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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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

For the transition period from __________ to __________

Commission file number 000-55430

Resource Real Estate Opportunity REIT II, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

 

80-0854717

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

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

(Address of principal executive offices) (Zip code)

 

(215) 231-7050

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

N/A

N/A

N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No     

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of November 6, 2020, there were 60,206,977 outstanding shares of common stock of Resource Real Estate Opportunity REIT II, Inc.

 


RESOURCE REAL ESTATE OPPORTUNITY REIT II, INC.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

 

 

 

 

 

 

 

PAGE

PART I

FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets – September 30, 2020 (unaudited) and December 31, 2019

4

 

 

 

 

Consolidated Statements of Operations and Comprehensive Loss – For the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

5

 

 

 

 

Consolidated Statements of Changes in Stockholders' Equity – For the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)

6

 

 

 

 

Consolidated Statements of Cash Flows – For the Nine Months Ended September 30, 2020 and 2019 (unaudited)

7

 

 

 

 

Notes to Consolidated Financial Statements – September 30, 2020 (unaudited)

8

 

 

 

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

46

 

 

 

ITEM 4.

Controls and Procedures

46

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

ITEM 6.

Exhibits

52

 

 

 

SIGNATURES

 

53

 

 

 

 

 


Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements.  Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.  You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and which could materially affect the Company’s results of operations, financial condition, cash flows, performance or future achievements or events.  Factors that could cause actual results to differ materially from these expectations include, but are not limited to, the risk that the proposed mergers (as discussed herein) will not be consummated within the expected time period or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreements; the inability of Resource Real Estate Opportunity REIT, Inc. (“REIT I”) or Resource Apartment REIT III, Inc. (“REIT III”) to obtain stockholder approval of the respective mergers or the failure to satisfy the other conditions to completion of the mergers; risks related to disruption of management’s attention from the ongoing business operations due to the proposed mergers. In addition, the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company, particularly its ability to collect rent, the personal financial condition of its tenants and their ability to pay rent, and the real estate market and the global economy and financial markets remains a risk to the Company. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts COVID-19. Actual results may differ materially from those contemplated by such forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.

3


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

RESOURCE REAL ESTATE OPPORTUNITY REIT II, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

September 30,

2020

 

 

December 31, 2019

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Rental properties, net

 

$

709,204

 

 

$

735,530

 

 

 

 

 

 

 

 

 

 

Cash

 

 

30,723

 

 

 

39,647

 

Restricted cash

 

 

8,464

 

 

 

6,534

 

Subtotal - cash and restricted cash

 

 

39,187

 

 

 

46,181

 

Tenant receivables, net

 

 

240

 

 

 

107

 

Due from related parties

 

 

1

 

 

 

297

 

Prepaid expenses and other assets

 

 

3,181

 

 

 

2,109

 

Operating lease right-of-use assets

 

 

18

 

 

 

38

 

Total assets

 

$

751,831

 

 

$

784,262

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgage notes payable, net

 

$

542,525

 

 

$

547,875

 

Accounts payable and accrued expenses

 

 

4,687

 

 

 

6,435

 

Accrued real estate taxes

 

 

7,986

 

 

 

5,029

 

Due to related parties

 

 

1,434

 

 

 

432

 

Tenant prepayments

 

 

587

 

 

 

634

 

Security deposits

 

 

1,668

 

 

 

1,513

 

Distributions payable

 

 

-

 

 

 

5,993

 

Operating lease liabilities

 

 

18

 

 

 

38

 

Total liabilities

 

 

558,905

 

 

 

567,949

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Convertible stock (par value $.01; 50,000 shares authorized, 50,000 issued and outstanding)

 

 

1

 

 

 

1

 

Common stock (par value $.01; 1,000,000,000 shares authorized; and 60,206,977 and 60,094,623 shares outstanding, respectively)

 

 

601

 

 

 

600

 

Additional paid-in capital

 

 

529,281

 

 

 

528,464

 

Accumulated other comprehensive loss

 

 

(225

)

 

 

(189

)

Accumulated deficit

 

 

(336,732

)

 

 

(312,563

)

Total stockholders’ equity

 

 

192,926

 

 

 

216,313

 

Total liabilities and stockholders’ equity

 

$

751,831

 

 

$

784,262

 

 

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

4


RESOURCE REAL ESTATE OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

21,411

 

 

$

21,312

 

 

$

64,171

 

 

$

64,391

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental operating - expenses

 

 

3,769

 

 

 

3,800

 

 

 

11,398

 

 

 

10,169

 

Rental operating - payroll

 

 

1,969

 

 

 

1,915

 

 

 

5,515

 

 

 

5,831

 

Rental operating - real estate taxes

 

 

2,887

 

 

 

2,925

 

 

 

8,738

 

 

 

8,804

 

Subtotal - Rental operating expenses

 

 

8,625

 

 

 

8,640

 

 

 

25,651

 

 

 

24,804

 

Management fees

 

 

3,255

 

 

 

3,324

 

 

 

9,624

 

 

 

9,964

 

Transaction costs

 

 

2,759

 

 

 

-

 

 

 

2,759

 

 

 

-

 

General and administrative

 

 

2,058

 

 

 

1,897

 

 

 

6,169

 

 

 

5,759

 

Loss on disposal of assets

 

 

54

 

 

 

30

 

 

 

146

 

 

 

149

 

Depreciation and amortization expense

 

 

10,040

 

 

 

9,912

 

 

 

30,150

 

 

 

29,580

 

Total expenses

 

 

26,791

 

 

 

23,803

 

 

 

74,499

 

 

 

70,256

 

Loss before net gain on disposition

 

 

(5,380

)

 

 

(2,491

)

 

 

(10,328

)

 

 

(5,865

)

Net gain on disposition of property

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,619

 

Income (loss) before other income (expense)

 

 

(5,380

)

 

 

(2,491

)

 

 

(10,328

)

 

 

14,754

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

60

 

 

 

14

 

 

 

188

 

Interest expense

 

 

(3,990

)

 

 

(6,257

)

 

 

(13,844

)

 

 

(20,042

)

Net loss

 

 

(9,369

)

 

 

(8,688

)

 

 

(24,158

)

 

 

(5,100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Designated derivatives, fair value adjustment

 

 

(111

)

 

 

48

 

 

 

(36

)

 

 

130

 

Comprehensive loss

 

$

(9,480

)

 

$

(8,640

)

 

$

(24,194

)

 

$

(4,970

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

60,207

 

 

 

60,237

 

 

 

60,243

 

 

 

61,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.16

)

 

$

(0.14

)

 

$

(0.40

)

 

$

(0.08

)

 

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

5


RESOURCE REAL ESTATE OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(in thousands)

(unaudited)

 

 

 

Common Stock

 

 

Convertible Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance, at January 1, 2020

 

 

60,095

 

 

$

600

 

 

 

50

 

 

$

1

 

 

$

528,464

 

 

$

(189

)

 

$

(312,563

)

 

$

216,313

 

Common stock issued through distribution reinvestment plan

 

 

371

 

 

 

4

 

 

 

 

 

 

 

 

 

3,127

 

 

 

 

 

 

 

 

 

3,131

 

True-up of prior year cash distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

(11

)

Common stock redemptions

 

 

(140

)

 

 

(2

)

 

 

 

 

 

 

 

 

(1,223

)

 

 

 

 

 

 

 

 

(1,225

)

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,926

)

 

 

(7,926

)

Balance, at March 31, 2020

 

 

60,326

 

 

$

602

 

 

 

50

 

 

$

1

 

 

$

530,368

 

 

$

(116

)

 

$

(320,500

)

 

$

210,355

 

Common stock redemptions

 

 

(120

)

 

 

(1

)

 

 

 

 

 

 

 

 

(1,087

)

 

 

 

 

 

 

 

 

(1,088

)

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,863

)

 

 

(6,863

)

Balance, at June 30, 2020

 

 

60,206

 

 

$

601

 

 

 

50

 

 

$

1

 

 

$

529,281

 

 

$

(114

)

 

$

(327,363

)

 

$

202,406

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock redemptions

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(111

)

 

 

 

 

 

(111

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,369

)

 

 

(9,369

)

Balance, at September 30, 2020

 

 

60,207

 

 

$

601

 

 

 

50

 

 

$

1

 

 

$

529,281

 

 

$

(225

)

 

$

(336,732

)

 

$

192,926

 

 

 

 

 

Common Stock

 

 

Convertible Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance, at January 1, 2019

 

 

61,379

 

 

$

612

 

 

 

50

 

 

$

1

 

 

$

539,493

 

 

$

(379

)

 

$

(276,261

)

 

$

263,466

 

Common stock issued through distribution reinvestment plan

 

 

570

 

 

 

6

 

 

 

 

 

 

 

 

 

4,858

 

 

 

 

 

 

 

 

 

4,864

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,132

)

 

 

(6,132

)

Common stock redemptions

 

 

(664

)

 

 

(7

)

 

 

 

 

 

 

 

 

(5,946

)

 

 

 

 

 

 

 

 

(5,953

)

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

32

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,697

 

 

 

11,697

 

Balance, at March 31, 2019

 

 

61,285

 

 

$

611

 

 

 

50

 

 

$

1

 

 

$

538,405

 

 

$

(347

)

 

$

(270,696

)

 

$

267,974

 

Common stock issued through distribution reinvestment plan

 

 

397

 

 

 

4

 

 

 

 

 

 

 

 

 

3,304

 

 

 

 

 

 

 

 

 

3,308

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,045

)

 

 

(6,045

)

Common stock redemptions

 

 

(1,671

)

 

 

(16

)

 

 

 

 

 

 

 

 

(13,930

)

 

 

 

 

 

 

 

 

(13,946

)

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,109

)

 

 

(8,109

)

Balance, at June 30, 2019

 

 

60,011

 

 

$

599

 

 

 

50

 

 

$

1

 

 

$

527,779

 

 

$

(297

)

 

$

(284,850

)

 

$

243,232

 

Common stock issued through distribution reinvestment plan

 

 

392

 

 

 

4

 

 

 

 

 

 

 

 

 

3,265

 

 

 

 

 

 

 

 

 

3,269

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,179

)

 

 

(6,179

)

Common stock redemptions

 

 

(467

)

 

 

(5

)

 

 

 

 

 

 

 

 

(3,898

)

 

 

 

 

 

 

 

 

(3,903

)

Designated derivatives, fair value adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

48

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,688

)

 

 

(8,688

)

Balance, at September 30, 2019

 

 

59,936

 

 

$

598

 

 

 

50

 

 

$

1

 

 

$

527,146

 

 

$

(249

)

 

$

(299,717

)

 

$

227,779

 

 

 

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

6


RESOURCE REAL ESTATE OPPORTUNITY REIT II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(24,158

)

 

$

(5,100

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Loss on disposal of assets

 

 

146

 

 

 

149

 

Net gain on disposition of property

 

 

-

 

 

 

(20,619

)

Casualty loss

 

 

-

 

 

 

478

 

Depreciation and amortization

 

 

30,150

 

 

 

29,580

 

Amortization of deferred financing costs

 

 

791

 

 

 

837

 

Amortization of mortgage premiums

 

 

(84

)

 

 

(85

)

Realized loss on ineffectiveness of interest rate caps

 

 

(34

)

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Tenant receivables, net

 

 

(133

)

 

 

(54

)

Due from related parties

 

 

296

 

 

 

56

 

Prepaid expenses and other assets

 

 

(1,053

)

 

 

(158

)

Due to related parties

 

 

1,001

 

 

 

(229

)

Accounts payable and accrued expenses

 

 

(246

)

 

 

2,584

 

Accrued real estate taxes

 

 

1,453

 

 

 

-

 

Tenant prepayments

 

 

(47

)

 

 

(78

)

Security deposits

 

 

156

 

 

 

74

 

Net cash provided by operating activities

 

 

8,238

 

 

 

7,435

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from disposal of property, net of closing costs

 

 

 

 

 

32,882

 

Capital expenditures

 

 

(3,974

)

 

 

(5,536

)

Net cash provided by (used in) investing activities

 

 

(3,974

)

 

 

27,346

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Redemptions of common stock

 

 

(2,312

)

 

 

(23,802

)

Payment of deferred financing costs

 

 

 

 

 

(445

)

Proceeds from borrowings on mortgage notes payable

 

 

 

 

 

8,946

 

Repayments on mortgage notes payable

 

 

(6,057

)

 

 

(4,040

)

Purchase of interest rate caps

 

 

(16

)

 

 

(11

)

Distributions paid on common stock

 

 

(2,873

)

 

 

(9,620

)

Net cash used in financing activities

 

 

(11,258

)

 

 

(28,972

)

Net increase (decrease) in cash and restricted cash

 

 

(6,994

)