Resource Real Estate Investors 7, L.P. - FORM 10-Q - November 8, 2013

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2013

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
For the transition period from _________ to __________

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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q

 
 
PAGE
PART I
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
ITEM 6.
 
 
 
 






PART 1. FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS


RESOURCE REAL ESTATE INVESTORS 7, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30,
2013
 
December 31,
2012
 
(unaudited)
 
 
ASSETS
 
 
 
Rental properties, at cost:
 
 
 
Land
$
8,702

 
$
9,737

Buildings and improvements
58,175

 
56,566

Personal property
2,034

 
1,762

Construction-in-progress
27

 
83

Identifiable intangible assets
2,378

 
2,378

 
71,316

 
70,526

Accumulated depreciation and amortization
(13,091
)
 
(10,938
)
 
58,225

 
59,588

 
 
 
 
Cash
4,825

 
5,234

Restricted cash
1,706

 
1,535

Tenant receivables, net
13

 
4

Accounts receivable due from related parties
200

 
—

Prepaid expenses and other assets
254

 
224

Deferred financing costs, net
686

 
843

Total assets
$
65,909

 
$
67,428

 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 

 
 

Liabilities:
 

 
 

Mortgage notes payable
$
49,484

 
$
49,869

Accounts payable and accrued expenses
609

 
531

Real estate tax payable
918

 
584

Accrued interest
195

 
202

Payables to related parties
1,548

 
1,333

Prepaid rent
69

 
86

Security deposits
257

 
256

Total liabilities
53,080

 
52,861

Partners’ capital
12,829

 
14,567

Total liabilities and partners’ capital
$
65,909

 
$
67,428





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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per unit data)
(unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
2,964

 
$
2,807

 
$
8,760

 
$
7,749

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 

 
 

 
 

     Rental operating
 
1,395

 
1,398

 
3,970

 
3,881

     Management fees – related parties
 
228

 
219

 
676

 
613

     General and administrative
 
122

 
92

 
406

 
743

     Depreciation and amortization
 
697

 
857

 
2,249

 
2,347

         Total expenses
 
2,442

 
2,566

 
7,301

 
7,584

 
 
 
 
 
 
 
 
 
             Income before other expenses
 
522

 
241

 
1,459

 
165

 
 
 
 
 
 
 
 
 
Other expenses:
 
 
 
 
 
 

 
 

     Interest expense, net
 
(646
)
 
(652
)
 
(1,921
)
 
(1,866
)
     Casualty loss
 
—

 
—

 
(28
)
 
—

     Gain (loss) on disposal of fixed assets
 
1

 
(1
)
 
(20
)
 
(1
)
        Net loss
 
$
(123
)
 
$
(412
)
 
$
(510
)
 
$
(1,702
)
 
 
 
 
 
 
 
 
 
Comprehensive loss
 
$
(123
)
 
$
(412
)
 
$
(510
)
 
$
(1,702
)
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner
units outstanding
 
3,270

 
3,270

 
3,270

 
3,270

 
 
 
 
 
 
 
 
 
Net loss per weighted average limited
partner unit
 
$
(0.04
)
 
$
(0.13
)
 
$
(0.16
)
 
$
(0.52
)

 















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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(in thousands, except units)
(unaudited)

 
General
 
Limited Partners
 
 
 
Partner
 
Units
 
Amount
 
Total
Balance at January 1, 2013
$
1

 
3,269,655

 
$
14,566

 
$
14,567

Distributions
—

 
—

 
(1,228
)
 
(1,228
)
Net loss
—

 
—

 
(510
)
 
(510
)
Balance at September 30, 2013
$
1

 
3,269,655

 
$
12,828

 
$
12,829









































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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
For the Nine Months Ended
September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(510
)
 
$
(1,702
)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
 

 
 

Depreciation and amortization
2,249

 
2,347

Amortization of deferred financing costs
157

 
145

Casualty loss
28

 
—

Loss on disposal of fixed assets
20

 
1

Changes in operating assets and liabilities, excluding the effects of
acquisition:
 

 
 

Restricted cash
(171
)
 
(78
)
Tenant receivables, net
(9
)
 
(6
)
 Insurance proceeds received
35

 
—

 Accounts receivable - related party
(200
)
 
—

Prepaid expense and other assets
(30
)
 
(57
)
Accounts payable and accrued expenses
76

 
320

Real estate tax payable
334

 
—

Accrued interest
(7
)
 
23

Payables to related parties
215

 
245

Prepaid rent
(17
)
 
(43
)
Security deposits
1

 
34

Net cash provided by operating activities
2,171

 
1,229

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(967
)
 
(1,173
)
Purchase of the Village property
—

 
(2,472
)
Net cash used in investing activities
(967
)
 
(3,645
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Distributions to limited partners
(1,228
)
 
(1,228
)
Principal payments on mortgage notes payable
(385
)
 
(361
)
Payment of deferred financing costs
—

 
(254
)
Net cash used in financing activities
(1,613
)
 
(1,843
)
 
 
 
 
Net decrease in cash
(409
)
 
(4,259
)
Cash at beginning of period
5,234

 
9,764

Cash at end of period
$
4,825

 
$
5,505

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


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(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 rental properties located in Georgia, Maine, Texas and South Carolina (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 had no such investments as of September 30, 2013 and December 31, 2012.  The Partnership was formed on March 28, 2008 and commenced operations on June 16, 2008.  The General Partner, Resource Capital Partners, Inc. (“RCP”, the “General Partner”, or “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 holds a 5.5% limited partnership interest in the Partnership at both September 30, 2013 and December 31, 2012.  RCP is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance 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, 2013 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, 2012.  The results of operations and comprehensive loss for the nine months ended September 30, 2013 may not necessarily be indicative of the results of operations and comprehensive loss for the full year ending December 31, 2013.

RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2013
(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 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 loan losses 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, 2013 and 2012, the Partnership paid $1.8 million and $1.7 million, respectively, in cash for interest.
Advertising
The Partnership expenses advertising costs as they are incurred.  Advertising costs, which are included in rental operating expenses, totaled $82,000 and $94,000 for the nine months ended September 30, 2013 and 2012, 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 evaluates the benefits of tax positions taken or expected to be taken in its tax returns under a two-step recognition and measurement process.  Only the largest amount of benefits from the tax positions that will more likely than not be sustainable upon examination are recognized by the Partnership.  The Partnership does not have any unrecognized tax benefits, nor interest and penalties, recorded in the Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Loss and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.

RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2013
(unaudited)

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 2009 through 2012.
Revenue Recognition
Revenue is primarily derived from the rental of residential housing units with lease agreement terms of generally one year or less.  The Partnership recognizes revenue in the period that rent is earned, which is on a monthly basis.  The Partnership recognizes rent as income on a straight-line basis over the term of the related lease.  Additionally, any incentives included in the lease are amortized on a straight-line basis over the term of the related lease.
Included within rental income are other income amounts such as utility reimbursements, late fees, parking fees, pet fees and lease application fees which are recognized when earned or received.
The future minimum rental payments to be received from noncancelable operating leases is approximately $6.1 million and $7,000 for the years ending September 30, 2014 and 2015, 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.  The Partnership impaired assets at one of the properties due to a wind storm in 2013 (see Note 8).  Insurance proceeds covered the majority of the impairment.
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 the average remaining term of the respective leases on a straight-line basis.  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, the general condition of the economy and the industry as a whole.  The Partnership writes off receivables when they become uncollectible.  At September 30, 2013 and December 31, 2012, there were $488 and $955, respectively, in allowances 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, 2013
(unaudited)

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,
2013
 
December 31,
2012
Real estate taxes
$
868

 
$
603

Insurance
214

 
221

Capital improvements
624

 
711

Total
$
1,706

 
$
1,535

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, 2013 and December 31, 2012 was $915,000 and $758,000, 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):
2014
$
208

2015
181

2016
99

2017
82

2018
81

Thereafter
35

 
$
686

NOTE 5 – MORTGAGE NOTES PAYABLE
The following is a summary of mortgage notes payable (in thousands, except percentages):
 
 
Balance at
 
Balance at
 
 
 
 
 
Average
 
     Property
 
September 30,
2013
 
December 31,
2012
 
Maturity
Date
 
Annual
Interest Rate
 
Monthly
Debt Service
 
Tamarlane
 
$
8,906

 
$
8,906

 
05/01/2015
 
4.92%
 
$
37

(1) 
Tamarlane
 
956

 
967

 
05/01/2015
 
6.12%
 
$
6

(2) 
Bent Oaks
 
5,924

 
5,982

 
01/01/2019
(4) 
5.99%
(4) 
$
37

(2) 
Cape Cod
 
6,155

 
6,216

 
01/01/2019
(4) 
5.91%
(4) 
$
38

(2) 
Woodhollow
 
5,077

 
5,126

 
01/01/2019
(4) 
6.14%
(4) 
$
32

(2) 
Hills
 
12,886

 
13,092

 
01/01/2016
 
3.41%
(3) 
$
60

(3) 
Village
 
9,580

 
9,580

 
04/01/2019
 
3.76%
(5) 
$
31

(5) 
Total
 
$
49,484

 
$
49,869

 
 
 
 
 
 

 
____________________
(1)
Interest only through the date of maturity, at which time the principal is due.
(2)
Monthly payment includes principal and interest.
(3)
Monthly payment includes principal and interest. 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.
(4)
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%.
(5)
Interest only payments of approximately $31,000 through April 1, 2014; thereafter, monthly payment including principal and interest will total $44,422.

RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2013
(unaudited)

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):
2014
 
$
608

2015
 
10,566

2016
 
12,752

2017
 
472

2018
 
498

Thereafter
 
24,588

 
 
$
49,484

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 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.
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.
Substantially all of the receivables from related parties represents escrow funds held by RAI for self-insurance. The Properties are partially self-insured with respect to property and casualty. Therefore, unforeseen or catastrophic losses in excess of the partnership's insured limits could have a material adverse effect on the Partnership's financial condition and operating results.
     RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross offering proceeds, net of any amounts otherwise attributable to LP interests 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, 2013 and December 31, 2012, investment management fees due to RCP totaled $1.5 million and $1.2 million, 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 manage the Partnership’s Properties.  As of September 30, 2013 and December 31, 2012, property management fees due totaled $49,000 and $81,000, respectively.
During the ordinary course of business, 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, 2013 and December 31, 2012, advances due totaled $45,000 and $38,000, respectively.
The Partnership is obligated to pay fees and reimbursements of expenses to related parties.  These activities are summarized as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2013
 
2012
 
2013
 
2012
RCP:
 
 
 
 
 
 
 
    Investment management fees
$
81

 
$
81

 
$
241

 
$
235

 
 
 
 
 
 
 
 
RREML:
 
 
 
 
 

 
 

    Property management fees
$
147

 
$
138

 
$
435

 
$
378

 
$
228

 
$
219

 
$
676

 
$
613


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
SEPTEMBER 30, 2013
(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 fair value of cash, tenant receivables and accounts payable approximate their carrying values due to their short term nature.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets 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:
Ÿ
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 carrying and fair values of the Partnership’s financial instruments were as follows (in thousands):
 
September 30, 2013
 
December 31, 2012
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Mortgage notes payable:
 
 
 
 
 
 
 
Tamarlane
$
9,862

 
$
9,965

 
$
9,873

 
$
10,083

Bent Oaks
5,924

 
6,284

 
5,982

 
6,596

Cape Cod
6,155

 
6,506

 
6,216

 
6,828

Woodhollow
5,077

 
5,387

 
5,126

 
5,659

Hills
12,886

 
12,511

 
13,092

 
12,729

Village
9,580

 
9,151

 
9,580

 
9,430

Total mortgage notes payable
$
49,484

 
$
49,804

 
$
49,869

 
$
51,325


NOTE 8 - INSURANCE CLAIM

On February 25, 2013, Bent Oaks suffered roof damage as the result of a windstorm.  The damage was partially covered by insurance.  The Partnership reduced the net carrying value of buildings and improvements for Bent Oaks by $60,000, and established a receivable for the expected proceeds of $35,000, which was all received during the quarter ended June 30, 2013.  Additional non-capitalized expenses incurred in conjunction with this claim were $1,000 for the quarter ended September 30, 2013 and $2,000 for the quarter ended March 31, 2013.   The Partnership recorded a loss of $28,000 for the nine months ended September 30, 2013. 
NOTE 9 – 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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, 2013, 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, 2013, we own six multifamily residential rental Properties through our 100% owned subsidiaries, as follows:
Subsidiary / Property
 
Purchase
Date
 
Leverage
Ratio (1)
 
Number
of Units
 
Property
Location
RRE Tamarlane Holdings, LLC, or Tamarlane
 
07/31/2008
 
68%
 
115
 
Portland, ME
RRE Bent Oaks Holdings, LLC, or Bent Oaks
 
12/10/2008
 
57%
 
146
 
Austin, TX
RRE Cape Cod Holdings, LLC, or Cape Cod
 
12/10/2008
 
57%
 
212
 
San Antonio, TX
RRE Woodhollow Holdings, LLC, or Woodhollow
 
12/12/2008
 
60%
 
108
 
Austin, TX
RRE Woodland Hills Holdings, LLC, or Hills
 
12/19/2008
 
65%
 
228
 
Decatur, GA
RRE Woodland Village Holdings, LLC, or Village
 
03/07/2012
 
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
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Tamarlane
 
98.3%
 
96.8%
 
$
1.38

 
$
1.24

 
37
%
 
39%
Bent Oaks
 
95.0%
 
94.7%
 
$
1.24

 
$
1.06

 
52
%
 
61%
Cape Cod
 
94.0%
 
95.4%
 
$
1.02

 
$
0.92

 
50
%
 
54%
Woodhollow
 
97.5%
 
95.4%
 
$
1.08

 
$
0.95

 
50
%
 
61%
Hills
 
93.9%
 
97.1%
 
$
0.77

 
$
0.72

 
48
%
 
47%
Village
 
93.5%
 
94.0%
 
$
0.58

 
$
0.52

 
56
%
 
63%



 
 
Average
Occupancy Rate (1)
 
Average Effective Rent
per Square Foot (2)
 
Ratio of Operating
Expense to Revenue (3)
 
 
Nine Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Apartment Complex
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Tamarlane
 
97.2%
 
95.9%
 
$
1.34

 
$
1.20

 
36.0%
 
43%
Bent Oaks
 
95.4%
 
94.7%
 
$
1.20

 
$
1.03

 
54.0%
 
64%
Cape Cod
 
94.9%
 
95.7%
 
$
1.01

 
$
0.91

 
50.0%
 
55%
Woodhollow
 
96.6%
 
93.1%
 
$
1.05

 
$
0.92

 
53.0%
 
60%
Hills
 
93.9%
 
96.7%
 
$
0.76

 
$
0.70

 
45.0%
 
51%
Village
 
93.3%
 
92.3%
 
$
0.57

 
$
0.47

 
57.0%
 
67%
___________________________
(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.
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.  We do not expect that we will sell or refinance our Properties during 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 our ability to make distributions to our limited partners.
Our operating results and cash flows from our Properties are affected by four principal factors:
Ÿ
occupancy and rental rates,
Ÿ
property operating expenses,
Ÿ
interest rates on the related financing, and
Ÿ
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 Rent Optimizer, or LRO, program which includes rent concessions and a substantial capital improvements program.  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.  Our Properties experienced an overall increase in the average occupancy rate during the nine months ended September 30, 2013 of approximately .5%, with an average occupancy of 95.2% as compared to an average occupancy rate of 94.7% during the same period of 2012. Our Properties also experienced an overall increase in the average effective rent per square foot of $0.10 during the nine months ended September 30, 2013 compared to the same period in 2012.
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 term 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, 2013 Compared to Three Months Ended September 30, 2012

The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
 
 
September 30,
 
Increase (Decrease)
 
 
2013
 
2012
 
Amount
 
Percent
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
2,964

 
$
2,807

 
$
157

 
6
 %
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 

     Rental operating
 
1,395

 
1,398

 
(3
)
 
—
 %
     Management fees – related parties
 
228

 
219

 
9

 
4
 %
     General and administrative
 
122

 
92

 
30

 
33
 %
     Depreciation and amortization
 
697

 
857

 
(160
)
 
(19
)%
         Total expenses
 
2,442

 
2,566

 
(124
)
 
(5
)%
             Income before other expenses
 
522

 
241

 
281

 
(117
)%
 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 
 
 

     Interest expense, net
 
(646
)
 
(652
)
 
6

 
(1
)%
     Gain (loss) on disposal of fixed assets
 
1

 
(1
)
 
2

 
—
 %
        Net loss
 
$
(123
)
 
$
(412
)
 
$
289

 
70
 %
 
 
 
 
 
 
 
 
 
Comprehensive loss
 
$
(123
)
 
$
(412
)
 
$
289

 
70
 %
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner
units outstanding
 
3,270

 
3,270

 
 

 
 

 
 
 
 
 
 
 
 
 
Net loss per weighted average limited
partner unit
 
$
(0.04
)
 
$
(0.13
)
 
 

 
 

Revenues
We attribute the $157,000 increase in revenues principally to increases in average effective rent per square foot at the Properties and an increase in the average occupancy rates at the Properties.  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 $124,000 decrease in expenses principally to:
Ÿ
a $160,000 decrease in depreciation and amortization due to the expiration of the amortization of the acquired in-place leases at the Village.
•
a $3,000 decrease in rental operating expenses, primarily due to a $54,000 decrease in insurance expenses, resulting from the properties becoming self insured in 2013. This $54,000 decrease is offset by increases in turnover costs, utilities, and building improvements.
Offsetting the decreases in expenses is the $30,000 increase in general and administrative expense, primarily due to increases in professional fees, and costs related to the Partnership's SEC-mandated XBRL filing software.
Other expenses
We attribute the $6,000 decrease in other expenses to a decrease in interest expense directly attributable to principal amortization.



Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
 
 
September 30,
 
Increase (Decrease)
 
 
2013
 
2012
 
Amount
 
Percent
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
8,760

 
$
7,749

 
$
1,011

 
13
 %
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

     Rental operating
 
3,970

 
3,881

 
89

 
2
 %
     Management fees – related parties
 
676

 
613

 
63

 
10
 %
     General and administrative
 
406

 
743

 
(337
)
 
(45
)%
     Depreciation and amortization
 
2,249

 
2,347

 
(98
)
 
(4
)%
         Total expenses
 
7,301

 
7,584

 
(283
)
 
(4
)%
             Income before other expenses
 
1,459

 
165

 
1,294

 
(784
)%
 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

     Interest expense, net
 
(1,921
)
 
(1,866
)
 
(55
)
 
3
 %
     Casualty loss
 
(28
)
 
—

 
(28
)
 
—
 %
     Loss on disposal of fixed assets
 
(20
)
 
(1
)
 
(19
)
 
—
 %
        Net loss
 
$
(510
)
 
$
(1,702
)
 
$
1,192

 
70
 %
 
 
 
 
 
 
 
 
 
Comprehensive loss
 
$
(510
)
 
$
(1,702
)
 
$
1,192

 
70
 %
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner
units outstanding
 
3,270

 
3,270

 
 

 
 

 
 
 
 
 
 
 
 
 
Net loss per weighted average limited
partner unit
 
$
(0.16
)
 
$
(0.52
)
 
 

 
 

Revenues
We attribute the $1.0 million increase in revenues principally to an increase of $630,000 in revenues from our ownership of the Village property for nine months in 2013 as compared to seven months for the prior year period.  The remainder of the increase can be attributed to increases in average effective rent per square foot at the Properties and the increase in the average occupancy rates at the Properties.  Occupancy rates have varied within our expected range.  We were able to increase rents as a result of stable occupancy and market demand.
Expenses
We attribute the $283,000 decrease in expenses principally to a decrease of $337,000 in general and administrative expense mostly attributed to $323,000 of acquisition expense recorded in 2012 in conjunction with the purchase of the Village property. In addition, we attribute the $98,000 decrease in depreciation and amortization due to the expiration of the amortization of the acquired in place leases at the Village.
Offsetting these decreases in expenses were increases attributed principally to:
Ÿ
an $89,000 increase in operating expenses due primarily to an increase of $270,000 in operating expenses from our ownership of the Village property for nine months in 2013 as compared to seven months for the prior year period. Offsetting this increase were decreases in insurance expense across all Properties due to premium refunds.
Ÿ
a $63,000 increase in management fees due primarily to the increase in tenant fees for the Village property along with an increase in rental income as a result of an increase in average effective rent per square foot at all of the Properties.



Other expenses
We attribute the increase in other expenses primarily to:
Ÿ
a $55,000 increase in interest expense attributable to debt placed in conjunction with the Village property acquisition;
Ÿ
a $28,000 increase in casualty loss expense related to a wind damage at Bent Oaks; and
Ÿ
a $19,000 increase in losses related to the disposition of fixed assets.
Liquidity and Capital Resources
The following table sets forth our sources and uses of cash (in thousands):
 
 
Nine Months Ended
 
 
September 30,
 
 
2013
 
2012
Provided by operating activities (1) 
 
$
2,171

 
$
1,229

Used in investing activities
 
(967
)
 
(3,645
)
Used in financing activities
 
(1,613
)
 
(1,843
)
Net decrease in cash
 
$
(409
)
 
$
(4,259
)
(1)
Includes changes in operating assets and liabilities.
Our liquidity needs consist principally of funds used 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, 2013, 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, 2013 and 2012 of $510,000 and $1.7 million, respectively, included $2.2 million and $2.3 million, respectively, of depreciation and amortization expense.  Excluding these non-cash expenses our operations generated $2.4 million and $1.7 million , respectively, of positive adjusted cash flow from operations for the nine months ended September 30, 2013 and 2012, 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, 2013.
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,
 
 
2013
 
2012
Net cash provided by operating activities
 
$
2,171

 
$
1,229

Net changes in operating assets and liabilities
 
227

 
438

Adjusted cash flow from operations (non-GAAP)
 
$
2,398

 
$
1,667

Under our capital improvements program, we expect to spend approximately $5.3 million in the next four 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, 2013 and estimated future capital expenditures, which are discretionary in nature (in thousands):
Subsidiaries
 
Capital
Expenditures
 
Future
Discretionary
Capital
Expenditures
Tamarlane
 
$
110

 
$
440

Bent Oaks
 
193

 
761

Cape Cod
 
88

 
1,041

Woodhollow
 
138

 
773

Hills
 
140

 
952

Village
 
298

 
1,326

Total
 
$
967

 
$
5,293

Our capital expenditures were $967,000 during the nine months ended September 30, 2013.  We have planned a series of future 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 a previously contemplated 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.
In connection with the acquisitions of our Properties, we have $49.5 million of total mortgage financing outstanding.  For information regarding mortgage financing with respect to each Property, see Note 5 of the notes to our consolidated financial statements.
During the year ended December 31, 2012, we acquired the Village for $11.5 million.  In connection with this purchase, we obtained a $9.6 million first mortgage.  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.
This purchase completes our asset acquisition plans.  The remaining offering proceeds have been reserved for estimated future capital expenditures as noted above.
Our payables to related parties consist of investment management fees due to our General Partner, payable monthly, equal to 1% of the gross offering proceeds, net of any limited partnership interest owned by the General Partner.  The General Partner must subordinate up to 100% of its annual investment management fee to the receipt by the limited partners of their Preferred Return.  The limited partners have not received their Preferred Return over the five years the fund has been operating and we do not anticipate they will receive the return in 2013.
The debt service requirements for the next 12 months are $2.9 million in the aggregate.
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, 2013, a total of 5,000 units have been redeemed at an aggregate price of $46,710, 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, 2012 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, 2013 and December 31, 2012, 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.

ITEM 3.    QUANTIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.     CONTROLS AND PROCEDURES
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, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II.                      OTHER INFORMATION

ITEM 6.        EXHIBITS
Exhibit No.
 
Description
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 annual report on Form 10-K for the year ended
December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and
Comprehensive Loss; (iii) Consolidated Statement of Changes in Partners' Capital; and
(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.




SIGNATURES

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

 
RESOURCE REAL ESTATE INVESTORS 7, L.P.
 
By:  Resource Capital Partners, Inc., its general partner
 
 
November 8, 2013
By:         /s/ Kevin M. Finkel
 
Kevin M. Finkel
 
President
 
(Principal Executive Officer)
November 8, 2013
By:        /s/ Steven R. Saltzman
 
Steven R. Saltzman
 
Vice President – Finance
 
(Principal Financial and Accounting Officer)

Resource Real Estate Investors 7, L.P. Reports

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