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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

 
¨
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: 0-53962

Resource Real Estate Investors 7, L.P.
(Exact name of registrant as specified in its charter)

Delaware
 
26-2726308
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA  19112
(Address of principal executive offices) (Zip code)
 
(215) 231-7050
(Registrant's telephone number, including area code)

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 R 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes R No ¨

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
¨
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
R
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No R

As of November 13, 2012, there were a total of 3,269,655 limited partner units outstanding.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
ON FORM 10-Q

   
PAGE
PART I
FINANCIAL INFORMATION
 
     
ITEM 1.
Financial Statements
 
     
 
   3
     
 
   4
     
 
   5
     
 
   6
     
 
   7
     
ITEM 2.
 15
     
ITEM 3.
 22
     
ITEM 4.
 22
     
PART II
OTHER INFORMATION
 
     
ITEM 6.
 22
     
 23



 
PART I.
FINANCIAL INFORMATION
 

 
ITEM 1.
FINANCIAL STATEMENTS
 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
(in thousands)

   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(unaudited)
       
ASSETS
           
Rental property, at cost:
           
Land
  $ 9,972     $ 7,717  
Buildings and improvements
    57,903       48,233  
Personal property
    1,675       1,314  
Construction-in-progress
    176       347  
Identifiable intangible assets
    558        
      70,284       57,611  
Accumulated depreciation and amortization
    (10,209 )     (7,863 )
      60,075       49,748  
                 
Cash
    5,505       9,764  
Restricted cash
    1,612       945  
Tenant receivables, net
    16       11  
Prepaid expenses and other assets
    390       312  
Deferred financing costs, net
    895       786  
Total assets
  $ 68,493     $ 61,566  
                 
LIABILITIES AND PARTNERS’ CAPITAL
               
Liabilities:
               
Mortgage notes payable
  $ 49,996     $ 40,777  
Accounts payable and accrued expenses
    1,218       897  
Accrued interest
    196       174  
Payables to related parties
    1,229       984  
Prepaid rent
    83       122  
Security deposits
    262       173  
Total liabilities
    52,984       43,127  
                 
Partners’ capital
    15,509       18,439  
                 
Total liabilities and partners’ capital
  $ 68,493     $ 61,566  
 

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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
(in thousands, except per unit data)
(unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Rental income
  $ 2,807     $ 2,020     $ 7,749     $ 5,872  
                                 
Expenses:
                               
Rental operating
    1,398       942       3,881       2,748  
Management fees – related parties
    219       173       613       508  
General and administrative
    92       79       743       283  
Depreciation and amortization
    857       535       2,347       1,583  
Total expenses
    2,566       1,729       7,584       5,122  
Income before other expenses
    241       291       165       750  
                                 
Other expenses:
                               
Interest expense, net
    (652 )     (548 )     (1,866 )     (1,631 )
Casualty loss
          (2 )           (45 )
Loss on disposal of fixed assets
    (1 )     (1 )     (1 )     (4 )
Net loss
  $ (412 )   $ (260 )   $ (1,702 )   $ (930 )
                                 
Comprehensive loss
  $ (412 )   $ (260 )   $ (1,702 )   $ (930 )
                                 
Weighted average number of limited partner
units outstanding
    3,270       3,270       3,270       3,270  
                                 
Net loss per weighted average limited partner unit
  $ (0.13 )   $ (0.08 )   $ (0.52 )   $ (0.28 )

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

 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
(in thousands, except units)
(unaudited)


   
General Partner
   
Limited Partners
   
Total
 
   
Amount
   
Units
   
Amount
   
Amount
 
Balance at January 1, 2012
  $ 1       3,269,655     $ 18,438     $ 18,439  
Distributions
                (1,228 )     (1,228 )
Net loss
                (1,702 )     (1,702 )
Balance at September 30, 2012
  $ 1       3,269,655     $ 15,508     $ 15,509  
 

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



RESOURCE REAL ESTATE INVESTORS 7, L.P.
(in thousands)
(unaudited)


   
For the Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net loss
  $ (1,702 )   $ (930 )
Adjustments to reconcile net loss to net cash provided
by operating activities:
               
Depreciation and amortization
    2,347       1,583  
Amortization of deferred financing costs
    145       130  
Casualty loss
          45  
Loss on disposal of fixed assets
    1       4  
Changes in operating assets and liabilities, net of acquisition:
               
Restricted cash
    (78 )     79  
Tenant receivables, net
    (6 )     (26 )
Prepaid expense and other assets
    (57 )     (150 )
Accounts payable and accrued expenses
    320       58  
Accrued interest
    23       (7 )
Payables to related parties
    245       109  
Prepaid rent
    (43 )     14  
Security deposits
    34       2  
Net cash provided by operating activities
    1,229       911  
                 
Cash flows from investing activities:
               
Capital expenditures
    (1,173 )     (537 )
Purchase of Woodland Village
    (2,472 )      
Net cash used in investing activities
    (3,645 )     (537 )
                 
Cash flows from financing activities:
               
Distributions to limited partners
    (1,228 )     (1,228 )
Principal payments on mortgage notes payable
    (361 )     (315 )
Payment of deferred financing costs
    (254 )      
Net cash used in financing activities
    (1,843 )     (1,543 )
                 
Net decrease in cash
    (4,259 )     (1,169 )
Cash at beginning of period
    9,764       11,350  
Cash at end of period
  $ 5,505     $ 10,181  
 

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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
SEPTEMBER 30, 2012
(unaudited)

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS
 
    Resource Real Estate Investors 7, L.P. (“R-7” or the “Partnership”) is a Delaware limited partnership which owns and operates multifamily residential properties located in Georgia, Maine, South Carolina and Texas (referred to as the “Properties”).  The Partnership also may invest in interests in real estate mortgages and other debt instruments that are secured, directly or indirectly, by multifamily residential rental properties although the Partnership has no such investments as of September 30, 2012.  R-7 was formed on March 28, 2008 and commenced operations on June 16, 2008.  The General Partner, Resource Capital Partners, Inc. (“RCP” or the “GP”), is in the business of sponsoring and managing real estate investment limited partnerships and tenant in common programs.  RCP contributed $1,000 in cash as its minimum capital contribution to the Partnership.  In addition, RCP held a 5.5% limited partnership interest in the Partnership at both September 30, 2012 and December 31, 2011.  RCP is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, commercial finance and financial fund management sectors.

The Partnership will continue until March 28, 2016, unless terminated earlier in accordance with the First Amended and Restated Agreement of Limited Partnership (the “Agreement”).  The GP has the right to extend the Partnership term for one or more periods to a maximum of two years in the aggregate following the initial termination date.

The Agreement provides that income is allocated as follows: first, to the Limited Partners (“LPs”) and the GP (collectively, the “Partners”) in proportion to and to the extent of the deficit balances, if any, in their respective capital accounts; second, to the Partners in proportion to the allocations of Distributable Cash (as defined in the Agreement); and third, 100% to the LPs.  All losses are allocated as follows: first, 100% to the LPs until the LPs have been allocated losses equal to the excess, if any, of their aggregate capital account balances over the aggregate Adjusted Capital Contributions (as defined in the Agreement); second, to the Partners in proportion to and to the extent of their respective remaining positive capital account balances, if any; and third, 100% to the LPs.

Distributable cash from operations, payable monthly, as determined by the GP, is first allocated 100% to the LPs until the LP’s have received their Preferred Return (as defined in the Agreement); and thereafter, 80% to the LPs and 20% to the GP.

Distributable cash from capital transactions, as determined by the GP, is first allocated 100% to the LPs until the LPs have received their Preferred Return; second, 100% to the LPs until their Adjusted Capital Contributions (as defined in the Agreement) have been reduced to zero; and thereafter, 80% to the LPs and 20% to the GP.

The consolidated financial statements and the information and tables contained in the notes thereto as of September 30, 2012 are unaudited.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented.  The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011.  The results of operations for the nine months ended September 30, 2012 may not necessarily be indicative of the results of operations for the full year ending December 31, 2012.

 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation

The consolidated financial statements include the accounts of the Partnership and its wholly-owned subsidiaries, as follows:
 
Subsidiaries
 
Number of
Units
 
Location
RRE Tamarlane Holdings, LLC, or Tamarlane Apartments (“Tamarlane”)
 
  115
 
Portland, ME
RRE Bent Oaks Holdings, LLC, or Bent Oaks Apartments (“Bent Oaks”)
 
  146
 
Austin, TX
RRE Cape Cod Holdings,  LLC, or Cape Cod Apartments (“Cape Cod”)
 
  212
 
San Antonio, TX
    RRE Woodhollow Holdings, LLC, or Woodhollow Apartments (“Woodhollow”)
 
  108
 
Austin, TX
RRE Woodland Hills Holdings, LLC, or Woodland Hills Apartments (“Hills”)
 
  228
 
Decatur, GA
RRE Woodland Village Holdings, LLC, or Woodland Village Apartments (“Village”)
 
  308
 
Columbia, SC
   
1,117
   
 
      All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates
 
      The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  The Partnership estimates the allowance for uncollectible receivables and adjusts the balance quarterly.  Actual results could differ from those estimates.

Supplemental Disclosure of Cash Flow Information

During the nine months ended September 30, 2012 and 2011, the Partnership paid $1.7 million and $1.5 million, respectively, in cash for interest for real estate acquired with mortgages.

Advertising

The Partnership expenses advertising costs as they are incurred.  Advertising costs, which are included in rental operating expenses, totaled $94,000 and $87,000 for the nine months ended September 30, 2012 and 2011, respectively.

Deferred Financing Costs

Costs incurred to obtain financing have been capitalized and are being amortized over the term of the related debt using the effective yield method.

Income Taxes

Income taxes or credits resulting from earnings or losses are payable by or accrue to the benefit of the partners; accordingly, no provision has been made for income taxes in these consolidated financial statements.

The Partnership is subject to examination by the U.S. Internal Revenue Service and by the taxing authorities in those states in which the Partnership has significant business operations.  The Partnership is not currently undergoing any examinations by taxing authorities.  The Partnership may be subject to U.S. federal income tax and state/local income tax examinations for years 2008 through 2011.

 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)
 
Revenue Recognition
 
      Revenue is primarily derived from the rental of residential housing units with lease agreement terms of approximately twelve months.  The Partnership recognizes revenue in the period that rent is earned, which is on a monthly basis.  Rents are recognized as income on a straight-line basis over the term of the lease for leases with varying rental payments.  Any incentives included in the lease are amortized on a straight-line basis over the term of the lease.
 
      Included within rental income on the statements of operations and comprehensive loss are other income amounts such as utility reimbursements, late fees, parking fees, pet fees and lease application fees which are recognized when earned.

The future minimum rental payments to be received from noncancelable operating leases are approximately $5.8 million and $9,000 for the twelve months ending September 30, 2013 and 2014, respectively, and none thereafter.
 
Long-Lived Assets
 
      The Partnership reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If it is determined that an asset’s estimated future cash flows will not be sufficient to recover its carrying amount, an impairment charge will be recorded to reduce the carrying amount for that asset to its estimated fair value.  There was no impairment loss recorded for either of the nine month periods ended September 30, 2012 or September 30, 2011.
 
Rental Properties

Rental properties are carried at cost, net of accumulated depreciation.  Buildings and improvements and personal property are depreciated for financial reporting purposes on the straight-line method over their estimated useful lives.  The value of in-place leases is amortized over twelve months on a straight line basis.  For income tax reporting purposes, the Partnership uses the Modified Accelerated Cost Recovery System.  Useful lives used for calculating depreciation for financial reporting purposes are as follows:

 
Buildings and improvements
 5 - 27.5 years
 
 
Personal property
 3 - 15 years
 
 
Tenant Receivables
 
      Tenant receivables are stated at amounts due from tenants net of an allowance for uncollectible receivables.  Payment terms vary and receivables outstanding longer than the payment terms are considered past due.  The Partnership determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Partnership’s previous loss history, the tenants’ current ability to pay their obligations to the Partnership and the condition of the general economy and the industry as a whole.  The Partnership writes off receivables when they become uncollectible.  At September 30, 2012 and December 31, 2011, there was $0 and $7, respectively, in the allowance for uncollectible receivables.
 
Redemptions
 
      The LPs may request redemption of their units at any time.  The Partnership has no obligation to redeem any units and will do so only at the GP’s discretion.  If the Partnership redeems units, the redemption price is generally the amount of the initial investment less all distributions from the Partnership to the LP, and less all organization and offering expenses charged to the LP.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Recent Issued Financial Accounting Standards
 
      Newly-Adopted Accounting Principles
 
      The adoption of the following standards did not have a material impact on the Partnership’s consolidated financial position, results of operations or cash flows:
 
      Fair Value Measurements.  In May 2011, the FASB amended the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements.  For many of the equirements, the FASB does not intend for the amendments to result in a change in the application of the current requirements.  Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets.  Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability.  This guidance became effective for the Partnership beginning January 1, 2012.
 
      Comprehensive Income (Loss).  In June 2011, the FASB eliminated the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity.  The accounting standard now requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss).  This guidance became effective for the Partnership beginning January 1, 2012.
 
NOTE 3 − RESTRICTED CASH
 
      Restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance, and capital improvements.  A summary of the components of restricted cash follows (in thousands):

   
September 30,
   
December 31,
 
   
2012
   
2011
 
Real estate taxes
  $ 671     $ 588  
Insurance
    102       74  
Capital improvements
    839       283  
    $ 1,612     $ 945  
 
NOTE 4 – DEFERRED FINANCING COSTS
 
      Deferred financing costs include unamortized costs incurred to obtain financing which are being amortized over the term of the related debt.  Accumulated amortization as of September 30, 2012 and December 31, 2011 was approximately $706,000 and $561,000, respectively.  Estimated amortization of the Properties’ existing deferred financing costs for the next five years ending September 30, and thereafter, is as follows (in thousands):

2013
  $ 209  
2014
    208  
2015
    181  
2016
    99  
2017
    82  
Thereafter
    116  
    $ 895  



RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)
 
NOTE 5 – MORTGAGE NOTES PAYABLE
 
      The following is a summary of mortgage notes payable (in thousands, except percentages):

Property
 
September 30,
2012
   
December 31,
2011
 
Maturity Date
 
Annual
Interest Rate
   
Average Monthly
Debt Service
 
Tamarlane
  $ 8,906     $ 8,906  
05/01/2015
    4.92%     $ 37   (1)
Tamarlane
    970       981  
05/01/2015
    6.12%     $ 6   (2)
Bent Oaks
    6,001       6,055  
     01/01/2019 (7)
    5.99%  (7)   $ 37   (3)
Cape Cod
    6,237       6,294  
     01/01/2019 (7)
    5.91%  (7)   $ 38   (4)
Woodhollow
    5,142       5,186  
     01/01/2019 (7)
    6.14%  (7)   $ 32   (5)
Hills
    13,160       13,355  
01/01/2016
    3.50%  (6)   $ 61   (6)
Village
    9,580        
04/01/2019
    3.76%  (8)   $ 31   (8)
Total
  $ 49,996     $ 40,777                    

(1)
Interest only through the date of maturity, at which time the principal is due.
(2)
Principal and interest.
(3)
Monthly payment including principal and interest totals $36,653, effective since February 1, 2011.
(4)
Monthly payment including principal and interest totals $37,776, effective since February 1, 2011.
(5)
Monthly payment including principal and interest totals $31,890, effective since February 1, 2011.
(6)
Monthly payment including principal and interest is approximately $61,000 (based on variable rate as of the date of this report), effective since February 1, 2011.  Interest is variable and calculated monthly based upon the one month British Bankers Association London Interbank Offered Rate plus 323 basis points, capped at 7% for the term of the loan.
(7)
The Partnership has an option to extend the maturity date for an additional one year to January 1, 2020.  During the extension period, the interest rate would convert to the Federal Home Loan Mortgage Corporation Bill Index Rate plus 2.5%.
(8)
Interest only payments of approximately $31,000 through April 1, 2014.  Monthly payment including principal and interest will total $44,422 effective May 1, 2014.
 
      Annual principal payments on the mortgage notes payable for each of the next five years ending September 30, and thereafter, are as follows (in thousands):

2013
  $ 513  
2014
    608  
2015
    1,661  
2016
    21,657  
2017
    472  
Thereafter
    25,085  
    $ 49,996  

The mortgage notes payable are with recourse only to the Properties securing them subject to certain limited standard exceptions, as defined in the mortgage notes, which the GP has guaranteed by executing a guarantee with respect to each property.  These exceptions are referred to as “carveouts”.  In general, carveouts relate to damages suffered by the lender for a subsidiary’s failure to pay rents, insurance or condemnation proceeds to the lender, to pay water, sewer and other public assessments or charges, to pay environmental compliance costs or to deliver books and records, in each case as required in the loan documents.  The exceptions also require the GP to guarantee payment of audit costs, lender’s enforcement of its rights under the loan documents and payment of the loan if the subsidiary voluntarily files for bankruptcy or seeks reorganization, or if a related party of the subsidiary does so with respect to the subsidiary.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)

NOTE 6 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
      In the ordinary course of its business operations, the Partnership has ongoing relationships with several related entities.
 
      RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross offering proceeds, net of any LP interest owned by RCP.  During the term of the Partnership, RCP must subordinate up to 100% of its annual investment management fee to the receipt by the LPs of their Preferred Return.  As of September 30, 2012 and December 31, 2011 investment management fees due to RCP totaled $1.1 million and $894,000, respectively.

A wholly owned subsidiary of RCP, Resource Real Estate Management, LLC (“RREML”) is entitled to receive property and debt management fees.  RREML engaged Resource Real Estate Management, Inc (“RREMI”), an indirect wholly owned subsidiary of RAI, to be the manager of the Partnership’s properties.  As of September 30, 2012 and December 31, 2011 property management fees due totaled $78,000 and $78,000, respectively.

RCP and RREMI advance funds for ordinary operating expenses on behalf of the Properties, which are repaid within a few days.  As of September 30, 2012 and December 31, 2011 advances due totaled $22,000 and $15,000, respectively.

The Partnership is obligated to pay fees and reimbursements of expenses to related parties.  These activities are as follows (in thousands):

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
RCP:
                       
Investment management fees (1) 
  $ 81     $ 72     $ 235     $ 215  
RREML:
                               
Property management fees (2) 
  $ 138     $ 101     $ 378     $ 293  

(1)
RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross proceeds from the offering of partnership units, net of any LP interest owned by RCP.  During the term of the Partnership, RCP must subordinate up to 100% of its annual investment management fee to the receipt by the LPs of their Preferred Return.
(2)
RREML is entitled to receive monthly property management fees equal to 5% of the gross operating revenues from the Partnership’s 100% owned properties for managing or obtaining and supervising third party managers.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)
 
NOTE 7–FAIR VALUE OF FINANCIAL INSTRUMENTS
 
      In analyzing the fair value of its financial instruments disclosed or accounted for on a fair value basis, the Partnership follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The Partnership determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the financial instruments.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:
 
      Level 1 - Quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date. 
 
      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or can be corroborated with observable market data for substantially the entire contractual term of the asset.
 
      Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset and are consequently not based on market activity, but rather through particular valuation techniques.
 
      The following methods and assumptions were used to estimate the fair value of the Partnership’s financial instruments:
 
 
Mortgage notes payable.  Rates currently available to the Partnership for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

The estimated fair value measurements of the mortgage notes payable are classified within level 3 of the fair value hierarchy.

The carrying and fair values of the Partnership’s financial instruments were as follows (in thousands):

   
September 30, 2012
   
December 31, 2011
 
   
Carrying Amount
   
Fair Value
   
Carrying Amount
   
Fair Value
 
                         
Tamarlane
  $ 9,876     $ 10,196     $ 9,887     $ 10,142  
Bent Oaks
    6,001       6,774       6,055       6,746  
Cape Cod
    6,237       7,012       6,294       6,981  
Woodhollow
    5,142       5,812       5,186       5,792  
Hills
    13,160       13,008       13,355       13,005  
Village
    9,580       9,638    
(a)
   
(a)
 
Total mortgage notes payable
  $ 49,996     $ 52,440     $ 40,777     $ 42,666  

(a)
Village was not acquired until March 7, 2012.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2012
(unaudited)
 
NOTE 8 – ACQUISITIONS
 
      The cost of Properties is allocated to net tangible assets based on relative fair values.  Fair value estimates are based on information obtained from a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of each property and other market data, as well as information obtained about each property as a result of due diligence, marketing and leasing activities.
 
      During the nine months ended September 30, 2012, the Partnership acquired a 100% interest in Woodland Village, a multifamily residential apartment complex in Columbia, SC, which was accounted for using the purchase method of accounting.  The following table presents the purchase price allocation to the assets and liabilities assumed, based on the fair values at the date of acquisition (in thousands):

Date acquired
 
March 7, 2012
 
       
Land
  $ 2,255  
Buildings
    8,687  
Identifiable intangible assets
    558  
         
Note payable – mortgage
    (9,580 )
Escrowed funds and advances
    589  
Other assets and liabilities assumed, net
    (37 )
Cash paid for property acquisition
  $ 2,472  

NOTE 9 – IDENTIFIABLE INTANGIBLE ASSETS
 
      Identifiable intangible assets consisted of acquired in-place leases totaling $558,000 and $0 as of September 30, 2012 and December 31, 2011, respectively, net of accumulated amortization of $488,000 and $0.  The weighted-average remaining life of the leases was one month as of September 30, 2012.  Expected remaining amortization for the leases will be $70,000 through the year ending December 31, 2012 and none thereafter.

NOTE 10 – SUBSEQUENT EVENTS
 
      The Partnership has evaluated subsequent events and determined that no events have occurred which would require an adjustment to the consolidated financial statements.

 
ITEM 2.
 
AND RESULTS OF OPERATIONS (unaudited)

This report contains certain 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.  Such statements are subject to the risks and uncertainties inherent in partnerships that invest in real estate and real estate assets, including those referred to in our filings under the Securities Exchange Act of 1934.  These risks and uncertainties could cause actual results to differ materially.  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.
 
Overview
 
      We are a Delaware limited partnership that was formed on March 28, 2008 and commenced operations on June 16, 2008.  Through wholly owned subsidiaries, we own in fee, operate and invest in multifamily residential rental properties located in Georgia, Maine, South Carolina and Texas which we refer to as our Properties.  We also may invest in interests in real estate mortgages and other debt instruments that are secured, directly or indirectly, by a multifamily residential rental property or an interest in an entity that directly owns such a property.  As of September 30, 2012, we did not own any Real Estate Debt Investments.  If we were to acquire mortgages or other Real Estate Debt Investments in the future, these investments will be in an amount that would not cause us to become an investment company within the meaning of Section 3(a)(1) of the Investment Company Act of 1940.
 
      As of September 30, 2012, we own six multifamily residential rental properties through our 100% owned subsidiaries, as follows:

Subsidiaries
 
Purchase Date
 
Leverage
Ratio (1)
 
Number of
 Units
 
Property
Location
RRE Tamarlane Holdings, LLC, or Tamarlane
 
07/31/08
 
68%
 
  115
 
Portland, ME
RRE Bent Oaks Holdings, LLC, or Bent Oaks
 
12/10/08
 
57%
 
  146
 
Austin, TX
RRE Cape Cod Holdings, LLC, or Cape Cod
 
12/10/08
 
57%
 
  212
 
San Antonio, TX
RRE Woodhollow Holdings, LLC, or Woodhollow
 
12/12/08
 
60%
 
  108
 
Austin, TX
RRE Woodland Hills Holdings, LLC, or Hills
 
12/19/08
 
65%
 
  228
 
Decatur, GA
RRE Woodland Village Holdings, LLC, or Village
 
03/07/12
 
77%
 
  308
 
Columbia, SC
           
1,117
   

(1)
Face value of mortgage divided by total property capitalization, including reserves, escrows, fees and closing costs.

The following table sets forth operating statistics about our multifamily residential rental properties:

   
Average
Occupancy Rate (1)
   
Average Effective Rent
per Square Foot (2)
   
Ratio of Operating
Expense to Revenue (3)
 
   
Three Months Ended
September 30,
   
Three Months Ended
September 30,
   
Three Months Ended
September 30,
 
Apartment Complex
 
2012
   
2011
   
2012
   
2011
   
2012
   
2011
 
Tamarlane
    96.8%       97.4%     $ 1.24     $ 1.21       39%       38%  
Bent Oaks
    94.7%       97.5%     $ 1.06     $ 1.01       61%       58%  
Cape Cod
    95.4%       95.9%     $ 0.92     $ 0.85       54%       55%  
Woodhollow
    95.4%       96.0%     $ 0.95     $ 0.90       61%       65%  
Hills
    97.1%       97.4%     $ 0.72     $ 0.68       47%       47%  
Village (4) 
    94.0%       N/A     $ 0.52       N/A       63%       N/A  
 
 

 
   
Nine Months Ended
September 30,
   
Nine Months Ended
September 30,
   
Nine Months Ended
September 30,
 
Apartment Complex
 
2012
   
2011
   
2012
   
2011
   
2012
   
2011
 
Tamarlane
    95.9%       96.8%     $ 1.20     $ 1.16       43%       42%  
Bent Oaks
    94.7%       96.2%     $ 1.03     $ 0.97       64%       59%  
Cape Cod
    95.7%       95.8%     $ 0.91     $ 0.83       55%       56%  
Woodhollow
    93.1%       95.5%     $ 0.92     $ 0.83       60%       63%  
Hills
    96.7%       95.8%     $ 0.70     $ 0.66       51%       49%  
Village (4) 
    92.3%       N/A     $ 0.47       N/A       67%       N/A  

(1)
Number of occupied units divided by total units adjusted for any unrentable units; average calculated on a weekly basis.
(2)
Average rental revenue divided by total rentable square footage.  We calculate average rental revenue by dividing gross rental revenue by the number of months in the period.
(3)
Rental operating expenses, excluding certain one-time expenses funded from reserves for capital expenditures, and general and administrative expenses, excluding asset management fees and transaction expenses, as a percentage of rental income, excluding any adjustment for concessions.
(4)
Due to our purchase of the Village on March 7, 2012, this information was not available for the prior year periods presented.

Results of Operations
 
      We generate our income from the net revenues we receive from our Properties.  We also may, in the future, generate funds from the sale or refinancing of our Properties.  Because we acquired our Properties in 2008 and 2012, we do not expect that we will sell or refinance them during at least the next year.  Should economic conditions in the areas in which our Properties are located deteriorate, we could experience lower occupancy, lower rental revenues and higher operating costs, all of which could harm our operations and financial condition, reduce the value of our Properties and limit or eliminate our ability to make distributions to our limited partners.
 
      Our operating results and cash flows from our Properties are affected by four principal factors:
 
 
occupancy and rental rates,
 
 
property operating expenses,
 
 
interest rates on the related financing, and
 
 
capital expenditures.

The amount of rental revenues from our Properties depends upon their occupancy rates and concessions granted.  We seek to maximize our occupancy rates through aggressive property-level programs, including, in particular, our Lease Assurance Program and our Lease Rent Optimizer, or LRO, program which includes rent concessions and a substantial capital improvements program.  Under our Lease Assurance Program, we are marketing our apartment units to current and potential tenants who are worried about incurring substantial lease breakage penalties if they lose their jobs.  The program allows tenants who sign new or renewal leases to terminate their leases without penalty within 45 days after they provide proof of an involuntary job loss.  Under our LRO program, we seek to price our rents for apartment units on a daily basis, based upon inventory in the marketplace and competitors’ pricing.  As a result of these programs, our Properties have reached a stable average occupancy rate, with fluctuations being consistent with the normal course of business, and we have, in some instances, been able to increase their rental rates.

We seek to control operating expenses through our General Partner’s automated purchase order system that compares actual to budgeted expenses and requires management approval of variances, and through the use of third-party service providers to seek best available pricing.

With the exception of one mortgage note, our existing financing is at fixed rates of interest and, accordingly, our interest cost has remained relatively stable during the period of our ownership of the Properties.  Based upon current economic conditions and their effect on interest rates, and because our existing financing extends through periods ranging from 2015 to 2019, we expect that our financing costs will remain relatively stable during substantially all of the expected terms of these notes.  However, should interest rates change materially, the interest component of our variable rate financing, which is based upon the one-month London Interbank Offered Rate plus 323 basis points, and is capped at 7%, could change.
 
 
Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

The following table sets forth the unaudited results of our operations for the three months ended September 30, 2012 and 2011 (in thousands, except per unit data):

   
September 30,
   
Increase (Decrease)
 
   
2012
   
2011
   
Dollars
   
Percent
 
Revenues:
                       
Rental income
  $ 2,807     $ 2,020     $ 787         39%  
Expenses:
                               
Rental operating
    1,398       942       456         48%  
Management fees – related party
    219       173       46         27%  
General and administrative
    92       79       13         16%  
Depreciation and amortization
    857       535       322         60%  
Total expenses
    2,566       1,729       837         48%  
Income before other expenses
    241       291       (50 )     (17%)  
Other expenses:
                               
Interest expense, net
    (652 )     (548 )     (104 )       (19%)  
Casualty loss
          (2 )     2       100%  
Loss on disposal of fixed assets
    (1 )     (1 )               0%  
Net loss
  $ (412 )   $ (260 )   $ (152 )       (58%)  
                                 
Weighted average number of limited partner units
outstanding
    3,270       3,270                  
Net loss per weighted average limited partner unit
  $ (0.13 )   $ (0.08 )                

Revenues

We attribute the $787,000 increase in revenues principally to the increase in the average effective rent per square foot at the Properties and the stabilization of the average occupancy rate at the Properties along with the revenue recognized of $663,000 at the newly-acquired Woodland Village property during the current quarter.  Occupancy rates have varied within our expected range.  We were able to increase rents as a result of stable occupancy and strong market demand.

Expenses

We attribute the $837,000 increase in expenses to the following:
 
 
a $456,000 increase in operating expenses due primarily to $405,000 of operating expenses incurred on the newly acquired Woodland Village along with increases of $15,000 in insurance expenses as a result of loss experience, and $39,000 in real estate tax expenses;
 
 
a $46,000 increase in management fees due mainly to $33,000 of management fees for Woodland Village along with an increase in rental income as a result of an increase in average effective rent per square foot at the Properties;
 
 
a $13,000 increase in general and administrative expenses due to the general and administrative expenses of Woodland Village; and
 
 
a $322,000 increase in depreciation and amortization due to the impact of recent capital expenditures, including the purchase of Woodland Village identifiable intangible assets.

Other expenses

We attribute the $102,000 increase in other expenses primarily to the $101,000 of additional interest expense related to the debt incurred in conjunction with the acquisition of the Woodland Village property.


Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

The following table sets forth the unaudited results of our operations for the nine months ended September 30, 2012 and 2011 (in thousands, except per unit data):

   
September 30,
   
Increase (Decrease)
 
   
2012
   
2011
   
Dollars
   
Percent
 
Revenues:
                       
Rental income
  $ 7,749     $ 5,872     $ 1,877       32%  
Expenses:
                               
Rental operating
    3,881       2,748       1,133       41%  
Management fees – related party
    613       508       105       21%  
General and administrative
    743       283       460       163%  
Depreciation and amortization
    2,347       1,583       764       48%  
Total expenses
    7,584       5,122       2,462       48%  
    Income before other expenses
    165       750       (585 )     (78%)  
Other expenses:
                               
Interest expense, net
    (1,866 )     (1,631 )     (235 )     (14%)  
Casualty loss
          (45 )     45       100%  
Loss on disposal of fixed assets
    (1 )     (4 )     3       75%  
Net loss
  $ (1,702 )   $ (930 )   $ (772 )     (83%)  
                                 
Weighted average number of limited partner units
outstanding
    3,270       3,270                  
Net loss per weighted average limited partner unit
  $ (0.52 )   $ (0.28 )                

Revenues

We attribute the $1.9 million increase in revenues principally to the increase in the average effective rent per square foot at the Properties and the stabilization of the average occupancy rate at the Properties along with the revenue recognized of $1.4 million at the newly-acquired Woodland Village property during the seven months in the period that we have owned it.  Occupancy rates have varied within our expected range.  We were able to increase rents as a result of stable occupancy and strong market demand.

Expenses

We attribute the $2.5 million increase in expenses to the following:
 
 
a $1.1 increase in operating expenses due primarily to $854,000 of operating expenses incurred on the newly acquired Woodland Village along with increases of $83,000 in insurance expenses and $103,000 in real estate tax expenses;
 
 
a $105,000 increase in management fees due mainly to $70,000 of management fees for Woodland Village along with an increase in rental income as a result of an increase in average effective rent per square foot at the Properties;
 
 
a $460,000 increase in general and administrative expenses due primarily to transaction costs associated with the purchase of Woodland Village; and
 
 
a $764,00 increase in depreciation and amortization due to the impact of recent capital expenditures, including the purchase of Woodland Village identifiable intangible assets.

Other expenses

We attribute the $187,000 increase in other expenses primarily to the $224,000 of additional interest expense related to the debt incurred in conjunction with the acquisition of the Woodland Village property.

 
Liquidity and Capital Resources

The following table sets forth our sources and uses of cash (in thousands):

   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
Provided by operating activities (1) 
  $ 1,229     $ 911  
Used in investing activities
    (3,645 )     (537 )
Used in financing activities
    (1,843 )     (1,543 )
Net decrease in cash
  $ (4,259 )   $ (1,169 )

(1)
Including changes in operating assets and liabilities.

Our liquidity needs consist principally of funds to pay the Properties’ debt service, operating expenses, capital expenditures and monthly distributions to the limited partners.  Our ability to meet our liquidity needs will be subject to our ability to generate cash from operations, to control property operating expenses and, with respect to capital expenditures, the use of cash reserves established when the properties were purchased.  The ability to generate cash from operations will depend on the occupancy rates, rates charged to tenants compared with competing properties in the area and the ability of tenants to pay rent.  Occupancy rates can fluctuate based on changes in local market conditions where the Properties are located, such as: excessive building resulting in an oversupply of similar properties, deterioration of surrounding areas, a decrease in market rates or local economic conditions including unemployment rates.  The rental rates charged to tenants compared to competing properties can be impacted by a lack of perceived safety, convenience and attractiveness of a property.
 
      During the nine months ended September 30, 2012, we incurred a net loss; our results are substantially affected by non-cash expenses, principally depreciation and amortization expense, as is common for entities that own real properties.  Our net loss for the nine months ended September 30, 2012 and 2011 of $1.7 million and $930,000, respectively, included $2.3 million and $1.6 million, respectively, of depreciation and amortization expense.  Excluding these non-cash expenses our operations generated $791,000 and $832,000, respectively, of positive adjusted cash flow from operations for the nine months ended September 30, 2012 and 2011, respectively.  We define adjusted cash flow from operations, a non-GAAP liquidity measure, as net cash provided by operating activities as adjusted for net changes in operating assets and liabilities.  Management views adjusted cash flow from operations as a useful and appropriate supplement to cash provided by operating activities, since distributions to the limited partners depend upon this measure.  Unless our properties are affected by the factors referred to above in this discussion and in “Results of Operations,” we anticipate that we will generate positive adjusted cash flow from operations for the twelve months ending December 31, 2012.

The following table reconciles net cash provided by operating activities to adjusted cash flow from operations, a non-GAAP measure, as described in the paragraph above (in thousands):

   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
Net cash provided by operating activities
  $ 1,229     $ 911  
Net changes in operating assets and liabilities
    (438 )     (79 )
Adjusted cash flow from operations (non-GAAP)
  $ 791     $ 832  

Under our capital improvements program, we expect to spend approximately $7.3 million in the next five years for property improvements intended to increase the Properties’ appeal to tenants.  As we implement planned improvements to our Properties, we seek to maintain our occupancy rates and, potentially, to increase our rental rates and our cash flow from operating activities.



 
      The following table sets forth the capital expenditures incurred during the nine months ended September 30, 2012 and estimated future capital expenditures which are discretionary in nature (in thousands):

Subsidiary
 
Capital
Expenditures
   
Future Discretionary Capital Expenditures
 
Tamarlane
  $ 94     $ 722  
Bent Oaks
    70       1,023  
Cape Cod
    117       1,216  
Woodhollow
    68       990  
Hills
    344       1,433  
Village
    480       1,873  
Total
  $ 1,173     $ 7,257  
 
      Although our capital expenditures were $1.2 million during the nine months ended September 30, 2012, we have planned a series of major capital projects for our Properties, including further landscaping, parking lot paving, signage upgrades, upgrades to exterior structures, replacing the HVAC condensing units and replacing water heaters.  We review future expenditures periodically and adjust them based on both operating results and local market conditions.  If market conditions improve and there is an acceptable return on the additional expenditures, we will consider restoring the interior upgrade program.  We cannot assure you that we will complete projects currently planned or that we will not change our plans in response to changes in market conditions.  Pending future reviews of our capital projects program, we intend to use the reserves not needed for the program to fund debt service requirements, which began in early 2011, and are approximately $513,000 for the next 12 months.
 
      In connection with the acquisitions of our Properties, we incurred $50.8 million of mortgage financing.  For information regarding mortgage financing with respect to each Property, see Note 5 of the notes to our consolidated financial statements.
 
      During the nine months ended September 30, 2012, we acquired Woodland Village Apartments for $11.5 million.  In connection with this purchase, we obtained a $9.6 million first mortgage.  The property, located in Columbia, South Carolina, is a 308-unit multifamily rental property.  Although the acquisition has reduced our liquidity by approximately $3.1 million and thereby reduced the amount available for our capital improvements program, we believe that we have retained sufficient liquidity to fund that program in the future and that the acquisition should increase our cash flow from operations going forward.

Redemption of Units

We are permitted, in our General Partner’s sole discretion, to redeem units upon a unitholder’s request.  However, we have no obligation to redeem units at any time, and we can decline to redeem units for any reason. For example, if our General Partner determines that we do not have the necessary cash flow, taking into account future distributions to our other limited partners, investments, and foreseeable operating expenses, a unitholder’s request may be declined. In addition, our General Partner may not approve the redemption of units if it concludes that the redemption might cause our total unit transfers in the year, subject to certain exceptions, to exceed 2% of our total capital or profits interests. All of these determinations are subjective and will be made in our General Partner’s sole discretion.  We will also determine the redemption price based on provisions set forth in the First Amended and Restated Agreement of Limited Partnership, or the Partnership Agreement. To the extent the formula for arriving at the redemption price has any subjective determinations, they will fall within the sole discretion of our General Partner.  If we lack the requisite liquidity to redeem the units, our General Partner, in its sole discretion, may purchase the units on generally the same terms as we would have redeemed the units.  As of September 30, 2012, a total of 5,000 units have been redeemed, although no units were redeemed in the quarter then ended.

Legal Proceedings

We are a party to various routine legal proceedings arising out of the ordinary course of our business.  Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.


 
Critical Accounting Policies

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

For a discussion on our critical accounting policies and estimates, see the discussion in our Annual Report on Form 10-K for the year ended December 31, 2011 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”

Off-Balance Sheet Arrangements

As of September 30, 2012 and December 31, 2011, we do not have any off-balance sheet arrangements or obligations, including contingent obligations, other than guarantees by the General Partner of certain limited standard expectations to the non-recourse nature of the mortgage notes which are secured by the Properties.

Recent Accounting Standards
 
      Newly-Adopted Accounting Principles
 
      The adoption of the following standards did not have a material impact on our consolidated financial position, results of operations or cash flows:
 
      Fair Value Measurements.  In May 2011, the FASB amended the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability.  This guidance became effective for us beginning January 1, 2012.
 
      Comprehensive Income (Loss).  In June 2011, the FASB eliminated the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity.  The accounting standard now requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss).  This guidance became effective for us beginning January 1, 2012.


 

Omitted pursuant to Regulation S-K, Item 305(e).



Disclosure Controls

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

Under the supervision of the chief executive officer and chief financial officer of our General Partner, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our third quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.                      OTHER INFORMATION

ITEM 6.

Exhibit No.
 
Description
2.1a
 
Purchase and Sale Agreement (Woodland Village Apartments), dated December 21, 2011, by and between Gulfstream I, LLC, Gulfstream II, LLC, Gulfstream III, LLC and Gulfstream IV, LLC collectively as Seller and Resource Capital Partners, Inc. and RRE Woodland Village Holdings, LLC as Seller, Purchaser and Assignee, collectively as Parties. (2)
     
2.1b
 
Assignment of Purchase and Sale Agreement, dated March 2012, by and between Gulfstream I, LLC, Gulfstream II, LLC, Gulfstream III, LLC and Gulfstream IV, LLC collectively as Seller and Resource Capital Partners, Inc. as Purchaser. (2)
     
3.1
 
Amended and Restated Agreement of Limited Partnership. (1)
     
3.2
 
Certificate of Limited Partnership. (1)
     
4.1
 
Forms of letters sent to limited partners confirming their investment. (1)
     
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
 
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.1
 
The following information from the Partnership's quarterly report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Changes in Partners' Capital; (iv) Consolidated Statements of Cash Flows.
          
(1)
Filed previously as an exhibit to the Partnership’s registration statement on Form 10 for the year ended December 31, 2008 and by this reference incorporated herein.
(2)
Filed previously as an exhibit to the Partnership’s Form 10-Q for the quarter ended March 31, 2012 and by this reference incorporated herein.
 

 

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


 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
 
By:  Resource Capital Partners, Inc., its general partner
   
November 13, 2012
By:           /s/ Kevin M. Finkel
 
Kevin M. Finkel
 
President
 
(Principal Executive Officer)


November 13, 2012
By:           /s/ Steven R. Saltzman
 
Steven R. Saltzman
 
Vice President – Finance
 
(Principal Financial and Accounting Officer)
 
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