the Company's outstanding Class A shares, and (b) 1.00% per annum for approximately four years on the net asset value of the Company's outstanding Class T shares, and (2) dealer manager fees paid on a trailing basis at the rate of 0.55% per annum on the NAV of the Company's outstanding Class A and Class I shares (collectively, the "Trailing Fees"). The Trailing Fees are computed daily based on the respective NAV of each share class as of the beginning of each day and paid monthly. However, at each reporting date, the Company accrues an estimate for the amount of Trailing Fees that ultimately may be paid on the outstanding shares. Such estimate reflects the Company's assumptions for certain variables, including future redemptions, share price appreciation and the total gross proceeds raised or to be raised during the Public Offering or the Follow-On Public Offering, respectively. In addition, the estimated accrual for future Trailing Fees as of a given reporting date may be reduced by the aforementioned limits on total organization and offering costs and total underwriting compensation. Changes in this estimate will be recorded prospectively as an adjustment to additional paid in capital.
Correction of Immaterial Understatement of Liabilities
During the three months ended June 30, 2016, the Company identified an immaterial understatement of its liability for Trailing Fees. Previously, the Company accrued for Trailing Fees on a daily basis as offering costs, which are recorded as a reduction of capital in excess of par value. The Company has determined that an estimate for the full amount of the future liability of Trailing Fees should be accrued upon the sale of the Company's shares that incur Trailing Fees. The Company's consolidated financial statements as of and for the year ended December 31, 2015 have been corrected to record a liability for future Trailing Fees. This change has no impact on the Company's net loss or cash flows. The correction of this immaterial misstatement will also be reflected in comparable prior period amounts in the Company's future filings.
The following table summarizes the effects of this change:
 
 
As of December 31, 2015
 
 
Previously Reported
 
Adjustment
 
Corrected
Other liabilities
 
$
2,193,557

 
1,622,941

 
$
3,816,498

Total liabilities
 
$
94,366,617

 
1,622,941

 
$
95,989,558

Additional paid in capital
 
$
64,383,302

 
(1,622,941
)
 
$
62,760,361

Total stockholders' equity
 
$
53,699,656

 
(1,622,941
)
 
$
52,076,715

Concentration of Credit Risk
As of September 30, 2016 and 2015, the Company had cash on deposit at multiple financial institutions which were in excess of federally insured levels. The Company limits significant cash holdings to accounts held by financial institutions with a high credit standing. Therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits.

12

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

As of September 30, 2016, the Company owned six commercial properties with fourteen tenants, one medical office building with five tenants and one student housing property with 316 beds. As of September 30, 2015, the Company owned five commercial properties with thirteen tenants and one student housing property with 316 beds. Percentages of gross rental revenues by property and tenant representing more than 10% of the Company's total gross rental revenues (rental and other property income and tenant reimbursement income) for the three and nine months ended September 30, 2016 and 2015 are shown below.
 
 
Percent of actual gross rental revenues
Property
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
Terra Nova Plaza, Chula Vista, CA1 
 
42.4
%
 
26.0
%
Loudoun Gateway, Sterling VA
 
13.7
%
 
18.4
%
Flats at Carrs Hill, Athens GA
 
13.7
%
 
17.3
%
Anaheim Hills Office Plaza, Anaheim CA
 
10.4
%
 
13.0
%
Commerce Corner, Logan Township, NJ
 
8.4
%
 
10.7
%
Total
 
88.6
%
 
85.4
%
 
 
 
 
 
 
 
Percent of actual gross rental revenues
Tenant
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
The Sports Authority, Inc - Terra Nova Plaza1
 
37.1
%
 
19.2
%
Orbital ATK Inc. - Loudoun Gateway
 
13.7
%
 
18.4
%
Total
 
50.8
%
 
37.6
%
 
 
Percent of actual gross rental revenues
Property
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Terra Nova Plaza, Chula Vista, CA 1
 
26.3
%
 
26.9
%
Anaheim Hills Office Plaza, Anaheim CA
 
24.5
%
 
24.2
%
Commerce Corner, Logan Township, NJ
 
20.7
%
 
20.7
%
Heritage Parkway, Woodridge, IL
 
14.8
%
 
15.1
%
Wallingford Plaza, Seattle, WA
 
13.3
%
 
13.0
%
Total
 
99.6
%
 
99.9
%
 
 
 
 
 
 
 
Percent of actual gross rental revenues
Tenant
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Gateway One Lending and Finance, L.L.C. - Anaheim Hills Office Plaza
 
16.8
%
 
16.6
%
Allstate Insurance Company - Heritage Parkway
 
14.8
%
 
15.1
%
The Sports Authority, Inc - Terra Nova Plaza1
 
13.3
%
 
13.6
%
Bed, Bath & Beyond - Terra Nova Plaza
 
13.0
%
 
13.3
%
Performance Food Group, Inc. - Commerce Corner
 
12.5
%
 
12.4
%
Total
 
70.4
%
 
71.0
%

13

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

1 On March 2, 2016, The Sports Authority, Inc., a tenant at Terra Nova Plaza, declared bankruptcy. On June 29, 2016, Dick's Sporting Goods, Inc. won the right at auction to assume and/or negotiate a new lease for the space occupied by The Sports Authority, Inc. On September 2, 2016, the Company entered into a 10-year lease with Dick's Sporting Goods, Inc. for the space previously occupied by The Sports Authority, Inc. On September 26, 2016, the lease with Dick's Sporting Goods, Inc. was formally approved by the court administering the bankruptcy proceedings of The Sports Authority, Inc., at which time Dick's Sporting Goods, Inc. became the tenant, effectively terminating the lease with The Sports Authority, Inc. In connection therewith, all outstanding receivables related to The Sports Authority, Inc., including $315,548 of accounts receivable and $228,208 of deferred rent receivable which were previously reserved, were fully written off. In addition, the Company also fully amortized the remaining acquired intangible lease assets and acquired below market lease intangible related to The Sports Authority, Inc. lease, the effect of which added approximately $1,898,000 to amortization expense and approximately $1,499,000 to rental and other property income on the Company's consolidated statement of operations for three and nine months ended September 30, 2016. The additional acquired below market lease revenue of $1,499,000 is included in the concentration tables above.
The Company's tenants representing more than 10% of in-place annualized base rental revenues as of September 30, 2016 and 2015 were as follows:
 
 
Percent of in-place annualized base rental revenues as of
Tenant
 
September 30, 2016
 
September 30, 2015
Orbital ATK Inc. - Loudoun Gateway
 
19.7
%
 
%
New England Baptist Hospital - Allied Drive
 
11.7
%
 
%
Allstate Insurance Company - Heritage Parkway
 
9.5
%
 
13.4
%
Gateway One Lending and Finance, L.L.C. - Anaheim Hills Office Plaza
 
9.9
%
 
13.3
%
Total
 
50.8
%
 
26.7
%
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts With Customers. ASU 2014-09 requires entities to recognize revenue in their financial statements in a manner that depicts the transfer of the promised goods or services to its customers in an amount that reflects the consideration to which the entity is entitled at the time of transfer of those goods or services. As a result, the amount and timing of revenue recognition may be affected. However, certain types of contracts are excluded from the provisions of ASU 2014-09, including leases. However, other types of real estate related contracts, such as for dispositions or development of real estate, will be impacted by ASU 2014-09. In addition, ASU 2014-09 requires additional disclosures regarding revenue recognition. ASU 2014-09, as amended, becomes effective on January 1, 2018 for the Company for both its interim and annual reporting periods. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Upon adoption, ASU 2014-09 must be applied retrospectively either (a) to each prior reporting period presented, or (b) with a cumulative effect adjustment. The Company is evaluating the impact of ASU 2014-09 on its consolidated financial statements and has not decided how it will transition at adoption.
In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software under ASC 350-40. It requires the Company to determine whether a cloud computing arrangement contains a software license. If the arrangement contains a software license, the accounting for the fees related to the software license element would be in a manner consistent with how the acquisition of other software licenses are

14

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

accounted for under ASC 350-40. If the arrangement does not contain a software license, the accounting would be for the arrangement as a service contract. ASU 2015-05 became effective for the Company on January 1, 2016. The Company determined that its cloud computing arrangements do not contain software licenses, and thus there was no impact on the Company's consolidated financial statements upon adoption of ASU 2015-05.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined. ASU 2015-16 requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in the previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 became effective for the Company on January 1, 2016. There was no impact on the Company's consolidated financial statements upon the adoption of ASU 2015-16.
In January 2016, the FASB issued ASU 2016-01, Financial Statements - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many current requirements, it significantly revises an entity’s accounting related to investments in equity securities, excluding those accounted for under the equity method of accounting or those that result in consolidation of the investee. Under ASU 2016-01, investments in equity securities that fall within the scope of ASU 2016-01 will be measured at fair value, with changes in fair value recognized in net earnings. Upon adoption, the Company will be required to record the amount of net unrealized gain or loss on its investments in equity securities in earnings via a cumulative effect adjustment. ASU 2016-01 also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective on January 1, 2018 for the Company for both its interim and annual reporting periods with early adoption permitted for certain provisions. The Company has not yet evaluated the impact of ASU 2016-01 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. As of September 30, 2016, the Company is not a lessee under any lease contracts. Upon adoption, the Company would apply a modified retrospective approach that will depend on the types of leases the Company has in force at the time of adoption. ASU 2016-02 is effective on January 1, 2019 for the Company, with early adoption permitted. The Company is evaluating the impact of ASU 2016-02 on its consolidated financial statements.
NOTE 3 — FAIR VALUE MEASUREMENTS
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, FASB ASC 820, Fair Value Measurement and Disclosures, establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than

15

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity's own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company's investments in marketable securities are valued using Level 1 inputs as the securities are publicly traded on major stock exchanges.
FASB ASC 825-10-65-1 requires the Company to disclose fair value information for all financial instruments for which it is practicable to estimate fair value, whether or not recognized in the consolidated balance sheets. Fair value of lines of credit and mortgage loans payable is determined using Level 2 inputs and a discounted cash flow approach with an interest rate and other assumptions that approximate current market conditions. The carrying amount of the Company's line of credit approximated its fair value of $80,600,000 and $72,500,000 at September 30, 2016 and December 31, 2015, respectively. The carrying amount of the Company's mortgage loan payable approximated its fair value of $14,500,000 at September 30, 2016.
The fair value of the Company's note to affiliate is determined using Level 2 and Level 3 inputs and a discounted cash flow approach with an interest rate and other assumptions that estimate current market conditions. The Company has estimated the fair value of its note to affiliate at approximately $2,600,000 as of September 30, 2016.
The Company's financial instruments, other than those referred to above, are generally short-term in nature and contain minimal credit risk. These instruments consist of cash and cash equivalents, accounts and other receivables and accounts payable. The carrying amounts of these assets and liabilities in the consolidated balance sheets approximate their fair value.

NOTE 4 — REAL ESTATE INVESTMENTS
The Company acquired one real estate property during the three and nine months ended September 30, 2016. The Company's rental and other property income for the three and nine months ended September 30, 2016 and 2015 is comprised of the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Rental revenue
$
3,084,073

 
$
1,631,177

 
$
9,121,649

 
$
4,843,431

Straight line revenue
149,178

 
102,936

 
438,413

 
336,850

Above- and below-market lease amortization
1,578,617

 
93,374

 
1,750,709

 
280,121

Rental and other property income
$
4,811,868

 
$
1,827,487

 
$
11,310,771

 
$
5,460,402


On September 27, 2016, the Company acquired Allied Drive, a two-story, 64,128 square foot medical office building located in Dedham, Massachusetts. The purchase price for this acquisition was $34,000,000, exclusive of closing costs. The Company funded the acquisition with cash on hand and by borrowing $32,400,000 from the Company's line of credit with Wells Fargo Bank. Of the $32,400,000 borrowed, $13,136,600 is from existing borrowing capacity on previously acquired properties, and $19,263,400 is allocated to Allied Drive.


16

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

All leases at the Company's properties have been classified as operating leases. The Company allocated the purchase price of the Company's properties acquired during the nine months ended September 30, 2016 and 2015 as follows:
 
2016 Acquisition
 
2015 Acquisition
 
Allied Drive
 
The Flats at Carrs Hill
Land
$
5,483,925

 
$
3,143,752

Building and improvements
19,807,646

 
21,389,609

Furniture, fixtures and equipment

 
361,724

Acquired in-place leases
8,861,624

 
2,104,915

Acquired above-market leases
2,022

 

Acquired below-market leases
(155,217
)
 

Total purchase price
$
34,000,000

 
$
27,000,000


The Company recorded revenues and net income related to the properties acquired during the three and nine months ended September 30, 2016 as follows:
 
Three and Nine Months Ended September 30, 2016
Revenues
$
20,592

Net loss
(177,393
)

The Company's estimated revenues and net loss, on a pro forma basis, as if the acquisition of Allied Drive was completed on January 1, 2015, for the three and nine months ended September 30, 2016 are as follows:

 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
Revenues
$
5,818,589

 
$
14,437,492

Net loss
(1,185,122
)
 
(3,887,293
)

The Company's estimated revenues and net loss, on a pro forma basis, as if the acquisitions of Commerce Corner, Anaheim Hills, Terra Nova and The Flats at Carrs Hill were completed on January 1, 2014, for the three and nine months ended September 30, 2015 are as follows:
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Revenues
$
2,742,936

 
$
8,228,807

Net loss
(232,359
)
 
(697,076
)
The pro forma information for the three and nine months ended September 30, 2016 and 2015 does not include acquisition costs of $158,762 and $424,549, respectively. The pro forma information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transactions occurred at the beginning of period presented, nor does it purport to represent the results of future operations.

17

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)


NOTE 5 — MARKETABLE SECURITIES
The following is a summary of the Company's marketable securities held as of September 30, 2016 and December 31, 2015, which consisted entirely of publicly-traded shares of common stock in REITs as of each date. All marketable securities held as of September 30, 2016 and December 31, 2015 were available-for-sale securities and none were considered impaired on an other-than-temporary basis.
 
September 30, 2016
 
December 31, 2015
Marketable securities—cost
$
8,074,312

 
$
7,873,564

   Unrealized gains
766,476

 
827,989

   Unrealized losses
(121,858
)
 
(132,549
)
Net unrealized gain
644,618

 
695,440

Marketable securities—fair value
$
8,718,930

 
$
8,569,004


Upon the sale of a particular security, the realized net gain or loss is computed assuming the shares with the highest cost are sold first. During the three months ended September 30, 2016 and 2015, marketable securities sold generated proceeds of $4,548,731 and $1,645,254, respectively, resulting in gross realized gains of $405,650 and $44,093, respectively, and gross realized losses of $161,961 and $115,864, respectively. During the nine months ended September 30, 2016 and 2015, marketable securities sold generated proceeds of $10,403,385 and $7,268,022 resulting in gross realized gains of $808,071 and $340,485, respectively, and gross realized losses of $435,335 and $316,056, respectively.

NOTE 6 — NOTES PAYABLE
Regions Line of Credit

On May 1, 2013, the Operating Partnership, as borrower, and the Company, as guarantor, entered into a secured revolving line of credit arrangement (the “Regions Line of Credit”) pursuant to a credit agreement with Regions Bank and its affiliates, as administrative agent, sole lead arranger and sole book runner. The Regions Line of Credit had a capacity of $50,000,000 and could be used to fund acquisitions, redeem shares pursuant to the Company’s redemption plan and for any other corporate purpose. The initial term was set to expire on May 1, 2015. Borrowings under the Regions Line of Credit carried a specified interest rate which, at the option of the Company, could be comprised of (1) a base rate, currently equal to the prime rate, or (2) a rate based on the one-, two- or three-month London Interbank Offered Rate (“LIBOR”) plus a spread ranging from 220 to 250 basis points, depending on the Company's consolidated debt-to-value ratio.

On March 6, 2015, the Company refinanced the Regions Line of Credit with a new secured line of credit from Wells Fargo Bank, National Association (the "Wells Fargo Line of Credit") (described below). In connection therewith, the Company borrowed $43,426,851 from the Wells Fargo Line of Credit, which was used to fully repay and retire the Regions Line of Credit. As a result, the Company fully expensed unamortized deferred financing costs under the Regions Line of Credit in the amount of $82,762. As of March 6, 2015, the Regions Line of Credit had an outstanding balance and weighted average interest rate of $42,400,000 and 2.66%, respectively.

Wells Fargo Line of Credit

On March 6, 2015, the Company borrowed $43,426,851 under the Wells Fargo Line of Credit which was used to fully repay and retire the Regions Line of Credit. The Wells Fargo Line of Credit has a three-year term with an initial maximum capacity of $75,000,000 and two one-year extension options exercisable by the Company upon satisfaction of certain conditions and payment of applicable extension fees. The interest rate under the Wells Fargo

18

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

Line of Credit is based on the 1-month LIBOR with a spread of 170 to 190 basis points depending on the debt yield as defined in the agreement. In addition, the Wells Fargo Line of Credit is expandable by the Company up to a maximum capacity of $150,000,000 upon satisfaction of specified conditions. Each requested expansion must be for at least $25,000,000 and may result in the Wells Fargo Line of Credit being syndicated. On September 27, 2016, the Company increased maximum borrowing capacity under the Wells Fargo Line of Credit to $100,000,000. As of September 30, 2016 and December 31, 2015, the outstanding balance was $80,600,000 and $72,500,000, respectively, and the weighted average interest rate was 2.23% and 2.05%, respectively.

The Wells Fargo Line of Credit has as co-borrowers certain of the wholly-owned subsidiaries of the Operating Partnership, with the Company serving as the guarantor. At any time, the borrowing capacity under the Wells Fargo Line of Credit is based on the lesser of (1) an amount equal to 65% of the aggregate value of the properties in the collateral pool as determined by lender appraisals, (2) an amount that results in a minimum debt yield of 11% based on the in-place net operating income of the collateral pool as defined, or (3) the maximum capacity of the Wells Fargo Line of Credit. Proceeds from the Wells Fargo Line of Credit can be used to fund acquisitions, redeem shares pursuant to the Company's redemption plan and for any other corporate purpose. As of September 30, 2016 and December 31, 2015, the Company's maximum borrowing capacity was $83,905,827 and $75,000,000, respectively.

The Wells Fargo Line of Credit agreement contains customary representations, warranties, borrowing conditions and affirmative, negative and financial covenants, including that there must be at least five properties in the collateral pool at all times and that the collateral pool must also meet specified concentration provisions, unless waived by the lender. In addition, the Company, as guarantor, must meet tangible net worth hurdles. The Company was in compliance with all covenants as of September 30, 2016 and December 31, 2015.

Nationwide Life Insurance Loan

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

The following is a reconciliation of the carrying amount of the of the line of credit and mortgage loan payable as of September 30, 2016 and December 31, 2015:
 
September 30, 2016
 
December 31, 2015
Line of credit
$
80,600,000

 
$
72,500,000

Deduct: Deferred financing costs, less accumulated amortization
(630,196
)
 
(715,544
)
Line of credit, net
$
79,969,804

 
$
71,784,456

 
 
 
 
Mortgage loan payable
$
14,500,000

 
$

Deduct: Deferred financing costs, less accumulated amortization
(150,196
)
 

Mortgage loan payable, net
$
14,349,804

 
$



NOTE 7 — RELATED PARTY ARRANGEMENTS

Advisory Agreement


19

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

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

Under the Advisory Agreement, RREEF America can earn an advisory fee split between two components as described below.
1.
The fixed component accrues daily in an amount equal to 1/365th of 1.0% of the NAV for each class of shares for such day; provided, however, that the fixed component was not earned and, therefore, did not begin to accrue until the date on which the Company's combined NAV for both classes of shares had reached $50,000,000. The fixed component of the advisory fee is payable monthly in arrears.
2.
The performance component is calculated for each class of shares on the basis of the total return to stockholders and is measured by the total distributions per share declared to such class plus the change in the NAV per share for such class. The performance component is calculated for each calendar year, or, if a class of shares was outstanding for less than a full calendar year, then the performance component for such class is calculated for the period that such class had shares outstanding. For any period of calculation in which the total return per share allocable to a class exceeds 6% per annum (which is prorated for periods of less than a full calendar year), RREEF America will receive 25% of the excess total return allocable to that class; provided, however, that in no event will the performance component exceed 10% of the aggregate total return allocable to such class for such year. The performance component earned by RREEF America for each class is subject to certain other adjustments which do not apply unless the NAV per share is below $12.00 per share. The performance component is payable annually in arrears.
The fees earned by RREEF America for the three and nine months ended September 30, 2016 and 2015 are shown below. As the Company's combined NAV reached $50,000,000 on January 22, 2015, RREEF America commenced earning the fixed component of the advisory fee as of that date. Prior to this date, no fixed component of the advisory fee was earned by RREEF America. The actual performance component earned by RREEF America during the year ended December 31, 2016, if any, is dependent on several factors, including but not limited to the performance of the Company's investments and interest rates.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Fixed component
$
233,596

 
$
168,000

 
$
658,324

 
$
421,829

Performance component
211,470

 

 
211,470

 

 
$
445,066

 
$
168,000

 
$
869,794

 
$
421,829


Expense Reimbursements

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

20

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

behalf of the Company. Reimbursement payments to RREEF America are subject to the limitations described below under "Reimbursement Limitations."

For the three months ended September 30, 2016 and 2015, RREEF America incurred $55,836 and zero reimbursable operating expenses, respectively, that were subject to the terms and conditions of the Advisory Agreement. For the nine months ended September 30, 2016 and 2015, RREEF America incurred $215,763 and $22,242 reimbursable operating expenses, respectively, that were subject to the terms and conditions of the Advisory Agreement. As of September 30, 2016 and December 31, 2015, the Company had payable to RREEF America $118,675 and zero, respectively, of operating expenses reimbursable under the Advisory Agreement.

Organization and Offering Costs

Under the Advisory Agreement, RREEF America agreed to pay all of the Company’s organization and offering costs through January 3, 2013. In addition, RREEF America agreed to pay certain of the Company’s organization and offering costs from January 3, 2013 through January 3, 2014 that were incurred in connection with certain offering related activities. In total, RREEF America incurred $4,618,318 of these costs (the “Deferred O&O”) on behalf of the Company from the Company’s inception through January 3, 2014. Pursuant to the Advisory Agreement, the Company began reimbursing RREEF America monthly for the Deferred O&O on a pro rata basis over 60 months beginning in January 2014. However, if the Advisory Agreement is terminated by RREEF America, then the unpaid balance of the Deferred O&O is payable to RREEF America within 30 days. For the three months ended September 30, 2016 and 2015, the Company reimbursed RREEF America $232,686 and $232,686, respectively. For the nine months ended September 30, 2016 and 2015, the Company reimbursed RREEF America $693,001 and $690,472, respectively.
The amount of Deferred O&O payable to RREEF America is as follows.
 
 
September 30, 2016
 
December 31, 2015
Total Deferred O&O
 
$
4,618,318

 
$
4,618,318

Reimbursements made to RREEF America
 
(2,534,258
)
 
(1,841,257
)
Deferred O&O reimbursable to RREEF America
 
$
2,084,060

 
$
2,777,061


Expense Support Agreement
Pursuant to the terms of the expense support agreement, as most recently amended on January 20, 2016 (the "Expense Support Agreement"), RREEF America agreed to defer reimbursement of certain expenses related to the Company's operations that RREEF America has incurred that are not part of the Deferred O&O described above and, therefore, are in addition to the Deferred O&O amount (the “Expense Payments”). The Expense Payments include organization and offering costs and operating expenses as described above under the Advisory Agreement. RREEF America incurred these expenses until the earlier of (i) the date the Company raised $200,000,000 in aggregate gross proceeds from the Offerings or (ii) the date upon which the aggregate Expense Payments by RREEF America exceed $9,200,000. Through December 31, 2015, the Company had incurred a total of $9,200,000 in Expense Payments in addition to the $4,618,318 of Deferred O&O noted above. As of December 31, 2015, the balance of $9,200,000 in Expense Payments consisted of $3,775,369 in organization and offering costs for the Public Offering, $195,450 of offering costs for the Private Offering and $5,229,181 in operating expenses.
As the maximum amount of Expense Payments has been reached, the Company is no longer eligible to receive Expense Payments from RREEF America. In addition, under the Expense Support Agreement, RREEF America agreed to defer reimbursement of Expense Payments until the first calendar quarter of the first calendar year that follows the earlier of (1) the quarter in which the Company surpasses $200,000,000 in aggregate gross proceeds from the Offering or (2) the date upon which the aggregate Expense Payments by RREEF America exceed

21

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

$9,200,000. Pursuant to this provisions, reimbursement of the Expense Payments was triggered in January 2016, for which the Company would reimburse RREEF America $250,000 per quarter (the "Quarterly Reimbursement").
The Quarterly Reimbursements were scheduled to continue until RREEF America is fully repaid for all Expense Payments. In accordance with the quarterly reimbursement schedule, the Company's obligation to reimburse RREEF America represented a non-interest bearing note due to RREEF America ("Note to Affiliate") which is subject to the imputation of interest. In accordance therewith, as of January 1, 2016, the Company recorded a discount on the Note to Affiliate equal to the difference between the $9,200,000 face amount and the present value of the contractual reimbursements using an estimated market interest rate of 5.0%. The Company estimated the market interest rate based on how an independent market participant would evaluate the note in addition to considering other financing options available to the Company. The amount of the Quarterly Reimbursement is subject to adjustment in amount or timing as described in the Expense Support Agreement. However, the provisions altering the amount or timing of the Quarterly Reimbursement are contingent on future events not within the Company's control and which cannot be reasonably estimated. Accordingly, these contingencies were not considered in determining the present value of the Note to Affiliate as of January 1, 2016. As of January 1, 2016, the Company recorded a discount on the Note to Affiliate in the amount of $1,861,880 which was to be amortized to interest expense over the contractual reimbursement period using the effective interest method. For the three months ended March 31, 2016, the Company made one payment of $250,000 to RREEF America and amortized $91,726 of the discount into interest expense.
On April 25, 2016, the Company and RREEF America entered into a letter agreement that amended certain provisions of the Advisory Agreement and the Expense Support Agreement (the "Letter Agreement"). The Letter Agreement provides, in part, that the Company's obligations to reimburse RREEF America for Expense Payments under the Expense Support Agreement are suspended until the first calendar month following the month in which the Company has reached $500,000,000 in offering proceeds from the Offerings (the "ESA Commencement Date"). The Company currently owes $8,950,000 to RREEF America under the Expense Support Agreement. Beginning the month following the ESA Commencement Date, the Company will make monthly reimbursement payments to RREEF America in the amount of $416,667 for the first 12 months and $329,166 for the second 12 months, subject to monthly reimbursement payment limitations described in the Letter Agreement. The execution of the Letter Agreement represents a modification of the Note to Affiliate, and as such, the unamortized discount on the Note to Affiliate as of April 25, 2016 will instead be amortized over the estimated repayment period pursuant to the Letter Agreement. In accordance therewith, the Company is amortizing the remaining discount using an interest rate of 1.93%. For the three and nine months ended September 30, 2016, the Company amortized $34,992 and $174,610 respectively of the discount on the Note to Affiliate into interest expense.
In addition, pursuant to the Letter Agreement, if RREEF America is serving as the Company's advisor at the time that the Company or the Operating Partnership undertakes a liquidation, the Company's remaining obligations to reimburse RREEF America for the unpaid Deferred O&O under the Advisory Agreement and the unpaid monthly reimbursements under the Expense Support Agreement shall be waived.

Dealer Manager Agreement

Effective July 1, 2016, the Company and the Operating Partnership terminated the amended and restated dealer manager agreement, dated as of January 26, 2016, with SC Distributors, Inc. On July 1, 2016, the Company and its Operating Partnership entered into the New Dealer Manager Agreement with the New Dealer Manager. The New Dealer Manager Agreement governs the distribution by the New Dealer Manager of the Company’s Class A shares, Class I shares, Class N shares and Class T shares of common stock in the Company’s Follow-On Public Offering and any subsequent registered public offering. The New Dealer Manager is an affiliate of RREEF America. In connection with the ongoing Trailing Fees to be paid in the future, the Company and the New Dealer Manager entered into an agreement whereby the Company will pay to the New Dealer Manager the Trailing Fees that are attributable to the Company's shares issued in the Public Offering that remain outstanding. In addition, the Company is obligated to pay to the New Dealer Manager Trailing Fees that are attributable to the Company's shares issued in the Follow-On Public Offering. As of September 30, 2016, the Company has accrued $2,310,198 in

22

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

Trailing Fees payable to the New Dealer Manager which is included in due to affiliates on the consolidated balance sheet.

Reimbursement Limitations

Organization and Offering Costs
The Company will not reimburse RREEF America under the Advisory Agreement or the Expense Support Agreement and will not reimburse the New Dealer Manager under the New Dealer Manager Agreement for any organization and offering costs which would cause the Company's total organization and offering costs to exceed 15% of the gross proceeds from the Public Offering or the Follow-On Public Offering, respectively. Further, the Company will not reimburse RREEF America or the New Dealer Manager for any underwriting compensation (a subset of organization and offering costs) which would cause the Company's total underwriting compensation to exceed 10% of the gross proceeds from the primary portion of the Public Offering or the Follow-On Public Offering. Through September 30, 2016, the Company has raised $102,831,442 in the Public Offering. A summary of the Company's total organization and offering costs for the Public Offering is shown below.
 
Deferred O&O - RREEF America
 
Expense Payments - O&O Portion
 
Other organization and offering costs (1)
 
 
Total organization and offering costs
 
Organization and offering costs in excess of the 15% limit
 
15% limited organization and offering costs
Balance, December 31, 2015
$
4,618,318

 
$
3,775,369

 
$
4,221,760

 
$
12,615,447

 
$

 
$
12,615,447

Additions

 

 
2,809,269

 
2,809,269

 

 
2,809,269

Balance, September 30, 2016
$
4,618,318

 
$
3,775,369

 
$
7,031,029

 
$
15,424,716

 
$

 
$
15,424,716

(1) Includes $1,622,941 and $2,179,544 of accrued trailing fees for the Public Offering as of December 31, 2015 and September 30, 2016 respectively.
Operating Expenses
Pursuant to the Company’s charter, the Company may reimburse RREEF America, at the end of each fiscal quarter, for total operating expenses incurred by RREEF America, whether under the Expense Support Agreement or otherwise. However, commencing with the quarter ended June 30, 2014, the Company may not reimburse RREEF America at the end of any fiscal quarter for total operating expenses (as defined in the Company’s charter) that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of average invested assets or 25% of net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company's assets for that period (the “2%/25% Guidelines”). Notwithstanding the foregoing, the Company may reimburse RREEF America for expenses in excess of the 2%/25% Guidelines if a majority of the Company’s independent directors determines that such excess expenses (an “Excess Amount”) are justified based on unusual and non-recurring factors. For the four fiscal quarters ended September 30, 2016, total operating expenses of the Company were $3,121,223 which exceeded the 2%/25% Guidelines by $257,058. On November 10, 2016, the Company’s independent directors determined that the Excess Amount of total operating expenses for the four quarters ended September 30, 2016 was justified because (1) the amounts reflect legitimate operating expenses necessary for the operation of the Company’s business, (2) the Company is currently in its acquisition and development stage, (3) the expenses incurred as a result of being a public company (including for audit and legal services, director and officer liability insurance and fees for directors) are significant and disproportionate to the Company’s average invested assets and net income, and (4) the Company’s average invested assets was low due to the Company’s ownership of only six to seven properties during the four fiscal quarters ended September 30, 2016. The Excess Amount approved by the Company’s independent directors that was incurred by RREEF America will be reimbursed to RREEF America.

23

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

Due to Affiliates and Note to Affiliate
In accordance with all the above, as of September 30, 2016 and December 31, 2015, the Company owed its affiliates for the following amounts:
 
September 30, 2016
 
December 31, 2015
Deferred O&O
$
2,084,060

 
$
2,777,061

Expense Payments

 
9,200,000

Reimbursable under the advisory agreement
118,675

 

Advisory fees
288,284

 
64,671

Accrued Trailing Fees
2,310,198

 

Due to affiliates
$
4,801,217

 
$
12,041,732

 
 
 
 
Note to Affiliate
$
8,950,000

 
 
Unamortized discount
(1,687,270
)
 
 
Note to Affiliate, net of unamortized discount
$
7,262,730

 



NOTE 8 — CAPITALIZATION

Under the Company's charter, as most recently amended on January 27, 2016, the Company has the authority to issue 1,000,000,000 shares of common stock and 50,000,000 shares of preferred stock. All shares of such stock have a par value of $0.01 per share. The Company's authorized shares of common stock are allocated between classes as follows:
Common Stock
 
No. of Authorized Shares
Class A shares
 
200,000,000

Class I shares
 
200,000,000

Class T shares
 
250,000,000

Class D shares
 
50,000,000

Class N shares
 
300,000,000

 
 
1,000,000,000


Class A shares are subject to selling commissions of up to 3% of the purchase price, and annual dealer manager fees of 0.55% and distribution fees of 0.50% of NAV, both paid on a trailing basis. Class I shares are subject to annual dealer manager fees of 0.55% of NAV paid in a trailing basis, but are not subject to any selling commissions or distribution fees. Class T shares are subject to selling commissions of up to 3% of the purchase price, an up-front dealer manager fee of 2.75% of the purchase price, and annual distribution fees of 1.0% of NAV paid on a trailing basis for approximately four years. Class D shares sold in the Private Offering are subject to selling commissions of up to 1.0% of the purchase price, but do not incur any dealer manager or distribution fees. Class N shares are not sold in the primary Public Offering or the primary Follow-On Public Offering, but will be issued upon conversion of an investor's Class T shares once (i) the investor's Class T share account for a given offering has incurred a maximum of 10% of commissions, dealer manager fees and distribution fees; (ii) the total underwriting compensation from whatever source with respect to the Public Offering or Follow-On Public Offering exceeds 10% of the gross proceeds from the primary portion of the Public Offering or the Follow-On Public Offering, respectively; (iii) a listing of the Class N shares; or (iv) the Company's merger or consolidation with or into another entity or the sale or after disposition of all or substantially all of the Company's assets. The Company's board of directors is authorized to amend its charter from time to time, without the approval of the stockholders, to increase

24

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

or decrease the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.

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

In an effort to provide the Company's stockholders with liquidity in respect of their investment in shares of the Company's common stock, the Company has adopted a redemption plan whereby on a daily basis stockholders may request the redemption of all or any portion of their shares. The redemption price per share is equal to the Company's NAV per share of the class of shares being redeemed on the date of redemption, subject to a short-term trading discount, if applicable. The total amount of redemptions in any calendar quarter will be limited to shares whose aggregate value (based on the redemption price per share on the date of the redemption) is equal to 5% of the Company's combined NAV for all classes of shares as of the last day of the previous calendar quarter. In addition, if redemptions do not reach the 5% limit in a calendar quarter, the unused portion generally will be carried over to the next quarter and not any subsequent quarter, except that the maximum amount of redemptions during any quarter may never exceed 10% of the combined NAV for all classes of shares as of the last day of the previous calendar quarter. As a result of the redemption activity during the first quarter of 2016, the quarterly volume limitation on redemptions was reached on March 18, 2016. Normal redemptions resumed effective April 1, 2016 in accordance with our redemption program as described in our prospectus.

During the three and nine months ended September 30, 2016 and 2015, redemption requests were received as shown below. The Company funded these redemptions with cash flow from operations, proceeds from our public offerings and borrowings on the Wells Fargo Line of Credit. The weighted average redemption prices are shown before allowing for any applicable 2% short-term trading discounts.
Three Months Ended September 30, 2016
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
66,024

 
$
13.11

 
$
865,575

Class I
 
35,247

 
13.19

 
464,908

Class T
 

 

 


Nine Months Ended September 30, 2016
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
653,648

 
$
12.90

 
$
8,432,059

Class I
 
78,535

 
13.13

 
1,031,165

Class T
 

 

 



25

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

Three Months Ended September 30, 2015
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
9,214

 
$
12.67

 
$
116,741

Class I
 
239,538

 
12.78

 
3,061,296

Nine Months Ended September 30, 2015
 
Shares
 
Weighted Average Share Price
 
Amount
Class A
 
9,214

 
$
12.67

 
$
116,741

Class I
 
242,397

 
12.78

 
3,098,206


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

NOTE 9 — DISTRIBUTIONS

In order to qualify as a REIT, the Company is required, among other things, to make distributions each taxable year of at least 90% of its taxable income determined without regard to the dividends-paid deduction and excluding net capital gains, and to meet certain tests regarding the nature of the Company's income and assets. The Company expects that its board of directors will continue to declare distributions with a daily record date, payable monthly in arrears. Any distributions the Company makes will be at the discretion of its board of directors, considering factors such as its earnings, cash flow, capital needs and general financial condition and the requirements of Maryland law. The Company commenced operations on May 30, 2013 and elected taxation as a REIT for the year ended December 31, 2013. Distributions for each month are payable on or before the first business day of the following month. However, any distributions reinvested by the stockholders in accordance with the Company's dividend reinvestment plan are reinvested at the per share NAV of the same class determined at the close of business on the last business day of the month in which the distributions were accrued.
Shown below are details of the Company's distributions for each quarter of 2016 and 2015.

26

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

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

 
$
0.00177203

 
$
0.00181182

 
 
Distributions paid or payable in cash
$
633,913

 
$
631,394

 
$
670,484

 
$
1,935,791

Distributions reinvested
407,009

 
457,276

 
504,020

 
1,368,305

Distributions declared
$
1,040,922

 
$
1,088,670

 
$
1,174,504

 
$
3,304,096

Class A shares issued upon reinvestment
18,860

 
21,726

 
24,151


64,737

Class I shares issued upon reinvestment
12,476

 
13,284

 
14,159

 
39,919

Class T shares issued upon reinvestment

 

 

 

 
Three Months Ended
 
Nine Month Ended September 30, 2015
 
March 31, 2015
 
June 30, 2015
 
September 30, 2015
 
Declared daily distribution rate, before adjustment for class-specific expenses
$
0.00175668

 
$
0.00176456

 
$
0.00173533

 
 
Distributions paid or payable in cash
$
294,197

 
$
455,114

 
$
524,375

 
$
1,273,686

Distributions reinvested
358,056

 
310,384

 
311,644

 
980,084

Distributions declared
$
652,253

 
$
765,498

 
$
836,019

 
$
2,253,770

Class A shares issued upon reinvestment
11,126

 
13,684

 
15,386

 
40,196

Class I shares issued upon reinvestment
16,669

 
10,679

 
9,204

 
36,552

Class T shares issued upon reinvestment

 

 

 

NOTE 10 — INCOME TAXES

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

NOTE 11 — SEGMENT INFORMATION

For the three months ended September 30, 2016 and 2015, the Company had two segments with reportable information: Real Estate Properties and Real Estate Equity Securities. The Company organizes and analyzes the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment and investment strategies and objectives. The following tables set forth the carrying value, revenue and the components

27

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

of operating income of the Company's segments reconciled to total assets as of September 30, 2016 and December 31, 2015 and net loss for the three and nine months ended September 30, 2016 and 2015.
 
 
Real Estate Properties
 
Real Estate Equity Securities
 
Total
Carrying value as of September 30, 2016
$
160,842,146

 
$
8,718,930

 
$
169,561,076

 
 
 
 
 
 
 
Reconciliation to total assets of September 30, 2016
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
169,561,076

 
Corporate level assets
 
 
 
 
5,198,861

 
Total assets
 
 
 
 
$
174,759,937

 
 
 
 
 
 
 
Carrying value as of December 31, 2015
$
135,305,346

 
$
8,569,004

 
$
143,874,350

 
 
 
 
 
 
 
Reconciliation to total assets of December 31, 2015
 
 
 
 
 
Carrying value per reportable segments
 
 
 
 
$
143,874,350

 
Corporate level assets
 
 
 
 
4,191,923

 
Total assets
 
 
 
 
$
148,066,273


28

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

Three Months Ended September 30, 2016
Real Estate Properties

Real Estate Equity Securities

Total
Revenues
 
 
 
 
 
 
Rental and other property income
$
4,811,868

 
$

 
$
4,811,868

 
Tenant reimbursement income
298,642

 

 
298,642

 
Investment income on marketable securities

 
100,314

 
100,314

 
Total revenues
5,110,510

 
100,314

 
5,210,824

Operating expenses
 
 
 
 
 
 
Property operating expenses
1,196,943

 

 
1,196,943

 
Total segment operating expenses
1,196,943

 

 
1,196,943

Operating income - segments
$
3,913,567

 
$
100,314

 
$
4,013,881

 
 
 
 
 
 
Three Months Ending September 30, 2015
 
 
 
 
 
Revenues

 

 


Rental and other property income
$
1,827,487

 
$

 
$
1,827,487


Tenant reimbursement income
282,349

 

 
282,349


Investment income on marketable securities

 
68,310

 
68,310


Total revenues
2,109,836

 
68,310

 
2,178,146

Operating expenses

 

 


Property operating expenses
481,691

 

 
481,691


Total segment operating expenses
481,691

 

 
481,691

Operating income - Segments
$
1,628,145

 
$
68,310

 
$
1,696,455

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
Reconciliation to net loss
 
 
2016
 
2015
Operating income - segments
 
 
$
4,013,881

 
$
1,696,455

 
General and administrative expenses
 
 
(484,966
)
 
(412,090
)
 
Advisory expenses
 
 
(445,066
)
 
(168,000
)
 
Acquisition related expenses
 
 
(158,762
)
 
(424,549
)
 
Depreciation
 
 
(920,562
)
 
(487,367
)
 
Amortization
 
 
(2,946,851
)
 
(519,930
)
Operating loss
 
 
(942,326
)
 
(315,481
)
 
Interest expense
 
 
(541,561
)
 
(249,343
)
 
Net realized gain (loss) upon sale of marketable securities
 
243,689

 
(71,771
)
Net loss
 
 
$
(1,240,198
)
 
$
(636,595
)

29

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
Real Estate Properties
 
Real Estate Equity Securities
 
Total
Revenues
 
 
 
 
 
 
Rental and other property income
$
11,310,771

 
$

 
$
11,310,771

 
Tenant reimbursement income
938,783

 

 
938,783

 
Investment income on marketable securities

 
364,643

 
364,643

 
Total revenues
12,249,554

 
364,643

 
12,614,197

Operating expenses
 
 
 
 
 
 
Property operating expenses
3,760,305

 

 
3,760,305

 
Total segment operating expenses
3,760,305

 

 
3,760,305

Operating income - Segments
$
8,489,249

 
$
364,643

 
$
8,853,892

 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
Revenues
 
 
 
 
 
 
Rental and other property income
$
5,460,402

 
$

 
$
5,460,402

 
Tenant reimbursement income
752,693

 

 
752,693

 
Investment income on marketable securities

 
175,101

 
175,101

 
Total revenues
6,213,095

 
175,101

 
6,388,196

Operating expenses
 
 
 
 
 
 
Property operating expenses
1,336,528

 

 
1,336,528

 
Total segment operating expenses
1,336,528

 

 
1,336,528

Operating income - Segments
$
4,876,567

 
$
175,101

 
$
5,051,668

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
Reconciliation to net loss
 
 
2016
 
2015
Operating income - segments
 
 
$
8,853,892

 
$
5,051,668

 
General and administrative expenses
 
 
(1,594,622
)

(1,520,999
)
 
Advisory expenses
 
 
(869,794
)

(421,829
)
 
Acquisition related expenses
 
 
(158,762
)

(424,549
)
 
Depreciation
 
 
(2,740,942
)

(1,456,422
)
 
Amortization
 
 
(5,860,724
)

(1,545,813
)
Operating loss
 
 
(2,370,952
)
 
(317,944
)
 
Interest expense
 
 
(1,657,922
)

(970,104
)
 
Net realized gain upon sale of marketable securities
 
372,736


24,429

Net loss
 
 
$
(3,656,138
)
 
$
(1,263,619
)

30

RREEF PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
September 30, 2016
(Unaudited)

NOTE 12 — ECONOMIC DEPENDENCY
The Company depends on RREEF America and the New Dealer Manager (see Note 7) for certain services that are essential to the Company, including the sale of the Company's shares of common stock, asset acquisition and disposition decisions and other general and administrative responsibilities. In the event that RREEF America or the New Dealer Manager is unable to provide such services, the Company would be required to find alternative service providers.
NOTE 13 — COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company may be involved in legal actions relating to the ownership and operations of real estate investments. In the Company's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
The Company, as an owner of real estate, is subject to various environmental laws of federal and local governments. All of the Company's properties were subject to assessments, involving visual inspections of the properties and their neighborhoods. The Company carries environmental liability insurance on its properties that provides coverage for remediation liability and pollution liability for third-party bodily injury and property damage claims. The Company does not believe such environmental assessments will have a material adverse impact on the Company's consolidated financial position or results of operations in the future.

NOTE 14 — SUBSEQUENT EVENTS

On October 3, 2016, the Company announced that its board of directors declared a cash distribution equal to $0.00182234 per Class A, Class I and Class T share (before adjustment for applicable class-specific expenses) for all such shares of record on each day from October 1, 2016 through December 31, 2016.

On November 10, 2016, the board of directors of the Company, including a majority of the independent directors, approved the renewal of the Advisory Agreement by and among the Company, the Operating Partnership and RREEF America effective as of January 20, 2017 for an additional one-year term expiring January 20, 2018. The terms of the Advisory Agreement otherwise remain unchanged.











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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q, or this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2015. We further invite you to visit our website, www.rreefpropertytrust.com, where we routinely post additional information about our Company, such as, without limitation, our daily net asset value, or NAV, per share. The contents of our website are not incorporated by reference. The terms “we,” “us,” “our” and the “Company” refer to RREEF Property Trust, Inc. and its subsidiaries.
The NAV per share is published daily via NASDAQ's Mutual Fund Quotation System under the symbols ZRPTAX, ZRPTIX and ZRPTTX for our Class A shares, Class I shares and Class T shares, respectively.
Forward-Looking Statements

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

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
our ability to raise and effectively deploy the proceeds raised in our public offering;
changes in economic conditions generally and the real estate and securities markets specifically;
legislative or regulatory changes (including changes to the laws governing the taxation of REITs);
the effect of financial leverage, including changes in interest rates, availability of credit, loss of flexibility due to negative and affirmative covenants, refinancing risk at maturity and generally the increased risk of loss if our investments fail to perform as expected;
our ability to access sources of liquidity when we have the need to fund redemptions of common stock in excess of the proceeds from the sales of shares of our common stock in our continuous offering and the consequential risk that we may not have the resources to satisfy redemption requests; and
changes to accounting principles generally accepted in the United States of America, or GAAP.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission, or the SEC. We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q. Additionally, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. The forward-looking statements should be read in light of the risk factors identified in “Risk Factors” of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2015.

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

Our board of directors will at all times have ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to our advisory agreement, our board has delegated to RREEF America L.L.C., or our advisor, authority to manage our day-to-day business in accordance with our investment objectives, strategy, guidelines, policies and limitations. Our advisory agreement is renewable annually upon approval by our board of directors, including a majority of the independent board members. The current term expires January 20, 2017.

Our initial public offering commenced on January 3, 2013, pursuant to our Registration Statement on Form S-11 (File No. 333-180356), or the Registration Statement, under which we offered up to $2,500,000,000 of shares of our common stock in any combination of Class A and Class B shares, which we refer to as the initial offering. On May 30, 2013, upon receipt of purchase orders from our sponsor for $10,000,000 of Class B shares of our common stock and the release to us of funds in the escrow account, we commenced operations. Prior to May 30, 2013, we had neither engaged in any operations nor generated any revenues. Our entire activity from our inception date through May 30, 2013 was to prepare for and implement our initial offering. Our initial public offering terminated on July 1, 2016. We raised a total of $102,831,442 in proceeds from our initial public offering.

On January 15, 2016, we filed articles supplementary to our articles of incorporation to add a newly-designated Class D common stock, $0.01 par value per share, or our Class D shares. On January 20, 2016, we commenced a private offering of up to a maximum of $350,000,000 in Class D shares. On January 27, 2016, we filed articles supplementary and articles of amendment to our articles of incorporation to (a) change the name of our Class B shares to Class I shares, (b) add a newly-designated Class T common stock, $0.01 par value per share, or our Class T shares, and (c) add a newly-designated Class N common stock, $0.01 par value per share, or our Class N shares. On February 2, 2016, we filed an amendment to the Registration Statement to add the Class T shares to our initial offering, and that amendment to the Registration Statement was declared effective on February 9, 2016. Class T shares contain a conversion feature whereby upon the occurrence of a specified event (generally related to a Class T stockholder's account having incurred a maximum of 10% of underwriting compensation), Class T shares owned in a stockholder's account will automatically convert to Class N shares. We also changed the NASDAQ Mutual Fund Quotation System symbol for our Class B shares from ZRPTBX to ZRPTIX, and obtained a NASDAQ Mutual Fund Quotation System symbol for our Class T shares of ZRPTTX. Any previous references to Class B shares have been changed to Class I shares. We did not make any other changes to the terms or provisions of our Class B shares.

In December 2015, we filed a Registration Statement on Form S-11 (File No. 333-208751) for our follow-on public offering for up to $2,300,000,000 of shares of our common stock in any combination of our Class A, Class I, Class T and Class N shares, which we refer to as our follow-on offering. Our follow-on offering includes up to $2,100,000,000 in shares in our primary offering and up to $200,000,000 in shares in our distribution reinvestment plan. The registration statement for our follow-on offering was declared effective by the SEC on July 12, 2016. We have engaged Deutsche AM Distributors, Inc., an affiliate of our advisor, to serve as our dealer manager for our follow-on offering pursuant to our dealer manager agreement. Our initial offering and our follow-on offering are each referred to as an offering.
Portfolio Information

Real Estate Portfolio
On May 31, 2013, we acquired a fee simple interest in Heritage Parkway, a two-story office building located in Woodridge, Illinois, which we refer to as Heritage Parkway, for a purchase price of $13,300,000, exclusive of closing

33


costs. We funded the acquisition with existing capital and by borrowing $6,700,000 under our line of credit. Heritage Parkway is a 94,233 square foot office building situated on 8.05 acres, located at the interchange of Interstate 55 and Lemont Road, approximately 25 miles west of downtown Chicago. Heritage Parkway is located in the Eastern East-West Corridor of the Chicago suburban office market, the largest of the metro’s suburban submarkets. The property is 100% leased to Allstate Insurance Company, a wholly-owned subsidiary of The Allstate Corporation (NYSE:ALL).
On December 18, 2013, we acquired a fee simple interest in a mixed-use building located in Seattle, Washington, which we refer to as Wallingford Plaza, for a purchase price of $12,728,000, exclusive of closing costs. We funded the acquisition with existing capital and by borrowing $5,500,000 under our line of credit. Wallingford Plaza is a 30,761 square foot, three-story, mixed-use (office over retail) building located on a 0.52 acre site at 4468 Stone Way North, on the corner of Stone Way North and North 45th Street. Wallingford Plaza is located in North Seattle, with convenient access to downtown Seattle, Puget Sound and the University of Washington. The building was constructed in 1916 and benefits from multiple renovation projects, including an approximately $2.3 million renovation project completed in 2013.
On April 11, 2014, we acquired a fee simple interest in an industrial building and an adjacent lot located in Logan Township, New Jersey, which we refer to as Commerce Corner, for a purchase price of $19,750,000, exclusive of closing costs. We funded this acquisition with existing capital and $17,600,000 from our line of credit. Of the $17,600,000 borrowed, $8,760,000 was from existing borrowing capacity on previously acquired properties, while $8,840,000 was allocated to Commerce Corner. Commerce Corner is a 259,910 square foot industrial building located on a 14.4 acre site at 1109 Commerce Boulevard, plus an additional adjacent 9.7 acre parcel of land which is partially utilized by one of the tenants for additional trailer parking. Situated one mile from Exit 10 of Interstate 295 and in close proximity to Interstate 95 and the New Jersey Turnpike, the Northeast Distribution Corridor’s primary north/south highways, Commerce Corner is strategically positioned at the front of the 3.1 million square foot LogistiCenter at Logan industrial park.
On July 2, 2014, we acquired a fee simple interest in an office building located in Anaheim, California, which we refer to as Anaheim Hills Office Plaza, for a purchase price of $18,500,000, exclusive of closing costs. We funded this acquisition with existing capital and by borrowing $14,700,000 from our line of credit. Of the $14,700,000 borrowed, $4,570,000 was from existing borrowing capacity secured by previously acquired properties, while $10,130,000 was specific to Anaheim Hills Office Plaza. Anaheim Hills Office Plaza is a 73,892 square foot, three-story, office building located on a 4.1 acre site located at 160 North Riverview Drive in Anaheim Hills, a submarket in Orange County. The property lies 15 miles north of John Wayne International Airport with direct access to CA-91 and ease of access to the regional freeway system. We believe the property's proximity to multiple major freeways provides access to a large and diverse labor pool. The building was constructed in 2008.

On October 2, 2014, we acquired a fee simple interest in a retail building located in Chula Vista, California, which we refer to as Terra Nova Plaza, for a purchase price of $21,850,000, exclusive of closing costs. We funded this acquisition with existing capital and by borrowing $19,100,000 from our line of credit. Of the $19,100,000 borrowed, $7,100,000 was from existing borrowing capacity secured by previously acquired properties, while $12,000,000 was specific to Terra Nova Plaza. Terra Nova Plaza is a 96,114 square foot, one-story retail building constructed in 1986 and located on an 8.34 acre site in Chula Vista, California. Chula Vista is situated 7.5 miles from downtown San Diego and 11 miles from the San Diego International Airport. Terra Nova Plaza is at the intersection of Interstate 805 and H Street, providing access, visibility and drive-by traffic on H Street.

On September 30, 2015, we acquired a fee simple interest in a student housing building located in Athens, Georgia, which we refer to as The Flats at Carrs Hill, for a purchase price of $27,000,000, exclusive of closing costs. We funded this acquisition, including closing costs, with existing cash and by borrowing $27,000,000 from our line of credit. Of the $27,000,000 borrowed, $13,570,962 was from existing borrowing capacity secured by previously acquired properties, while $13,429,038 was specific to The Flats at Carrs Hill. The Flats at Carrs Hill is a 135,864 square-foot five-story student housing building with 138 units and 316 beds on a 14.3 acre site located at 592 Oconee Street in Athens, Georgia, just one quarter of a mile east of the University of Georgia (“UGA”) campus and within walking distance from coffee shops, bookstores, restaurants and bars. Among other amenities, The Flats at Carrs Hill features a full-size indoor basketball court, multiple lounges, a 24-hour fitness center and a pool. Additionally, UGA recently approved an expansion of the North Oconee River Greenway trail, a 3.65 mile walking and biking path, which will provide the student residents direct pedestrian access to additional parts of campus.


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On December 21, 2015, we acquired a fee simple interest in a office building located in Sterling, Virginia, which we refer to as Loudoun Gateway, for a purchase price of $21,950,000, exclusive of closing costs. We funded the acquisition with existing capital and by borrowing $20,000,000 from our line of credit. Of the $20,000,000 borrowed, approximately $8,000,000 was from existing borrowing capacity secured by previously acquired properties, while approximately $12,000,000 was specific to Loudoun Gateway. Loudoun Gateway is a four-story, 102,015 square-foot Class A suburban office building located within the Loudoun Gateway Business Park at 45245 Business Court in Sterling, Virginia. Loudoun Gateway is approximately three miles north of Washington Dulles International Airport at the intersection of Route 28 and Old Ox Road (Route 606), providing noteworthy vehicular access to a network of highways and other commuter thoroughfares that connect Northern Virginia with the broader Washington, DC metropolitan region. The greater Washington, DC metropolitan area can be accessed via four routes: Route 28, the Dulles Toll Road, Route 50, and Route 7. Dulles Town Center, Dulles Town Crossing, Dulles 28 Centre, and Reston Town Center are all within short
driving distances of Loudoun Gateway, offering tenants a multitude of dining and entertainment options.

On September 27, 2016, we acquired a fee simple interest in a medical office building located in Dedham, Massachusetts, which we refer to as Allied Drive, for a purchase price of $34,000,000, exclusive of closing costs. We funded the acquisition with cash on hand and a $32,400,000 borrowing from our Wells Fargo line of credit (as described below). Of the $32,400,000 borrowed, approximately $13,100,000 is from existing borrowing capacity on previously acquired properties, while approximately $19,300,000 is allocated to Allied Drive. Allied Drive is a two-story, 64,128 rentable square foot Class A medical office building approximately 20 miles outside of Boston. The property is located at Allied Drive in Dedham, Massachusetts directly off of Route 128 / Interstate 95, providing easy vehicular access to a network of highways and other commuter thoroughfares that connect to the broader Boston metropolitan region. Allied Drive is also accessible via the commuter rail MBTA stop, which services Boston in less than 10 minutes. Legacy Place, University Station, Dedham Mall and Hilton Boston - Dedham are within short driving distances of Allied Drive, offering tenants a multitude of dining, entertainment and lodging options. Newly constructed in 2013, Allied Drive was built with a full spectrum of orthopedic-related services, featuring eight state-of-the-art operating rooms, a hospital-quality post-anesthesia care unit, diagnostic imaging and ancillary service space and Class A medical office suites. The site provides parking spaces with a ratio of 3.9 spaces per 1,000 square feet.

Excluding The Flats at Carrs Hill, as of September 30, 2016, our weighted average remaining lease term was 7.4 years. The following table represents certain additional information about the properties we owned as of September 30, 2016:
Property
 
Location
 
Rentable Square Feet
 
Number of Leases/Units
 
Occupancy(1)
Office Property
 
 
 
 
 
 
 
 
   Heritage Parkway
 
Woodridge, IL
 
94,233

 
1

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

 
3

 
100.0

   Loudoun Gateway
 
Sterling, VA
 
102,015

 
1

 
100.0

Allied Drive
 
Dedham, MA
 
64,128

 
5

 
100.0

Total
 
 
 
334,268

 
10

 
100.0

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

 
5

 
100.0

   Terra Nova Plaza
 
Chula Vista, CA
 
96,114

 
2

 
100.0

Total
 
 
 
126,875

 
7

 
100.0

Industrial Property
 
 
 
 
 
 
 
 
   Commerce Corner
 
Logan Township, NJ
 
259,910

 
2

 
100.0

Total
 
 
 
259,910

 
2

 
100.0

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

 
138

 
100.0

Total
 
 
 
135,864

 
138

 
100.0

Grand total
 
 
 
856,917

 
19/138

 
100.0
%
            
(1) Occupancy is based on executed leases as of September 30, 2016.

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(2) Wallingford Plaza is ground floor retail plus two floors of office space. The retail portion comprises the majority of the rental revenue for the property.

Real Estate Equity Securities Portfolio

As of September 30, 2016, our real estate equity securities portfolio consisted of publicly-traded common stock of 50 REITs with a value of $8,718,930. We believe that investing a portion of our proceeds from our offerings into a diversified portfolio of common and preferred shares of REITs and other real estate operating companies will provide the overall portfolio some flexibility with near-term liquidity as well as potentially enhance our NAV over a longer period. The portfolio is regularly reviewed and evaluated to determine whether the marketable securities held at any time continue to serve their original intended purposes.

The following chart summarizes our marketable securities by property type as of September 30, 2016:

rpt-2016q1_chartx40366a04a09.jpg
As of September 30, 2016, our top ten holdings in our real estate equity securities portfolio were as follows:

Security
 
Percent of Securities Portfolio
Simon Property Group, Inc.
 
10.7
%
Equity Residential
 
6.5

Public Storage
 
5.9

Prologis, Inc.
 
5.7

Vornado Realty Trust
 
4.9

Ventas, Inc.
 
4.8

Brixmor Property Group, Inc.
 
2.8

HCP, Inc.
 
2.6

AvalonBay Communities, Inc.
 
2.5

Boston Properties, Inc.
 
2.4

     Total
 
48.8
%


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Market Outlook

Thus far, 2016 has been a year marked by financial turbulence, and economic growth has fallen short of some expectations. It was generally believed that commercial real estate returns would eventually ease. Indeed, the NCREIF Property Index (NPI) total returns slipped to 9.2% (year-over-year) in the third quarter 2016 from 13.3% in 2015, representing a return to a more normalized state. In our view, this year’s moderation was timely and should help to extend the duration of the real estate cycle, forestalling excesses in pricing or construction that could otherwise precipitate a more acute correction.

We believe the outlook for real estate is favorable. Leading indicators such as the yield curve and credit spreads suggest that the likelihood of a recession over the next 12 months is low (in our view, less than 20%). To be sure, economic growth is lackluster, but occupational demand continues to outstrip historical levels thanks to strong job growth (supporting the office sector), low homeownership rates (apartments), and burgeoning e-commerce distribution (industrial). With a few exceptions (e.g., Houston, Charlotte, and apartments in most markets), construction is under control. While cap rates are historically low, they are elevated relative to interest rates.

We believe the real estate market has entered a more mature phase of its cycle. However, given the market’s healthy fundamentals, we believe that unlevered core total returns should average 6%-8% annually through 2020 (closer to 8% in 2016), comparing favorably with returns available from other asset classes on a risk-adjusted basis.

Results of Operations

We commenced operations on May 30, 2013 upon receipt of $10,000,000 in proceeds from our initial offering. On May 31, 2013, we acquired our first property and made our initial investments in marketable securities. Since then and through September 30, 2016, we acquired seven additional properties and significantly increased our outstanding debt balance as described above under "Portfolio Information - Real Estate Portfolio." In addition, we have not invested all of the offering proceeds we have received to date, and we expect to continue to raise additional capital, increase our borrowings and make future acquisitions, which we believe would have a significant impact on our future results of operations.

Three months ended September 30, 2016 and 2015
    
Revenues

Our total rental and reimbursement income for the three months ended September 30, 2016 and 2015 was $5,110,510 and $2,109,836, respectively. Our 2016 rental and tenant reimbursement income increased from 2015 primarily due to the acquisitions of The Flats at Carrs Hill and Loudoun Gateway in late 2015. Also included in our 2016 rental and tenant reimbursement income is approximately $1,499,000 related to the fully amortized below market lease liability at Terra Nova Plaza for The Sports Authority, Inc. In connection with the bankruptcy proceedings of The Sports Authority, Inc., on June 29, 2016, Dick's Sporting Goods, Inc. won the right at auction to assume and/or negotiate a new lease for the space occupied by The Sports Authority, Inc. In September 2016, we executed a 10-year lease with Dick's Sporting Goods, Inc., which was subsequently approved by the bankruptcy court on September 26, 2016, at which time Dick's Sporting Goods, Inc. became the tenant, effectively terminating the lease with The Sports Authority, Inc. At such time, all remaining lease intangibles related to The Sports Authority, Inc. were fully amortized through the lease termination date.

Straight line revenues were $149,178 and $102,936, respectively, for the three months ended September 30, 2016 and 2015. The increase in the 2016 period is due to the acquisition of Loudoun Gateway in late 2015. Typically, our leases have contractual base rent increases, which cause corresponding decreases in the straight line rent adjustments once effective. The acquisition of The Flats at Carrs Hill does not impact the straight line rent adjustment since student housing properties typically have one year leases with fixed rents.


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Wallingford Plaza, Heritage Parkway, Commerce Corner, Anaheim Hills Office Plaza and Terra Nova Plaza represent our same-store real estate investments for the three months ended September 30, 2016 and 2015, because they were the properties owned for the entirety of those periods. For those periods, rental and reimbursement income was $1,530,000 higher in the 2016 period compared to 2015, primarily due to $1,499,000 of additional below market lease income related to the full amortization of The Sports Authority, Inc. lease intangibles, as noted above. In addition, rental and reimbursement income in 2016 increased over the prior year due to contractual base rent increases of approximately $53,000 and higher tenant reimbursements of approximately $13,000 related to corresponding operating expense increases. These increases were offset by straight line revenue decreases of approximately $26,000.

For the three months ended September 30, 2016 and 2015, our investment income on marketable securities was $100,314 and $68,310, respectively. The increase in investment income is primarily due to certain securities providing greater distributions in the third quarter of 2016 as a result of asset sales. The portfolio is regularly adjusted by increasing and decreasing specific holdings primarily based upon changes in sector allocations and to a lesser degree based upon performance of specific securities. Proceeds from the sale of securities are typically reinvested in the common stock of other publicly-traded REITs, thereby keeping a base of investments that generate dividend income. All of our investment income for the three months ended September 30, 2016 and 2015 was comprised of dividend income from these investments.

Operating Expenses

Our total operating expenses for the three months ended September 30, 2016 and 2015 were $6,153,150 and $2,493,627, respectively. Our general and administrative expenses include a variety of corporate expenses, the largest of which were directors and officers insurance, audit fees, professional fees and independent director compensation. For the three months ended September 30, 2016 and 2015, general and administrative expenses were $484,966 and $412,090, respectively. The amount for the 2016 period is higher than 2015 primarily due to higher audit fees and other professional fees related to tax and compliance.

Property operating expenses for the three months ended September 30, 2016 and 2015 were $1,196,943 and $481,691, respectively. The increase in property operating expenses from 2015 to 2016 is due to the late 2015 acquisitions as described above under "Portfolio Information-Real Estate Portfolio." In addition, we recognized additional bad debt expense during the three months ended September 30, 2016 related to the bankruptcy filing of The Sports Authority, Inc. Depreciation and amortization also increased in the 2016 period compared to the 2015 period as a result of the additional acquisitions. Furthermore, the 2016 period includes $1,898,000 in amortization expense due to the full amortization of the acquired intangible lease assets related to The Sports Authority, Inc. lease.

On a same-store basis (for Wallingford Plaza, Heritage Parkway, Commerce Corner, Anaheim Hills Office Plaza and Terra Nova Plaza), property operating expenses for the three months ended September 30, 2016 increased by approximately $78,000 compared to the same period of 2015 primarily due to bad debt expense and legal costs at Terra Nova Plaza related to the bankruptcy of The Sports Authority, Inc.

On a same-store basis, we believe that it is helpful to compare net operating income, which we define as the rental and tenant reimbursement income, excluding GAAP adjustments for straight line rent and the amortization of above- and below-market lease intangibles, less property operating expenses. For the three months ended September 30, 2016 and 2015, same-store net operating income decreased slightly, by approximately $12,000 primarily due to $65,000 of non-straight line bad debt expense at Terra Nova Plaza for The Sports Authority, Inc. These reserves were offset by the increases in base rental income due to contractual rent increases and increased tenant reimbursement income.

The fixed component of the advisory fee pursuant to the advisory agreement is equal to 1% per annum of the NAV for each share class and is calculated and accrued daily and reflected in our NAV per share. For the three months ended September 30, 2016 and 2015, the fixed component of the advisory fee was $233,596 and $168,000, respectively. The increase in the fixed component of the advisory fee is commensurate with the overall increase in NAV, as we continue to raise and invest capital.

In accordance with our advisory agreement, our advisor can earn the performance component of the advisory fee when the total return to stockholders exceeds a required 6% per annum hurdle. The performance component is calculated separately for each share class and is comprised of the distributions paid to stockholders in each share class combined with the change in price of each share class. The performance component of the advisory fee for each

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share class is equal to 25% of the excess total return (the portion above the 6% per annum hurdle) allocable to such class; provided that in no event will the performance component exceed 10% of the aggregate total return allocable to such class for such year. The performance component of the advisory fee is payable annually based on the results for the entire calendar year. For each of the years ended December 31, 2015, 2014 and 2013, the performance component exceeded the 6% per annum hurdle for at least one of the share classes. However, our advisor waived the performance component of the advisory fee for each of the years ended December 31, 2015, 2014 and 2013. The actual performance component that our advisor could earn in the future depends on several factors, including but not limited to the performance of our investments, our expenses and interest rates. For the nine months ended September 30, 2016, the total return of each share class exceeded the required 6% per annum hurdle on a pro rated basis. In accordance therewith, we accrued a performance component of $211,470 for the three months ended September 30, 2016.

For the three months ended September 30, 2016 and 2015, we incurred acquisition related expenses of $158,762 and $424,549, respectively, with the 2016 amount related to our acquisition of Allied Drive and the 2015 amount related to our September 2015 acquisition of The Flats at Carrs Hill. We expect our acquisition-related expenses, depreciation, amortization and property operating expenses to increase in future periods because we anticipate acquiring additional properties in the future.

Interest Expense

For the three months ended September 30, 2016 and 2015, interest expense was $541,561 and $249,343, respectively. This increase was partly due to the imputation of interest of $34,992 on our note to affiliate. Because we reached our maximum expense support of $9,200,000 from our advisor as of December 31, 2015, the repayment provisions of the expense support agreement were triggered in January 2016, causing us to impute interest on the payment stream. The three months ended September 30, 2016 and 2015 experienced weighted average outstanding balances on our line of credit of $49.3 million and $33.6 million, respectively. The increase in our weighted average balance on our line of credit was attributable to our ownership of a greater number of properties during the 2016 period as compared to the 2015 period, all but one of which were financed on our line of credit and also resulted in lower unused line of credit fees. Also contributing to the increased interest expense in the 2016 period compared to the 2015 period is the long term property specific loan executed on March 1, 2016 for The Flats at Carrs Hill which has a fixed interest rate of 3.63%, slightly higher than the 2.1% interest rate on the Wells Fargo line of credit, and the additional amortization of financing costs. We expect our interest expense to increase in future periods because (1) the interest expense reported during the periods presented reflects a lower average borrowing amounts than we expect to maintain and (2) we anticipate acquiring additional properties in the future. However, as we acquire additional properties and finance a portion of those properties with borrowings under our line of credit, we expect our unused line of credit fees to decrease. In addition, we anticipate utilizing additional property-specific debt as a form of permanent financing along with continuing to use the line of credit to acquire additional properties.

Realized and Unrealized Gains (Losses) from Marketable Securities

Our portfolio of investments in publicly-traded REIT securities is subject to continual adjustments in positions held as the portfolio is actively managed among different sectors. For the three months ended September 30, 2016, these portfolio adjustments resulted in a net realized gain of $243,689. For the three months ended September 30, 2015, we had net realized losses of $71,771. The REIT securities market was generally down during the third quarter of 2016 which contributed to unrealized losses of $585,928 during the three months ended September 30, 2016. During the same period of 2015, our securities portfolio experienced a net unrealized gain of $273,546, primarily due to a recovery in the REIT securities market during the quarter after a precipitous decline earlier in 2015. As of September 30, 2016, we owned a portfolio of publicly-traded common stock of 50 REITs with a cost basis of $8,074,312 and a fair value of $8,718,930, reflecting a net unrealized gain of $644,618.

Nine months ended September 30, 2016 and 2015

Revenues

Our total rental and reimbursement income for the nine months ended September 30, 2016 and 2015 was $12,249,554 and $6,213,095, respectively. Our results for the 2015 period included income from Heritage Parkway, Wallingford Plaza, Commerce Corner, Anaheim Hills Office Plaza and Terra Nova Plaza, while our 2016 results for the same period additionally include The Flats at Carrs Hill and Loudoun Gateway, as described above under "Portfolio Information - Real Estate Portfolio." Also included in 2016 rental and tenant reimbursement income is

39


approximately $1,499,000 related to the full amortization of the below market lease liability at Terra Nova Plaza for The Sports Authority, Inc bankruptcy, as described above. Straight line revenues were $438,413 and $336,850, respectively, for the nine months ended September 30, 2016 and 2015. The increase in 2016 over 2015 is reflective of our additional property acquisitions.

Heritage Parkway, Wallingford Plaza, Commerce Corner, Anaheim Hills Office Plaza and Terra Nova Plaza, represent our same-store real estate investments for the nine months ended September 30, 2016 and 2015 being the properties owned for the entirety of the periods. For those periods, rental and reimbursement income was approximately $1,650,000 higher in 2016 compared to 2015, primarily due to $1,499,000 from the full amortization of the below market lease liability related to the termination of the lease with The Sports Authority, Inc. as described above. Otherwise, rental income increased due to contractual base rent increases of approximately $161,000 offset by straight line revenue decreases of approximately $116,000. In addition, the 2016 period saw increased tenant reimbursements of approximately $119,000 primarily related similar increases in recoverable operating expenses.

For the nine months ended September 30, 2016 and 2015, our investment income on marketable securities was $364,643 and $175,101, respectively. The increase for the 2016 period is primarily due to some of the securities held providing larger distributions from asset sales. The real estate securities portfolio is regularly adjusted by increasing and decreasing specific holdings based on known results or other information. Proceeds from sale of securities are typically reinvested into the common stock of other publicly-traded REITs, thereby keeping a base of investments that generate dividend income. All of our investment income for the nine months ended September 30, 2016 and 2015 was comprised of dividend income from these investments.

Operating Expenses

Our total operating expenses for the nine months ended September 30, 2016 and 2015 were $14,985,149 and $6,706,140, respectively. The increase was largely due to acquisitions of The Flats at Carrs Hill and Loudoun Gateway properties in late 2015, as property operating expenses, depreciation and amortization all increased commensurate with the size of our portfolio.

For the nine months ended September 30, 2016 and 2015, general and administrative expenses were $1,594,622 and $1,520,999, respectively. Our general and administrative expenses include a variety of corporate expenses, the largest of which were directors and officers insurance, audit fees, legal fees and independent director fees. The modest increase in total general and administrative expenses for 2016 compared to 2015 is attributable to higher audit and tax fees offset by lower legal fees.

Property operating expenses for the nine months ended September 30, 2016 and 2015 were $3,760,305 and $1,336,528, respectively. The increase is mainly attributable to the two acquisitions made in late 2015. Depreciation and amortization also increased in the 2016 period compared to the 2015 period as a result of those acquisitions and $1,898,000 in amortization expense due to the full amortization of the acquired intangible lease assets related to The Sports Authority, Inc. lease.

On a same-store basis (Heritage Parkway, Wallingford Plaza, Commerce Corner, Anaheim Hills Office Plaza and Terra Nova Plaza), property operating expenses for the nine months ended September 30, 2016 increased by approximately $397,000 compared to the same period of 2015, primarily due to bad debt expense at Terra Nova Plaza from The Sports Authority, Inc. bankruptcy of approximately $334,000 and an increase in real estate taxes.

On a same-store basis, it is helpful to compare net operating income, which we define as the rental and tenant reimbursement income, excluding GAAP adjustments for straight-line rent and the amortization of above- and below-market lease intangibles, less property operating expenses. For the nine months ended September 30, 2016 and 2015, same-store net operating income decreased approximately $118,000 primarily due to bad debt expense of $334,000 at Terra Nova Plaza related to The Sports Authority, Inc. The additional expense was offset by the net effect of increased rental and tenant reimbursement income of $280,000, pursuant to contractual rent increases and higher tenant reimbursement income, and increased property operating expenses of $63,000 primarily from real estate taxes and legal expenses.

The fixed component of the advisory fee is equal to 1.0% per annum of the NAV for each share class and is calculated and accrued daily and reflected in our NAV per share. During the nine months ended September 30, 2016 and 2015, the fixed component of the advisory fees was $658,324 and $421,829, respectively. For the 2015 period, the fee was earned by our advisor after our combined NAV of all share classes reached $50,000,000 on January 22,

40


2015. The increase in the fixed component of the advisory fee is commensurate with the overall increase in NAV, as we continue to raise and invest capital.

In accordance with our advisory agreement, our advisor can earn the performance component of the advisory fee when the total return to stockholders exceeds the required 6% per annum hurdle as described above. For each of the years ended December 31, 2015, 2014 and 2013, the performance component exceeded the 6% per annum hurdle for at least one of the share classes. However, our advisor waived the performance component of the advisory fee for each of the years ended December 31, 2015, 2014 and 2013. The actual performance component that our advisor could earn in the future depends on several factors, including but not limited to the performance of our investments, our expenses and interest rates. For the nine months ended September 30, 2016, the total return of each share class exceeded the required 6% per annum hurdle on a pro rata basis. In accordance therewith, we accrued a performance component of $211,470 as of September 30, 2016.

For the nine months ended September 30, 2016 and 2015, acquisition-related expenses were $158,762 and $424,549, respectively with the 2016 amount related to our acquisition of Allied Drive and the 2015 amount related to our September 2015 acquisition of The Flats at Carrs Hill. We expect our acquisition-related expenses, depreciation, amortization and property operating expenses to increase in future periods because we anticipate acquiring additional properties in the future.

Interest Expense

For the nine months ended September 30, 2016 and 2015, interest expense was $1,657,922 and $970,104, respectively. This increase was partly due to the imputation of interest on our note to affiliate in the amount of $174,610 for the 2016 period. Because we reached our maximum expense support of $9,200,000 from our advisor by December 31, 2015, the repayment provisions were triggered in January 2016, causing us to impute interest on the future payment stream. Otherwise, interest expense for the 2016 period was higher than the 2015 period primarily due to a greater weighted average outstanding aggregate loan balance due to the additional borrowings on our line of credit related to acquisitions which occurred in the second half of 2015. In addition, the amount borrowed on the line of credit at approximately 2.1% for The Flats at Carrs Hill was later repaid when a long term fixed rate, property-specific mortgage at 3.63% was executed on March 1, 2016. In connection therewith, the nine months ended September 30, 2016 and 2015 experienced weighted average outstanding aggregate loan balances (excluding the note to affiliate) of $66.0 million and $38.8 million, respectively. We expect our interest expense to increase in future periods because we anticipate acquiring additional properties in the future. However, as we acquire additional properties and finance a portion of those properties with borrowings under our line of credit, we expect our line of credit fees to decrease.

Realized and Unrealized Losses from Marketable Securities

Our portfolio of investments in publicly-traded REIT securities is subject to continual adjustments in positions held as the portfolio is actively managed among different sectors. For the nine months ended September 30, 2016, these portfolio adjustments resulted in a net realized gain of $372,736 compared to a net realized gain of $24,429 for the same period in 2015. The REIT securities market generally gained ground during the first half of 2016, followed by a somewhat negative third quarter of 2016. As a result, proceeds from sales were often reinvested at a higher basis, contributing to unrealized losses of $50,822 for the nine months ended September 30, 2016. During the same period in 2015, the REIT stock sector declined generally, primarily on interest rate fears, the Greek debt situation and a slowing Chinese economy resulting in unrealized losses of $458,049 for the nine months ended September 30, 2015.

Inflation

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


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NAV per Share

We commenced calculating our NAV per share for each class of shares on May 30, 2013, the day we commenced operations. Our NAV per share is calculated in accordance with the valuation guidelines approved by our board of directors for the purposes of establishing a price for shares sold in our public offering as well as establishing a redemption price.

The following table provides a breakdown of the major components of our total NAV and NAV per share as of September 30, 2016:
        
Components of NAV
 
Total NAV
 
Per Class A Share

Per Class I Share

Per Class T Share
Investments in real estate (1)
 
$
180,800,000

 
$
25.27


$
25.50


$
25.21

Investments in real estate equity securities (2)
 
8,718,930

 
1.22


1.23


1.22

Other assets, net
 
4,590,370

 
0.64


0.65


0.64

Line of credit
 
(80,600,000
)
 
(11.29
)

(11.38
)

(11.29
)
Mortgage Loan Payable
 
(14,500,000
)
 
(2.03
)

(2.05
)

(2.03
)
Other liabilities, net
 
(3,970,696
)
 
(0.52
)

(0.56
)

(0.52
)
Net asset value
 
$
95,038,604

 
$
13.29

 
$
13.39

 
$
13.23

            

(1)    The value of our investments in real estate was approximately 6.8% more than their historical cost.
(2)    The value of our investments in real estate securities was approximately 8.0% more than their historical cost.

The table below sets forth a reconciliation of our stockholders' equity to our NAV, which we calculate for the purpose of establishing the purchase and redemption price for our shares, as of September 30, 2016.
 
Total NAV
 
Per Class A Share

Per Class I Share

Per Class T Share
Total stockholders' equity
$
58,652,213

 
$
8.19

 
$
8.26

 
$
8.13

Plus:


 

 
 
 
 
   Unrealized gain on real estate investment
11,486,466

 
1.61

 
1.62

 
1.61

   Accumulated depreciation
6,264,259

 
0.88

 
0.88

 
0.88

   Accumulated amortization
8,222,427

 
1.15

 
1.16

 
1.15

   Deferred costs and expenses
11,461,537

 
1.61


1.62


1.61

Less:

 

 

 

   Deferred rent receivable
(1,048,298
)
 
(0.15
)

(0.15
)

(0.15
)
Net asset value
$
95,038,604

 
$
13.29

 
$
13.39

 
$
13.23

With respect to the unrealized gain on real estate investments reflected above, as of September 30, 2016, all properties except Allied Drive had been appraised by a third-party appraisal firm in addition to our independent valuation advisor. Set forth below are the weighted averages of the key assumptions used in the appraisals of the office and retail properties as of September 30, 2016. Once we own more than one property for each of the industrial and multifamily property types, we will include the key assumptions for these property types.
 
 
Discount Rate
 
Exit Capitalization Rate
Office properties
7.97%
 
7.31%
Retail properties
6.50%
 
6.00%


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These assumptions are determined by our independent valuation advisor or by separate third-party appraisers. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, an increase in the weighted-average discount rate used as of September 30, 2016 of 0.25% would yield a decrease in the total office property investment value of 1.8% and a decrease in the retail property investment value of 1.9%.

The deferred costs and expenses of $11,461,537 includes amounts that are initially excluded from the NAV calculation. This includes $9,151,340 payable to our advisor, which is less than the total amount payable to our advisor as reflected on our consolidated balance sheet, because (1) certain amounts payable to our advisor as of September 30, 2016 were recorded as assets and as such have no impact on our NAV as of September 30, 2016 and (2) the amount payable to our advisor as reflected in due to affiliates and note to affiliate on our consolidated balance sheet includes accrued advisory fees and other amounts due under the advisory agreement. These deferred amounts will be included in the NAV calculation as such costs are reimbursed to our advisor, in accordance with the advisory agreement, the expense support agreement and the ESA letter agreement dated April 25, 2016 amending the advisory agreement and expense support agreement (defined below). Through September 30, 2016, we reimbursed our advisor for $2,534,258 of deferred offering costs and expenses, which have been included as a deduction to our NAV calculation in a pro rata amount on a daily basis since these reimbursements began in January 2014. The deferred costs and expenses above additionally includes $2,310,198 in estimated trailing fees that will be deducted from the NAV on a daily basis as and when they become payable to Deutsche AM Distributors, Inc., or the dealer manager.

Limitations and Risks
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different NAV per share. Accordingly, with respect to our NAV per share, we can provide no assurance that:
a stockholder would be able to realize this NAV per share upon attempting to resell his or her shares;
we would be able to achieve, for our stockholders, the NAV per share, upon a listing of our shares of common stock on a national securities exchange, selling our real estate portfolio, or merging with another company; or
the NAV per share, or the methodologies relied upon to estimate the NAV per share, will be found by any regulatory authority to comply with any regulatory requirements.
Furthermore, the NAV per share was calculated as of a particular point in time. The NAV per share will fluctuate over time in response to, among other things, changes in real estate market fundamentals, capital markets activities, and attributes specific to the properties and leases within our portfolio.
Funds from Operations and Modified Funds from Operations
We believe that funds from operations, or FFO, and modified funds from operations, or MFFO, in combination with net loss and cash flows from operating activities, as defined by GAAP, are useful supplemental performance measures that we use to evaluate our operating performance. However, these supplemental, non-GAAP measures should not be considered as an alternative to net loss or to cash flows from operating activities as an indication of our performance and are not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information, and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity and results of operations. In addition, other REITs may define FFO and similar measures differently and thus choose to treat certain accounting line items in a manner different from us due to differences in investment and operating strategy or for other reasons.
FFO
As defined by the National Association of Real Estate Investment Trusts, or NAREIT, FFO is a non-GAAP supplemental financial performance measure that excludes certain items such as real estate-related depreciation and amortization and the impact of certain non-recurring items such as realized gains and losses on sales of real estate and items classified as extraordinary items under GAAP. We believe FFO is a meaningful supplemental financial performance measure of our operating performance that is useful to investors because depreciation and amortization in accordance with GAAP implicitly assume that the value of real estate assets diminishes predictably over time.

43


Additionally, realized gains and losses on sales of real estate and items classified as extraordinary items under GAAP generally occur infrequently. As a result, excluding these items from FFO aids our analysis of our ongoing operations. We use FFO as an indication of our operating performance and as a guide to making decisions about future investments.
MFFO
As defined by the Investment Program Association, or IPA, MFFO is a non-GAAP supplemental financial performance measure used to assist us in evaluating our operating performance. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Compared to FFO, MFFO additionally excludes items such as acquisition-related costs, non-cash amounts related to straight-line rent and amortization of above- and below-market lease intangibles. In addition, there are certain other MFFO adjustments as defined by the IPA that are not applicable to us at this time and are not included in our presentation of MFFO. We believe that excluding acquisition costs from MFFO provides investors with supplemental performance information that is consistent with our analysis of the operating performance of our portfolio over time, including periods after our acquisition stage.

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

The following unaudited table presents a reconciliation of net loss to FFO and MFFO:
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(1,240,198
)
 
$
(636,595
)
 
$
(3,656,138
)
 
$
(1,263,619
)
 
 
 
 
 
 
 
 
Real estate related depreciation
920,562

 
487,367

 
2,740,942

 
1,456,422

Real estate related amortization
2,946,851

 
519,930

 
5,860,724

 
1,545,813

NAREIT defined FFO
2,627,215

 
370,702

 
4,945,528

 
1,738,616

 
 
 
 
 
 
 
 
Additional adjustments
 
 
 
 
 
 
 
Acquisition expenses
158,762

 
424,549

 
158,762

 
424,549

Straight line rents
(121,939
)
 
(102,936
)
 
(210,205
)
 
(336,850
)
Amortization of above- and below-market lease intangibles
(1,578,617
)
 
(93,374
)
 
(1,750,709
)
 
(280,121
)
IPA defined MFFO
$
1,085,421

 
$
598,941

 
$
3,143,376

 
$
1,546,194

We believe that our FFO for the three and nine months ended September 30, 2016, as compared to our distributions declared for the same period, is not indicative of future performance as we are in the start-up and acquisition phase of our life cycle. In addition, FFO for the three and nine months ended September 30, 2016 includes $1,499,000 of below market intangible lease income for The Sports Authority, Inc. in relation to their lease termination.

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Liquidity and Capital Resources

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

Over time, we generally intend to fund our cash needs for items, other than asset acquisitions, from operations. Our cash needs for acquisitions will be funded primarily from the sale of shares of our common stock in our offerings, and the amount we may raise in such offerings is uncertain. We commenced our follow-on offering on July 12, 2016. We intend to contribute any additional net proceeds from our offerings that are not used or retained to pay the fees and expenses attributable to our operations to our operating partnership. Since our inception through September 30, 2016, we raised $100,935,260 from the sale of shares of our common stock, of which $10,200,000 of our Class I shares were purchased by RREEF America.

We may also satisfy our cash needs for acquisitions through the assumption or incurrence of debt. On May 1, 2013, we, as guarantor, and our operating partnership, as borrower, entered into a secured revolving credit facility with Regions Bank and its affiliates, as administrative agent, sole lead arranger and sole book runner, and other lending institutions that could have become parties to the credit agreement, which we refer to as the Regions line of credit. The Regions line of credit had a capacity of $50,000,000. Borrowings under the Regions line of credit carried a specified interest rate which, during the period from January 1 through March 6, 2015, was at 250 basis points over the London Interbank Offered Rate, or LIBOR. The Regions line of credit had a scheduled maturity date of May 1, 2015.

On March 6, 2015, we entered into a secured revolving line of credit with Wells Fargo Bank, National Association, which we refer to as the Wells Fargo line of credit. Upon closing, we borrowed $43,426,851 which was used to fully repay and retire the Regions line of credit. The Wells Fargo line of credit has a three-year term with an initial maximum capacity of $75 million and two one-year extension options exercisable by us upon satisfaction of certain conditions and payment of applicable extension fees. The interest rate under the Wells Fargo line of credit is based on the 1-month LIBOR with a spread of 170 to 190 basis points depending on the debt yield as defined in the agreement. Upon closing, the interest rate on the initial borrowing was 1.875%. In addition, we have the option to expand the Wells Fargo line of credit up to a maximum capacity of $150 million upon satisfaction of specified conditions. Each requested expansion must be for at least $25 million and may result in the Wells Fargo line of credit being syndicated. On September 27, 2016, we expanded the maximum capacity of the Wells Fargo line of credit by $25,000,000 to a maximum capacity of $100,000,000. As of September 30, 2016, the outstanding balance and interest rate were $80,600,000 and 2.23%, respectively.

The Wells Fargo line of credit has as co-borrowers the wholly owned subsidiaries of our operating partnership, with the Company serving as the guarantor. At any time, the borrowing capacity under the Wells Fargo line of credit is based on the lesser of (1) an amount equal to 65% of the aggregate value of the properties in the collateral pool as determined by lender appraisals, (2) an amount that results in a minimum debt yield of 11% based on the in-place net operating income of the collateral pool as defined or (3) the maximum capacity of the Wells Fargo line of credit. Proceeds from the Wells Fargo line of credit can be used to fund acquisitions, redeem shares pursuant to our redemption plan and for any other corporate purpose. As of September 30, 2016, our maximum borrowing capacity was $83,905,827. The Wells Fargo line of credit agreement contains customary representations, warranties, borrowing conditions and affirmative, negative and financial covenants, including that there must be at least five properties in the collateral pool at all times, and the collateral pool must also meet specified concentration provisions, unless waived by the lender. In addition, the guarantor must meet tangible net worth hurdles. As of September 30, 2016 we were in compliance with all covenants.

On March 1, 2016, we, through an an indirect wholly-owned subsidiary as borrower, entered into a credit agreement providing for a $14,500,000 secured, fully non-recourse loan with Nationwide Life Insurance Company, or the Nationwide loan. The Nationwide loan is secured by The Flats at Carrs Hill, our 138 unit student housing apartment property in Athens, Georgia. The interest rate for the Nationwide loan is fixed at 3.63% with interest-only payments for the full term of the loan. The maturity date of the Nationwide loan is March 1, 2026 with no extension options. The Nationwide loan permits voluntary prepayment of the full amount of the loan at any time subject to payment of the applicable prepayment premium, which is (a) the greater of a yield maintenance calculation or 1.0% of the principal amount outstanding for prepayments occurring up to and including the 96th month of the term, (b) 2.0% of the principal amount outstanding for prepayments occurring during months 97 through 102 of the term, or (c) 1.0% of the principal

45


amount outstanding for prepayments occurring during months 103 through 114 of the term. The Nationwide loan is prepayable at par during the last six months of the term. Additionally, the Nationwide loan contains a one-time option to be assumed by a new borrower subject to satisfaction, in Nationwide's sole discretion, of specified conditions and payment of a fee equal to 1.0% of the outstanding balance of the loan. Proceeds of $14,500,000 were applied to our Wells Fargo line of credit. Prior to closing of the Nationwide loan, The Flats at Carrs Hill served as additional collateral under the Wells Fargo line of credit.

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

Expense Payments by Our Advisor
    
In connection with our advisory agreement, RREEF America agreed to pay all of our organization and offering costs through January 3, 2013, and certain of our organization and offering costs through January 3, 2014, all of which were incurred on our behalf and which we refer to as the Deferred O&O. These costs amounted to $4,618,318. The total of the Deferred O&O is to be reimbursed to RREEF America on a pro rata basis over a 60-month period beginning January 3, 2014. However, such reimbursements will be limited to a cumulative amount that does not cause our total organization and offering costs to exceed 15% of the gross proceeds raised from our offering at any time. As of September 30, 2016, the total Deferred O&O paid by our advisor did not cause us to exceed the foregoing 15% limit. During the nine months ended September 30, 2016, we reimbursed RREEF America for $693,001 of Deferred O&O, and we have made total reimbursements to RREEF America of $2,534,258 against the Deferred O&O through September 30, 2016.

Also pursuant to the advisory agreement, RREEF America is entitled to reimbursement of certain costs incurred by RREEF America or its affiliates. Costs eligible for reimbursement include most third-party operating expenses, salaries and related costs of its employees who perform services for us (but not those employees for which RREEF America earns a separate fee or those employees who are our executive officers) and travel related costs for its employees who incur such costs on our behalf. We will reimburse our advisor for all expenses paid or incurred by our advisor in connection with the services provided to us, subject to the limitations described below regarding the 2%/25% guidelines as defined in our advisory agreement. As of September 30, 2016, we owed $118,675 to our advisor for such costs.

On May 29, 2013, we entered into an expense support agreement with our advisor, which was amended and restated most recently on January 20, 2016, which we refer to as the expense support agreement. Pursuant to the terms of the expense support agreement, our advisor has incurred expenses related to our operations in addition to the Deferred O&O, which we refer to as expense payments. These expense payments included, without limitation, expenses that are organization and offering costs and operating expenses under the advisory agreement. Our advisor agreed to incur these expense payments until the earlier of (1) the date we surpassed $200,000,000 in aggregate gross proceeds from our offering or (2) the date the aggregate expense payments by our advisor exceed $9,200,000. As of December 31, 2015, our advisor has incurred $9,200,000 in expense payments. While we received expense support, we continued to incur and pay certain fees and property level expenses, including acquisition-related expenses and interest expense on borrowed funds secured by properties. In addition, commencing with the fourth calendar quarter of 2014, we, as opposed to our advisor, began to incur and pay certain operating expenses, subject to certain limits, which were not treated as expense payments and for which we were not entitled to reimbursement from our advisor.

As the expense payment limit had been reached, pursuant to the expense support agreement, in January 2016 the reimbursement provisions were triggered. As such, we commenced making reimbursement payments to our advisor at the rate $250,000 per quarter, subject to adjustment as described in the expense support agreement. During the first quarter of 2016, we reimbursed $250,000 to our advisor under the expense support agreement. On April 25, 2016, we and our advisor entered into a letter agreement that amended certain provisions of the advisory agreement and the expense support agreement, which we refer to as the ESA letter agreement. The ESA letter agreement provides, in part, that our obligations to reimburse our advisor for expense payments under the expense support agreement are suspended until the first calendar month following the month in which we have reached $500 million in offering proceeds from our offerings, which we refer to as the ESA commencement date. We currently owe $8,950,000 to our advisor under the expense support agreement. Beginning the month following the ESA commencement date, we will make monthly reimbursement payments to our advisor in the amount of $416,667 for the first 12 months and $329,166 for the second 12 months, subject to monthly reimbursement payment limitations described in the ESA letter agreement. In addition, pursuant to the ESA letter agreement, if RREEF America is

46


serving as our advisor at the time that we or our Operating Partnership undertakes a liquidation, our remaining obligations to reimburse our advisor for the unpaid Deferred O&O under the advisory agreement and the unpaid monthly reimbursements under the expense support agreement shall be waived.

Limits on Expense Reimbursement

In all cases, reimbursement payments to our advisor will be subject to reduction as necessary in order to ensure that such reimbursement payment will not cause the aggregate organization and offering costs paid by us for an offering to exceed 15% of the gross proceeds from the sale of shares in such offering as of the date of the reimbursement payment, and such reimbursement payment will not adversely affect our ability to maintain our status as a REIT for federal tax purposes.

In addition to the reimbursement limitations for organization and offering costs, we are also limited in the amount of operating expenses that we may reimburse our advisor. Pursuant to our charter, we may reimburse our advisor, at the end of each fiscal quarter, for total operating expenses incurred by our advisor; provided, however, that commencing with the quarter ended June 30, 2014, which is the fourth full quarter after the quarter in which we made our first investment, we may not reimburse our advisor at the end of any fiscal quarter for total operating expenses (as defined in our charter) that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of our average invested assets or 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of our assets for that period (which we refer to as the 2%/25% guidelines) for such four-quarter period. Notwithstanding the foregoing, we may reimburse our advisor for expenses in excess of the 2%/25% guidelines if a majority of our independent directors determine that such excess expenses, which we refer to as an excess amount, are justified based on unusual and non-recurring factors. For the four fiscal quarters ended September 30, 2016, our total operating expenses (as defined in our charter) were $3,121,223, which exceeded the 2%/25% guidelines by $257,058. On November 10, 2016, our independent directors determined that the excess amount of total operating expenses for the four quarters ended September 30, 2016 was justified because (1) the amounts reflect legitimate operating expenses necessary for the operation of our business, (2) we are currently in our acquisition and development stage, (3) the expenses incurred as a result of being a public company (including for audit and legal services, director and officer liability insurance and fees for directors) are significant and disproportionate to our average invested assets and net income, and (4) our average invested assets was low due to our ownership of only six to eight properties during the four fiscal quarters ended September 30, 2016. The excess amount approved by our independent directors that was incurred by our advisor will be reimbursed to our advisor.

Pursuant to the expense support agreement, the amount of the reimbursement payment paid in any calendar quarter will not be aggregated with our cumulative operating expenses for any four consecutive calendar quarters that includes the calendar quarter in which such reimbursement payment is paid, and instead the amount of the unreimbursed expense payments comprising such reimbursement payment will have previously been aggregated with our total operating expenses for the four calendar quarter periods ending with the calendar quarter in which such expense payment was originally incurred, which we refer to as prior 2%/25% periods. If an unreimbursed expense payment incurred during a prior 2%/25% period exceeded the 2%/25% guidelines for such prior 2%/25% period, the amount of such excess will only be reimbursed pursuant to the expense support agreement to the extent that our independent directors previously approved such excess with respect to the applicable prior 2%/25% period. Our independent directors have approved the excess amount for every period of four consecutive quarters since we were first subject to this limitation for the four consecutive quarters ended June 30, 2014.

We anticipate our offering and operating fees and expenses will include, among other things, the advisory fee that we pay to our advisor, the selling commissions, dealer manager and distribution fees we pay to the dealer manager, legal and audit expenses, federal and state filing fees, printing expenses, transfer agent fees, marketing and distribution expenses and fees related to appraising and managing our properties. We will not have any office or personnel expenses as we do not have any employees. Our advisor will incur certain of these expenses and fees, for which we will reimburse our advisor, subject to certain limitations. Additionally, our advisor will allocate to us out-of-pocket expenses in connection with providing services to us, including our allocable share of our advisor’s overhead, such as rent, utilities and personnel costs for personnel who are directly involved in the performance of services to us and are not our executive officers. Furthermore, our former dealer manager has incurred certain bona fide offering expenses in connection with the distribution of our shares for which our former dealer manager was fully repaid in July 2016. Ultimately, total organization and offering costs incurred in a given offering will not exceed 15% of the gross proceeds from such offering. Through September 30, 2016, our advisor has paid on our behalf or reimbursed us for $8,589,137 in organization and offering costs and $5,229,181 in operating expenses. Also through

47


September 30, 2016, our former dealer manager has paid on our behalf $1,618,114 in offering costs. The total organization and offering costs paid by our advisor and the dealer manager did not cause us to exceed the 15% limitation as of September 30, 2016 with respect to the initial offering. If, in future periods, the total organization and offering costs paid by our advisor and the dealer manager cause us to exceed the 15% limitation with respect to the initial offering, the excess would not be reflected on our consolidated balance sheet as of the end of such period. A similar limitation will apply to the total organization and offering costs incurred with respect to the follow-on offering. In such event, we may become obligated to reimburse all or a portion of this excess as we raise additional proceeds from our follow-on offering.

Other potential future sources of capital include secured or unsecured financings from banks or other lenders and proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.

Cash Flow Analysis

Cash flow provided by operating activities during the nine months ended September 30, 2016 and 2015 was $3,704,255 and $2,147,522, respectively. This increase is due to the operating cash flow from the additional properties acquired, somewhat offset by higher debt service costs as a result of higher debt balances.

Cash flow used in investing activities during the nine months ended September 30, 2016 and 2015 was $32,937,556 and $29,189,191, respectively. During the 2016 period we acquired Allied Drive and during the 2015 period we acquired The Flats at Carrs Hill. In addition, the 2015 period included $2,000,000 of additional investments made into our real estate securities portfolio while the 2016 period saw a net reduction in real estate security investments of approximately $660,000.

Cash flow provided by financing activities was $29,530,145 for the nine months ended September 30, 2016. We received proceeds of $23,050,771 in our offerings. We paid $4,178,368 in offering costs inclusive of reimbursements to our advisor and our former dealer manager. We borrowed $36,100,000 from our Wells Fargo line of credit to finance the acquisition of Allied Drive in September 2016 and to fund redemptions. We originated a property-specific loan for $14,500,000 from Nationwide on The Flats at Carrs Hill and used the proceeds along with proceeds of our offerings to repay $28,000,000 outstanding under the Wells Fargo line of credit. In connection with the origination of the Nationwide loan and the expansion of our Wells Fargo line of credit to a maximum capacity of $100,000,000, we paid $322,007 in financing costs. Cash distributions to stockholders paid during the nine months ended September 30, 2016 were $3,277,931. Of the total distributions declared for the nine months ended September 30, 2016, $1,368,305 was reinvested via our distribution reinvestment plan. Additionally, we processed redemptions during the nine months ended September 30, 2016 that resulted in payments by us of $9,460,625, after deductions for any applicable 2% short-term trading discounts.

For the nine months ended September 30, 2015, cash flow provided by financing activities was $27,379,657. We raised $24,621,532 in our initial offering, a portion of which was used to repay borrowings under our line of credit. We borrowed $72,926,851 from our Wells Fargo line of credit and used the proceeds along with proceeds of our initial offering to repay the $63,826,851 outstanding under our Regions line of credit. We paid $1,185,106 in offering costs that were not covered by our advisor.

Distributions

Our board of directors authorized and declared daily cash distributions for each quarter which were payable monthly for each share of Class A, Class I and Class T common stock outstanding. Shown below are details of the distributions:

48


 
Three Months Ended
 
Nine Months Ended September 30, 2016
 
March 30, 2016
 
June 30, 2016
 
September 30, 2016
 
Distributions:
 
 
 
 
 
 
 
Declared daily distribution rate, before adjustment for class-specific expenses
$
0.00179534

 
$
0.00177203

 
$
0.00181182

 
 
Distributions paid or payable in cash
$
633,913

 
$
631,394

 
$
670,484

 
$
1,935,791

Distributions reinvested
407,009

 
457,276

 
504,020

 
1,368,305

Distributions declared
$
1,040,922

 
$
1,088,670

 
$
1,174,504

 
$
3,304,096

 
 
 
 
 
 
 
 
Source of Distributions:
 
 

 
 
 
 
Cash flow from operations
$
633,913

 
$
631,394

 
$
670,484

 
$
1,935,791

Reinvested via the distribution reinvestment plan
407,009

 
457,276

 
504,020

 
1,368,305

Borrowings

 

 

 

Total Sources of Distributions
$
1,040,922

 
$
1,088,670

 
$
1,174,504

 
$
3,304,096

 
 
 
 
 
 
 
 
Net Cash Provided by Operating Activities:
$
1,700,730

 
$
644,185

 
$
1,359,340

 
$
3,704,255

 
 
 
 
 
 
 
 
Funds From Operations:
$
956,075

 
$
1,362,238

 
$
2,627,215

 
$
4,945,528


For the nine months ended September 30, 2016, our distributions were covered by our cash flow from operations. For periods from our inception through December 31, 2015 (but not beyond December 31, 2015), our cash flow from operations included expense support received from our advisor.

We expect that we will continue to pay distributions monthly in arrears. Any distributions not reinvested will be payable in cash, and there can be no assurances regarding the portion of the distributions that will be reinvested. We intend to fund distributions from cash generated by operations. However, we may fund distributions from borrowings under our line of credit or from the proceeds of our offering. The payment of distributions from sources other than cash flow from operations or FFO may be dilutive to our NAV per share because it may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds.

Redemptions

Our redemption plan commenced on July 1, 2013. During the three months ended September 30, 2016, we processed redemptions for a total of 66,024 Class A shares at a weighted average price of $13.11 per share and redemptions for a total of 35,247 Class I shares at a weighted average price of $13.19 per share, in both cases before allowing for the 2% short-term trading discount. We funded these redemptions with cash flow from operations, proceeds from our offering or borrowings from our line of credit.

Critical Accounting Policies

Our accounting policies have been established to conform with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of

49


companies in similar businesses. We consider our critical accounting policies to be the policies that relate to the following concepts:

Real Estate Investments and Lease Intangibles
Investments in Marketable Securities
Revenue Recognition
Organization and Offering Expenses

A complete description of such policies and our considerations, along with a description of recent accounting pronouncements, is contained in Note 2 ("Summary of Significant Accounting Policies") to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015, as supplemented by the most recent report on Form 10-Q. For the nine months ended September 30, 2016, the only significant change to our critical accounting policies was that estimated future trailing fees that will be payable to our dealer manager are now accrued in the period of sale of a share of our common stock. Additional information regarding this accounting change can be found in Note 2 ("Summary of Significant Accounting Policies") of this Form 10-Q.
REIT Compliance and Income Taxes
We elected to be taxed as a REIT under Sections 856 through 860 of the Code beginning with the year ended December 31, 2013, and we believe that we have operated in such a manner to continue to be taxed as a REIT for federal income tax purposes. In order to maintain our qualification as a REIT, we are required to, among other things, distribute as dividends at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders and meet certain tests regarding the nature of our income and assets. If we qualify for taxation as a REIT, we generally will not be subject to federal income tax to the extent our income meets certain criteria and we distribute our REIT taxable income to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to (1) certain state and local taxes on our income, property or net worth and (2) federal income and excise taxes on undistributed income, if any income remains undistributed. Many of these requirements are highly technical and complex. We will monitor the business and transactions that may potentially impact our REIT status. If we were to fail to meet these requirements, we could be subject to federal income tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which we fail to qualify as a REIT. We will also be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions.
Off Balance Sheet Arrangements
As of September 30, 2016, we had no material off-balance sheet arrangements that had or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In connection with our line of credit, which has a variable interest rate, we are subject to market risk associated with changes in LIBOR. As of September 30, 2016, we had $80,600,000 outstanding under our Wells Fargo line of credit bearing interest at approximately 2.2%, representing approximately a 56.7% loan-to-cost ratio. At this balance, a change in the interest rate of 0.50% would result in a change in our interest expense of $403,000 per annum. In the future, we may be exposed to additional market risk associated with interest rate changes as a result of additional short-term debt, such as additional borrowings under our line of credit, and long-term debt, which, in either case, may be used to maintain liquidity, fund capital expenditures and expand our investment portfolio. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of real estate in the future. We will seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We intend to manage market risk associated with our variable-rate financing by assessing our interest rate cash flow risk through continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets.
We will be exposed to credit risk, which is the risk that the counterparty will fail to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and,

50


therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. We are not currently a party to any such derivative contracts.
We will be exposed to financial market risk with respect to our marketable securities portfolio. Financial market risk is the risk that we will incur economic losses due to adverse changes in equity security prices. Our exposure to changes in equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. We do not currently engage in derivative or other hedging transactions to manage our security price risk. As of September 30, 2016, we owned $8,718,930 of marketable securities. While it is difficult to project what factors may affect the prices of equity securities and how much the effect might be, a 10% change in the value of the marketable securities we owned as of September 30, 2016 would result in a change of $871,893 to the unrealized gain on marketable securities.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2016, were effective to ensure that information required to be disclosed by us in this Quarterly Report is recorded, processed, summarized and reported within the time periods specified by the rules and forms promulgated under the Exchange Act and is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting
No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d -15(f) of the Exchange Act) during the three months ended September 30, 2016 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 1. LEGAL PROCEEDINGS
As of September 30, 2016, there were no material pending legal proceedings.
ITEM 1A. RISK FACTORS

We refer you to the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2015, filed with the SEC on March 23, 2016, and in Part II, Item 1A of our Quarterly Report on Form 10-Q
filed with the Commission on May 11, 2016. Subsequent to these filings, there have been no material changes to our risk
factors.

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

During the period covered by this Quarterly Report, we did not sell any equity securities that were not registered under the Securities Act.
On January 3, 2013, our Registration Statement on Form S-11 (File No. 333-180356), registering our initial public offering of up to $2.5 billion in any combination of shares of our Class A common stock, par value $0.01 per share, and Class I common stock, par value $0.01 per share, was declared effective by the SEC under the Securities Act, and we commenced our initial public offering. On February 9, 2016, an amendment to our Registration Statement for our initial public offering was declared effective, which added our Class T shares of common stock, par value $0.01 per share, to such offering. SC Distributors, Inc., an unaffiliated broker-dealer, served as the dealer manager for our initial public offering. On July 1, 2016, our initial public offering terminated.
On July 12, 2016, our Registration Statement on Form S-11 (File No. 333-208571), registering our follow-on public offering of up to $2.3 billion in any combination of our shares our Class A common stock, our Class I common stock, our Class T common stock and our Class N shares of common stock, par value $0.01 per share, was declared effective by the SEC under the Securities Act. See further information under Management's Discussion and Analysis above.
The per share price for each class of common stock sold in our offerings equals the daily NAV per share for such class, plus, for Class A shares and Class T shares only, applicable selling commissions. No class of our common stock is currently traded on any exchange, nor is there an established public trading market for our common stock.
At the termination of our initial public offering, we had sold the following shares of common stock and raised the following proceeds:
 
Shares
 
Proceeds
Primary Offering:
 
 
 
Class A shares
4,184,784

 
$
53,605,370

Class I shares
3,627,435

 
45,577,890

Class T shares
4,043

 
55,000

Distribution Reinvestment Plan:
 
 
 
Class A shares
127,773

 
1,630,385

Class I shares
154,913

 
1,962,797

Class T shares

 


8,098,948

 
$
102,831,442

As of the termination of our initial public offering, we had incurred the following expenses related thereto:

52


 
Offering Costs
Selling commissions
$
881,623

Distribution fees
427,434

Dealer manager fees (1)
750,986

Other offering expenses
13,364,673

Total offering expenses
$
15,424,716

                                
(1) The former dealer manager waived the dealer manager fees on the Class I shares owned by RREEF America.
From the commencement of our initial public offering through its termination, the offering proceeds to us, net of selling commissions, distribution fees and dealer manager fees (none of which were paid by RREEF America), were $100,771,399. Of the other offering expenses described above, approximately $9,310,000 were not paid by us but were paid by RREEF America pursuant to our advisory agreement or expense support agreement with RREEF America, or by our former dealer manager. We will reimburse RREEF America for these offering expenses as described in Note 2 ("Summary of Significant Accounting Policies - Organization and Offering Expenses") and Note 7 ("Related Party Arrangements") to our consolidated financial statements. We fully repaid our former dealer manager in July 2016. From January 3, 2013, the date we commenced our initial public offering, through September 30, 2016, the ratio of the cost of raising capital (excluding of $2,179,544 estimated trailing fees payable in the future) to capital raised was 12.9%.
As of the termination of our initial public offering, the net offering proceeds to us referred to above were allocated to the following uses:
Approximately $24,500,000 was used to partially fund the purchase price of our real estate properties;
Approximately $7,600,000 was used to purchase real estate equity securities;
Approximately $55,125,000 was used to repay outstanding amounts on our line of credit;
Approximately $8,275,000 was used to repurchase shares under our share redemption program; and
Approximately $1,800,000 was available for working capital or subsequent investment.

On November 27, 2012 we adopted a share redemption plan whereby on a daily basis stockholders may request that we repurchase all or a portion of their shares of common stock. The redemption price per share is equal to our NAV per share of the class of shares being redeemed on the date of redemption. The total amount of redemptions in any calendar quarter will be limited to shares whose aggregate value (based on the redemption price per share on the date of the redemption) is equal to 5% of our combined NAV for all classes of shares as of the last day of the previous calendar quarter. In addition, if redemptions do not reach the 5% limit in a calendar quarter, the unused portion generally will be carried over to the next quarter and not any subsequent quarter, except that the maximum amount of redemptions during any quarter may never exceed 10% of the combined NAV for both classes of shares as of the last day of the previous calendar quarter. While there is no minimum holding period, shares redeemed within 365 days of an investor's initial date of purchase will be redeemed at our NAV per share of the class of shares being redeemed on the date of redemption, less a short-term trading discount equal to 2% of the gross proceeds otherwise payable with respect to the redemption. Our board of directors has the discretion to suspend or modify the share redemption plan at any time.

During the three months ended September 30, 2016, we received and processed redemption requests pursuant to our share redemption plan for 66,024 Class A shares of our common stock at a weighted average price of $13.11 per share before allowing for any applicable 2% short-term trading discounts. In addition, we processed redemption requests pursuant to our share redemption plan for 35,247 Class I shares of our common stock at a weighted average price of $13.19 per share before allowing for any applicable 2% short-term trading discounts. We funded these redemptions with cash flow from operations, proceeds from our offerings or borrowings on our line of credit. As a result of the redemption activity during the first quarter of 2016, the quarterly volume limitation on redemptions was reached on March 18, 2016. Redemptions resumed effective April 1, 2016 in accordance with our redemption program as described in our prospectus.

53



The following table sets forth information regarding redemptions of shares of our common stock pursuant to our redemption plan during the three months ended September 30, 2016.

Period
 
Total Number of Shares Redeemed
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Pursuant to the Program (1)
July 1- July 31, 2016
 
16,221
 
$13.20
 
16,221
 
(1)
August 1-August 31, 2016
 
56,978
 
$13.07
 
56,978
 
(1)
September 1- September 30, 2016
 
28,072
 
$13.30
 
28,072
 
(1)
            
(1)
Redemptions are limited as described above.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report) are included herewith.


54


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
RREEF Property Trust, Inc. 
By:
/s/ James N. Carbone
Name:
James N. Carbone
Title:
Chief Executive Officer (Principal Executive Officer)
    
By:
/s/ Eric M. Russell
Name:
Eric M. Russell
Title:
Chief Financial Officer (Principal Financial and Accounting Officer)
    
Date: November 14, 2016


    




55


EXHIBIT INDEX

Exhibit No.
 
Description
10.1*
 
First Amendment to Revolving Loan Agreement and Omnibus Amendment to Loan Documents by and between RPT 1109 Commerce Boulevard, LLC, RPT Anaheim Hills Office Plaza, LLC, RPT Heritage Parkway, LLC, RPT Terra Nova Plaza, LLC, RPT Wallingford Plaza, LLC, RPT Loudoun Gateway I, LLC, and RPT Allied Drive, LLC and Wells Fargo Bank, National Association, dated as of September 27, 2016.
10.2*
 
Purchase and Sale Agreement by and between Greater Boston Musculoskeletal Center Real Estate Company, LLC and RREEF America L.L.C., effective as of August 31, 2016.
10.3*
 
Assignment of Purchase and Sale Agreement by and between RREEF America L.L.C. and RPT Allied Drive, LLC, made as of September 19, 2016.
31.1*
 
Certification of the Principal Executive Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
 
Certification of the Principal Financial Officer of the Company pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
 
Certification of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith


56