Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - Resource Real Estate Investors 7, L.P.Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Resource Real Estate Investors 7, L.P.r7-20140630xex311.htm
EX-31.2 - EXHIBIT 31.2 - Resource Real Estate Investors 7, L.P.r7-20140630xex312.htm
EX-32.2 - EXHIBIT 32.2 - Resource Real Estate Investors 7, L.P.r7-20140630xex322.htm
EX-32.1 - EXHIBIT 32.1 - Resource Real Estate Investors 7, L.P.r7-20140630xex321.htm


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 June 30, 2014
¨
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 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if 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 Exchange Act).  Yes o No þ





RESOURCE REAL ESTATE INVESTORS 7, L.P.
INDEX TO ANNUAL 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 I.
FINANCIAL INFORMATION
 

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

 
June 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS
 
 
 
Rental properties, at cost:
 
 
 
Land
$
8,715

 
$
8,715

Buildings and improvements
58,332

 
58,248

Personal property
2,114

 
1,949

Construction-in-progress
61

 
87

Identifiable intangible assets
2,378

 
2,378

 
71,600

 
71,377

Accumulated depreciation and amortization
(14,982
)
 
(13,628
)
 
56,618

 
57,749

 
 
 
 
Cash
4,789

 
4,957

Restricted cash
1,392

 
1,712

Tenant receivables, net
17

 
22

Accounts receivable due from related parties
161

 
195

Prepaid expenses and other assets
196

 
150

Deferred financing costs, net
531

 
634

Total assets
$
63,704

 
$
65,419

 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 

 
 

Liabilities:
 

 
 

Mortgage notes payable
$
49,051

 
$
49,350

Accounts payable and accrued expenses
711

 
734

Real estate tax payable
648

 
976

Accrued interest
193

 
200

Payables to related parties
1,877

 
1,645

Prepaid rent
122

 
88

Security deposits
266

 
265

Total liabilities
52,868

 
53,258

Partners’ capital
10,836

 
12,161

Total liabilities and partners’ capital
$
63,704

 
$
65,419








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



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

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
3,058

 
$
2,922

 
$
6,066

 
$
5,796

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 
 
 
     Rental operating
 
1,460

 
1,212

 
3,110

 
2,575

     Management fees – related parties
 
233

 
226

 
462

 
448

     General and administrative
 
143

 
183

 
335

 
284

     Depreciation and amortization
 
684

 
681

 
1,378

 
1,552

         Total expenses
 
2,520

 
2,302

 
5,285

 
4,859

 
 
 
 
 
 
 
 
 
             Income before other expenses
 
538

 
620

 
781

 
937

 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 
 
 
     Interest expense, net
 
(634
)
 
(640
)
 
(1,262
)
 
(1,275
)
     Casualty loss
 

 
(1
)
 

 
(28
)
     (Loss) gain on disposal of fixed assets
 
(23
)
 
1

 
(25
)
 
(21
)
        Net loss
 
$
(119
)
 
$
(20
)
 
$
(506
)
 
$
(387
)
 
 
 
 
 
 
 
 
 
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
)
 
$
(0.01
)
 
$
(0.15
)
 
$
(0.12
)

 


















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 SIX MONTHS ENDED JUNE 30, 2014
(in thousands, except units)
(unaudited)

 
General
 
Limited Partners
 
 
 
Partner
 
Units
 
Amount
 
Total
Balance at January 1, 2014
$
1

 
3,269,655

 
$
12,160

 
$
12,161

Distributions

 

 
(819
)
 
(819
)
Net loss

 

 
(506
)
 
(506
)
Balance at June 30, 2014
$
1

 
3,269,655

 
$
10,835

 
$
10,836










































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)

 
Six Months Ended
 
June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(506
)
 
$
(387
)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
 

 
 

Depreciation and amortization
1,378

 
1,552

Amortization of deferred financing costs
103

 
105

Casualty loss

 
28

Losses on disposal of fixed assets
25

 
21

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

 
 

Restricted cash
320

 
(84
)
Tenant receivables, net
5

 
(20
)
Accounts receivable - other

 
(48
)
Insurance proceeds received

 
35

Prepaid expense and other assets
(46
)
 
(187
)
    Accounts receivable - related parties
34

 

Accounts payable and accrued expenses
(22
)
 
31

Real estate tax payable
(328
)
 
61

Accrued interest
(7
)
 
(7
)
Payables to related parties
232

 
181

Prepaid rent
34

 
3

Security deposits
1

 
19

Net cash provided by operating activities
1,223

 
1,303

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(273
)
 
(609
)
Net cash used in investing activities
(273
)
 
(609
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Distributions to limited partners
(819
)
 
(819
)
Principal payments on mortgage notes payable
(299
)
 
(258
)
Net cash used in financing activities
(1,118
)
 
(1,077
)
 
 
 
 
Net decrease in cash
(168
)
 
(383
)
Cash at beginning of period
4,957

 
5,234

Cash at end of period
$
4,789

 
$
4,851

 



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



RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2014
(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 (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 held no such investments as of June 30, 2014 and December 31, 2013.  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 the “GP”), is in the business of sponsoring and managing real estate investment limited partnerships.  RCP contributed $1,000 in cash as its minimum capital contribution to the Partnership.  In addition, RCP held a 5.53% limited partnership interest in the Partnership at both June 30, 2014, and December 31, 2013.  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 June 30, 2014 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, 2013. The results of operations for the three and six months ended June 30, 2014 may not necessarily be indicative of the results of operations for the full year ending December 31, 2014.
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:


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2014
(unaudited)

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 loan losses and adjusts the balance quarterly.  Actual results could differ from those estimates.
Supplemental Disclosure of Cash Flow Information
During the six months ended June 30, 2014 and 2013, the Partnership paid $1.2 million and $1.2 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 $35,000 and $64,000 for the three and six months ended June 30, 2014 and $28,000 and $53,000 for the three and six months ended June 30, 2013, 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 does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.
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 2010 through 2013.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2014
(unaudited)

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 $6.5 million and $96,000 for the twelve months ending June 30, 2015 and 2016, 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 condition of the industry as a whole.  The Partnership writes off receivables when they become uncollectible.  At June 30, 2014 and December 31, 2013, there were $707 and $1,232, 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.
Recent Accounting Standards
Accounting Standards Issued But Not Yet Effective
In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as discontinued operations is required. This guidance is effective for the Partnership as of January 1, 2015, with early adoption permitted. The Partnership believes this guidance will have no impact on its financial statements.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2014
(unaudited)

                In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which will replace most existing revenue recognition guidance in GAAP.  The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.  The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Partnership beginning January 1, 2017, including interim periods in 2017, and allows for both retrospective and prospective methods of adoption. The Partnership is in the process of determining the method of adoption and assessing the impact of this ASU on the Partnership’s consolidated financial position, results of operations and cash flows.
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):
 
June 30,
2014
 
December 31,
2013
Real estate taxes
$
664

 
$
882

Insurance
133

 
278

Capital improvements
595

 
552

Total
$
1,392

 
$
1,712

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 June 30, 2014 and December 31, 2013 was $1.1 million and $967,000, respectively.  Estimated amortization of the Properties’ existing deferred financing costs for the next five years ending June 30, is as follows (in thousands):
2015
$
200

2016
112

2017
83

2018
81

2019
55

 
$
531

NOTE 5 – MORTGAGE NOTES PAYABLE
The following is a summary of mortgage notes payable (in thousands, except percentages):
 
 
Balance at
 
Balance at
 
 
 
 
 
 
 
     Property
 
June 30,
2014
 
December 31,
2013
 
Maturity
Date
 
Annual
Interest Rate
 
Monthly
Debt Service
 
Tamarlane
 
$
8,906

 
$
8,906

 
05/01/2015
 
4.92%
 
$
37

(1) 
Tamarlane
 
944

 
952

 
05/01/2015
 
6.12%
 
$
6

(2) 
Bent Oaks
 
5,862

 
5,903

 
01/01/2019
(4) 
5.99%
(4) 
$
37

(2) 
Cape Cod
 
6,089

 
6,133

 
01/01/2019
(4) 
5.91%
(4) 
$
38

(2) 
Woodhollow
 
5,026

 
5,060

 
01/01/2019
(4) 
6.14%
(4) 
$
32

(2) 
Hills
 
12,672

 
12,816

 
01/01/2016
 
3.39%
(3) 
$
60

(3) 
Village
 
9,552

 
9,173

 
04/01/2019
 
3.76%
(2) 
$
44

(2) 
Total
 
$
49,051

 
$
48,943

 
 
 
 
 
 

 
____________________
(1)
Interest only through the date of maturity, at which time the principal is due.
(2)
Monthly payment includes principal and interest.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2014
(unaudited)

(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 ("LIBOR") plus 323 basis points, capped at 7% for the term of the loan. The LIBOR at June 30, 2014 was 15 basis points. The monthly debt service shown is the total principal and interest payment.
(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%.
Annual principal payments on the mortgage notes payable for each of the next five years ending June 30, are as follows (in thousands):
2015
 
$
10,564

2016
 
12,818

2017
 
466

2018
 
491

2019
 
24,712

 
 
$
49,051

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 coverage. The Properties participate in an insurance pool with other properties managed by RCP. Therefore, unforeseen or catastrophic losses in excess of the pool'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 June 30, 2014 and December 31, 2013, investment management fees due to RCP totaled $1.7 million and $1.5 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 June 30, 2014 and December 31, 2013, property management fees due totaled $67,000 and $49,000, respectively.
During the ordinary course of business, RCP and RREMI advance funds for ordinary operating expenses on behalf of the Properties.  As of June 30, 2014 and December 31, 2013, advances due totaled $113,000 and $62,000, respectively.


RESOURCE REAL ESTATE INVESTORS 7, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
JUNE 30, 2014
(unaudited)

The Partnership is obligated to pay fees and reimbursements of expenses to related parties.  These expenses are summarized as follows (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2014
 
2013
 
2014
 
2013
RCP:
 
 
 
 
 
 
 
    Investment management fees
$
80

 
$
80

 
$
160

 
$
160

 
 
 
 
 
 
 
 
RREML:
 

 
 

 
 
 
 
    Property management fees - 5% of gross cash receipts
153

 
146

 
302

 
288

 
$
233

 
$
226

 
$
462

 
$
448

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 amounts and estimated fair values of the Partnership’s financial instruments were as follows (in thousands):
 
June 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Mortgage notes payable:
 
 
 
 
 
 
 
Tamarlane
$
9,850

 
$
9,950

 
$
9,858

 
$
10,061

Bent Oaks
5,862

 
6,179

 
5,903

 
6,305

Cape Cod
6,089

 
6,399

 
6,133

 
6,529

Woodhollow
5,026

 
5,293

 
5,060

 
5,404

Hills
12,672

 
12,484

 
12,816

 
12,679

Village
9,552

 
9,173

 
9,580

 
9,260

Total mortgage notes payable
$
49,051

 
$
49,478

 
$
49,350

 
$
50,238






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 $61,000. The Partnership received insurance proceeds of $35,000.  Additional non-capitalized expenses incurred in conjunction with this claim were $2,000.   Accordingly, the Partnership recorded a loss of $28,000 for the six months ended June 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 June 30, 2014, 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 would 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 June 30, 2014, 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)
Original face value of mortgage divided by total property capitalization, including reserves, escrows, fees and closing costs.

The following tables set 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 
 June 30,
 
Three Months Ended 
 June 30,
 
Three Months Ended 
 June 30,
Property
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Tamarlane
 
97.5%
 
98.0%
 
$
1.31

 
$
1.29

 
41%
 
35%
Bent Oaks
 
97.3%
 
97.0%
 
$
1.23

 
$
1.14

 
55%
 
56%
Cape Cod
 
92.4%
 
95.6%
 
$
0.95

 
$
0.94

 
58%
 
53%
Woodhollow
 
94.7%
 
97.8%
 
$
1.06

 
$
1.01

 
60%
 
57%
Hills
 
95.1%
 
96.1%
 
$
0.74

 
$
0.72

 
48%
 
41%
Village
 
92.7%
 
93.9%
 
$
0.53

 
$
0.53

 
57%
 
55%






 
 
Average
Occupancy Rate
(1)
 
Average Effective Rent
per Square Foot
(2)
 
Ratio of Operating
Expense to Revenue
(3)
 
 
Six Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
Property
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Tamarlane
 
95.3
%
 
98.0
%
 
$
1.28

 
$
1.27

 
43
%
 
36
%
Bent Oaks
 
96.4
%
 
97.8
%
 
$
1.21

 
$
1.13

 
54
%
 
55
%
Cape Cod
 
93.4
%
 
96.2
%
 
$
0.96

 
$
0.95

 
60
%
 
51
%
Woodhollow
 
95.7
%
 
98.5
%
 
$
1.07

 
$
1.01

 
56
%
 
54
%
Hills
 
94.9
%
 
95.1
%
 
$
0.74

 
$
0.71

 
51
%
 
44
%
Village
 
94.1
%
 
94.4
%
 
$
0.54

 
$
0.53

 
63
%
 
56
%
 
 
 
 
 
 
 
_________
(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 rental revenues through aggressive property-level programs, including, in particular, our Lease Rent Optimizer, or LRO, program which includes rent concessions.  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 decrease in the average occupancy rate during the six months ended June 30, 2014 of approximately 1.7%, with an average occupancy of 95.0% as compared to an average occupancy rate of 96.7% during the same period of 2013. Our Properties experienced an overall increase in the average effective rent per square foot of $0.04 during the six months ended June 30, 2014 compared to the same period in 2013 for the same properties. The net impact of the lower average occupancy rate offset by higher average effective rent per square foot during the quarter ending June 30, 2014 was to increase rental revenue for the quarter.
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 our expected term.  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 June 30, 2014 Compared to Three Months Ended June 30, 2013
The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
 
 
June 30,
 
Increase (Decrease)
 
 
2014
 
2013
 
Amount
 
Percent
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
3,058

 
$
2,922

 
$
136

 
5
 %
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

     Rental operating
 
1,460

 
1,212

 
248

 
20
 %
     Management fees – related parties
 
233

 
226

 
7

 
3
 %
     General and administrative
 
143

 
183

 
(40
)
 
(22
)%
     Depreciation and amortization
 
684

 
681

 
3

 
 %
         Total expenses
 
2,520

 
2,302

 
218

 
9
 %
             Income before other expenses
 
538

 
620

 
(82
)
 
13
 %
 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

     Interest expense, net
 
(634
)
 
(640
)
 
(6
)
 
(1
)%
     Casualty loss
 

 
(1
)
 
(1
)
 
(100
)%
     (Loss) gain on disposal of fixed assets
 
(23
)
 
1

 
24

 
2,400
 %
        Net loss
 
$
(119
)
 
$
(20
)
 
$
(99
)
 
(495
)%
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner units outstanding
 
3,270

 
3,270

 
 

 
 

 
 
 
 
 
 
 
 
 
Net loss per weighted average limited partner unit
 
$
(0.04
)
 
$
(0.01
)
 
 

 
 

Revenues
We attribute the $136,000 increase in revenues principally to an increase in the average effective rent per square foot 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 $218,000 increase in expenses principally to:
a $248,000 increase in rental operating expenses, primarily due to a $118,000 increase resulting from insurance premium refunds received during the three months ended June 30, 2013 that did not recur in the comparable 2014 period, a $14,000 increase in insurance expense as a result of losses in the portfolio covered by our self-insurance pool, a $7,000 increase in real estate taxes for the Properties, an increase of $73,000 in repair expenses as a result of our maintenance program, and a $26,000 increase in salaries expense, which was partially offset by:
a $40,000 decrease in general and administrative expenses due primarily to an decrease in professional fees.
Other (expenses) income
Other expenses primarily reflects a $23,000 loss related to the disposal of carpeting and flooring. We did not have a similar write-off in the second quarter of 2013.



Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
 
 
June 30,
 
Increase (Decrease)
 
 
2014
 
2013
 
Amount
 
Percent
Revenues:
 
 
 
 
 
 
 
 
     Rental income
 
$
6,066

 
$
5,796

 
$
270

 
5
 %
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

     Rental operating
 
3,110

 
2,575

 
535

 
21
 %
     Management fees – related parties
 
462

 
448

 
14

 
3
 %
     General and administrative
 
335

 
284

 
51

 
18
 %
     Depreciation and amortization
 
1,378

 
1,552

 
(174
)
 
(11
)%
         Total expenses
 
5,285

 
4,859

 
426

 
9
 %
             Income before other expenses
 
781

 
937

 
(156
)
 
(17
)%
 
 
 
 
 
 
 
 
 
Other expenses:
 
 

 
 

 
 

 
 

     Interest expense, net
 
(1,262
)
 
(1,275
)
 
13

 
(1
)%
     Casualty loss
 

 
(28
)
 
28

 
100
 %
     (Loss) gain on disposal of fixed assets
 
(25
)
 
(21
)
 
(4
)
 
(19
)%
        Net loss
 
$
(506
)
 
$
(387
)
 
$
(119
)
 
(31
)%
 
 
 
 
 
 
 
 
 
Weighted average number of limited partner units outstanding
 
3,270

 
3,270

 
 

 
 

 
 
 
 
 
 
 
 
 
Net loss per weighted average limited partner unit
 
$
(0.15
)
 
$
(0.12
)
 
 

 
 

Revenues
We attribute the $270,000 increase in revenues principally to an increase in the average effective rent per square foot 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 $426,000 increase in expenses principally to:
a $535,000 increase in rental operating expenses, primarily due to $120,000 increase resulting from insurance premium refunds received in the six months ending June 30, 2013 that did not recur in the comparable 2014 period, a $162,000 increase in insurance expense, as a result of losses in the portfolio covered by our self-insurance pool, a $49,000 increase in real estate taxes for the Properties and an increase of $104,000 in repair expenses as a result of our maintenance program; and
a $51,000 increase in general and administrative expenses due primarily to an increase in professional fees.
These increases were offset in part by:
a $174,000 decrease in depreciation and amortization due to the new capitalization policy and the disposal of carpet and flooring.
Other (expenses) income
We attribute the decrease in other expenses primarily to:
Ÿ
a $28,000 decrease in casualty losses due to the wind damage that occurred at Bent Oaks in 2013.




Liquidity and Capital Resources
The following table sets forth our sources and uses of cash (in thousands):
 
 
Six Months Ended
 
 
June 30,
 
 
2014
 
2013
Provided by operating activities (1) 
 
$
1,223

 
$
1,303

Used in investing activities
 
(273
)
 
(609
)
Used in financing activities
 
(1,118
)
 
(1,077
)
Net decrease in cash
 
$
(168
)
 
$
(383
)
    
(1)
Includes 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 six months ended June 30, 2014, 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 six months ended June 30, 2014 and 2013 of $506,000 and $387,000, respectively, included $1.4 million and $1.6 million, respectively, of depreciation and amortization expense and $223,000 and $(16,000) of net changes in operating assets and liabilities.  Excluding these non-cash expenses, our operations generated $1.4 million and $1.3 million, respectively, of positive adjusted cash flow from operations for the six months ended June 30, 2014 and 2013, 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 the Partnership will generate positive adjusted cash flow from operations for the year ending December 31, 2014.
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):
 
 
Six Months Ended
 
 
June 30,
 
 
2014
 
2013
Net cash provided by operating activities
 
$
1,223

 
$
1,303

Net changes in operating assets and liabilities
 
223

 
(16
)
Adjusted cash flow from operations (non-GAAP)
 
$
1,446

 
$
1,287

Under our capital improvements program, we expect to spend approximately $4.2 million in the next three 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.
We are planning improvements to the Properties for the next three years based on the assumption that the General Partner will exercise its right to extend the term of the partnership for the two one-year extensions. At this time, we expect that the General Partner will, in fact, do so in order to maximize the return to our investors.



The following table sets forth the capital expenditures incurred during the six months ended June 30, 2014 and estimated future capital expenditures, which are discretionary in nature (in thousands):
Subsidiaries
 
Capital
Expenditures
 
Future
Discretionary
Capital
Expenditures
Tamarlane
 
$
39

 
$
371

Bent Oaks
 
13

 
703

Cape Cod
 
42

 
945

Woodhollow
 
18

 
636

Hills
 
69

 
583

Village
 
92

 
1,000

Total
 
$
273

 
$
4,238

Our capital expenditures were $273,000 during the six months ended June 30, 2014.  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. Any excess cash flow not used for capital expenditures would be distributed to the investors.
In connection with the acquisitions of our Properties, we have $49.1 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.
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 Partnership has been operating and we do not anticipate they will receive the return in 2014.
Our debt service requirements for the next 12 months are $12.4 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.  Cumulatively through June 30, 2014, a total of 5,000 units have been redeemed at an aggregate price of $46,710, although no units were redeemed in the three or six months 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.
We have identified the following policies as critical to our business operations and the understanding of our results of operations.



Property Acquisitions. We allocated the purchase price of acquired properties to the acquired tangible assets and liabilities, consisting of land, building, tenant improvements, long-term debt and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of in-place leases, the value of unamortized lease origination costs and the value of tenant relationships, based in each case on their relative fair values. We amortize the value of in-place leases over the average remaining term of the respective lease on a straight line basis.
Impairment. We review the carrying value of each Property to determine if circumstances that indicate impairment in the carrying value of the investment exist or that depreciation periods should be modified. If we determine that an asset’s estimated future cash flows will not be sufficient to recover its carrying amount, we will record an impairment charge to reduce the carrying amount for that asset to its estimated fair value. We have not recognized any impairments of our Properties for the six months ended June 30, 2014 and 2013.
Revenue Recognition. We derive our revenue primarily from rental of residential housing units with lease agreement terms of generally one year or less. We recognize 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.
Off-Balance Sheet Arrangements
As of June 30, 2014 and December 31, 2013, we did 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
Accounting Standards Issued But Not Yet Effective
In April 2014, the Financial Accounting Standards Board, or FASB, issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as discontinued operations is required. This guidance is effective for us as of January 1, 2015, with early adoption permitted. We believe this amendment will have no impact on our financial statements.
In May 2014, the FASB issued Accounting Standards Update, or ASU No. 2014-09, “Revenue from Contracts with Customers”, which will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles.  The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.  The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the us beginning January 1, 2017, including interim periods in 2017, and allows for both retrospective and prospective methods of adoption. We are in the process of determining the method of adoption and assessing the impact of this ASU on our consolidated financial position, results of operations or cash flows.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
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 the quarter ended June 30, 2014 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 Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (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 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
 
 
August 11, 2014
By:         /s/ Kevin M. Finkel
 
Kevin M. Finkel
 
President
 
(Principal Executive Officer)
August 11, 2014
By:        /s/ Steven R. Saltzman
 
Steven R. Saltzman
 
Vice President – Finance
 
(Principal Financial and Accounting Officer)