RREEF PROPERTY TRUST, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/13/2020 | 03:17pm


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements, the notes thereto and the other unaudited financial data
included in this Quarterly Report on Form 10-Q, or this Quarterly Report. The
following discussion should also be read in conjunction with our audited
consolidated financial statements and the notes thereto, included in our Annual
Report on Form 10-K for the year ended December 31, 2019. We further invite you
to visit our website, www.rreefpropertytrust.com, where we routinely post
additional information about our Company, such as, without limitation, our daily
net asset value, or NAV, per share. The contents of our website are not
incorporated by reference. The terms "we," "us," "our" and the "Company" refer
to RREEF Property Trust, Inc. and its subsidiaries.

The NAV per share is published daily via NASDAQ's Mutual Fund Quotation System
under the symbols ZRPTAX, ZRPTIX, ZRPTTX and ZRPTDX for our Class A shares,
Class I shares, Class T shares and Class D shares, respectively. The NAV per
share for each of our Class M-I, Class N, Class S and Class T2 Shares will be
available on the Company's website and via NASDAQ's Mutual Fund Quotation System
once the first sale of shares for that particular share class has occurred.


All dollar amounts included in this Quarterly Report on Form 10-Q are presented
in thousands, except for per share data.



Forward-Looking Statements




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

The forward-looking statements included herein are based upon our current
expectations, plans, estimates, assumptions and beliefs that involve numerous
risks and uncertainties. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, our actual results and
performance could differ materially from those set forth in the forward-looking
statements. Factors which could have a material adverse effect on our operations
and future prospects include, but are not limited to:

•our ability to raise capital and effectively deploy the proceeds;
•changes in economic conditions generally and the real estate and securities
markets specifically;
•legislative or regulatory changes (including changes to the laws governing the
taxation of REITs);
•the effect of financial leverage, including changes in interest rates,
availability of credit, loss of flexibility due to negative and affirmative
covenants, refinancing risk at maturity and generally the increased risk of loss
if our investments fail to perform as expected;
•our ability to access sources of liquidity when we have the need to fund
redemptions of common stock in excess of the proceeds from the sales of shares
of our common stock in our continuous offering and the consequential risk that
we may not have the resources to satisfy redemption requests;
•the impact of the coronavirus pandemic on our tenants, portfolio and
operations; and
38
--------------------------------------------------------------------------------



•changes to accounting principles generally accepted in the United States of
America
, or GAAP.




Forward-looking statements that were true at the time made may ultimately prove
to be incorrect or false. We caution readers not to place undue reliance on
forward-looking statements, which reflect our management's view only as of the
date this Quarterly Report on Form 10-Q is filed with the Securities and
Exchange Commission
, or the SEC. We make no representation or warranty (express
or implied) about the accuracy of any such forward-looking statements contained
in this Quarterly Report on Form 10-Q. Additionally, we undertake no obligation
to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results.
The forward-looking statements should be read in light of the risk factors
identified in "Risk Factors" of this Quarterly Report on Form 10-Q and our
Annual Report on Form 10-K for the year ended December 31, 2019.


Overview




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

Our board of directors will at all times have ultimate oversight and
policy-making authority over us, including responsibility for governance,
financial controls, compliance and disclosure. Pursuant to our advisory
agreement, our board has delegated to RREEF America L.L.C., or our advisor,
authority to manage our day-to-day business in accordance with our investment
objectives, strategy, guidelines, policies and limitations. Our advisory
agreement is renewable annually upon approval by our board of directors,
including a majority of the independent board members. The current term expires
April 21, 2021.

Our initial public offering commenced on January 3, 2013, pursuant to our
Registration Statement on Form S-11 (File No. 333-180356) under which we offered
up to $2,500,000 of shares of our common stock in any combination of Class A and
Class I shares, which we refer to as the initial offering. On May 30, 2013, upon
receipt of purchase orders from our sponsor for $10,000 of Class I shares of our
common stock and the release to us of funds in the escrow account, we commenced
operations. Our initial offering terminated on July 1, 2016. We raised a total
of $102,831 in proceeds from our initial offering.

On January 15, 2016, we filed articles supplementary to our articles of
incorporation to add a newly-designated Class D common stock, $0.01 par value
per share, or our Class D shares. On January 20, 2016, we commenced a private
offering of up to a maximum of $350,000 in Class D shares.

On July 12, 2016, the SEC declared effective our Registration Statement on Form
S-11 (File No. 333-208751) for our follow-on public offering for up to
$2,300,000 of shares of our common stock in any combination of our Class A,
Class I, Class T and Class N shares, which we refer to as our follow-on
offering. Our follow-on offering included up to $2,100,000 in shares in our
primary offering and up to $200,000 in shares in our distribution reinvestment
plan. Our follow-on offering terminated on January 8, 2020. We raised a total of
$132,994 in proceeds from our follow-on offering.

On January 8, 2020, the SEC declared effective our Registration Statement on
Form S-11 (File No. 333-232425) for our second follow-on public offering for up
to $2,300,000 of shares of our common stock in any combination of our Class A,
Class I, Class N and Class T shares, which we refer to as our second follow-on
offering. Our second follow-on offering includes up to $2,100,000 in shares in
our primary offering and up to $200,000 in
39
--------------------------------------------------------------------------------
Table of Contents
shares in our distribution reinvestment plan.

On April 22, 2020, we filed articles supplementary to our articles of
incorporation to add newly-designated Class M-I common stock, $0.01 par value
per share, Class S common stock, $0.01 par value per share, Class T2 common
stock, $0.01 par value per share and Class Z common stock, $0.01 par value per
share. Class M-I shares, Class S shares and Class T2 shares are available for
sale in our second follow-on offering. Class Z shares are only expected to be
offered to RREEF America in a private offering.

We have engaged DWS Distributors, Inc., an affiliate of our advisor, to serve as
our dealer manager for our second follow-on offering pursuant to our dealer
manager agreement. Our initial offering, follow-on offering and second follow-on
offering are each referred to as an offering.


Coronavirus Pandemic




The coronavirus (COVID-19) pandemic has had, and is expected to continue to
have, a significant impact on local, national and global economies and has
resulted in a world-wide economic slowdown. We are closely monitoring the impact
of the coronavirus pandemic on all aspects of our investments and operations,
including how it will impact our tenants and business partners. While we did not
incur significant disruptions in our operations from the coronavirus during the
six months ended June 30, 2020, the extent to which the coronavirus impacts our
investments and operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence. These developments include
the duration of the outbreak, the impact of government stimulus, new information
that may emerge concerning the severity of the coronavirus, and actions taken by
federal, state and local agencies as well as the general public to contain the
coronavirus or treat its impact, among others.

Our real estate property portfolio is diversified across the four primary
sectors of commercial real estate: office, industrial, retail and apartment.
Among these four sectors, retail is widely considered to be the sector that will
be most impacted by the coronavirus pandemic. We collected 100% of our
contractual rental revenue for the three months ended March 31, 2020 and 94% of
our contractual rental revenue for the three months ended June 30, 2020.
Approximately 98% of contractual rental revenue was collected for the month of
July 2020. The retail properties we own are necessity-based properties, as they
are grocery-anchored and contain a number of tenants that are considered
essential. As of the end of July 2020, the store of one of our 44 retail tenants
was closed. This tenant comprises approximately 0.1% of our annualized
contractual rental revenue for our entire property portfolio.

We and our independent valuation advisor are closely monitoring our rent
collections, market transactions and tenant situations with respect to our
property investments for purposes of assessing any potential valuation change to
our properties. Our independent valuation advisor and certain independent
third-party appraisal firms engaged by our advisor have included additional
cautionary language in their respective second quarter 2020 reports related to
the uncertain impact of the coronavirus pandemic on the property values.

We have received rent relief requests from various tenants, most often in the
form of requests for rent deferrals, as a result of the coronavirus. We are
evaluating each rent relief request on an individual basis, considering a number
of factors, and we are encouraging our tenants to apply for federal aid when
available. Not all tenant requests will ultimately result in concessions, nor
are we forgoing our contractual rights under our lease agreements. As of June
30, 2020
, we had entered into one rent deferral agreement and applied the FASB's
recently issued practical expedient to not treat it as a lease modification. As
such, the rent deferred remains as lease revenue for the three months ended June
30, 2020
and amounts to approximately 0.6% of our annualized contractual rental
revenue for our entire property portfolio. Subsequent to June 30, 2020, we
entered into three agreements which included deferral of rent. The total amount
of rent deferred is approximately 0.4% of our annualized contractual rental
revenue for our entire property portfolio. For all four of these rent deferrals,
the amount deferred is scheduled to be fully repaid within the next 12 months.

Our real estate securities portfolio was significantly negatively impacted
during March 2020 as the financial markets saw considerable volatility as the
coronavirus pandemic expanded and worsened. While the value of our real estate
securities portfolio recovered the majority of its March losses during the three
months ended June 30,
40
--------------------------------------------------------------------------------
Table of Contents
2020, there remains considerable uncertainty in the financial markets.

The Company intends to maintain sufficient liquidity at all times to satisfy its
operational needs and the maximum potential quarterly redemptions under its
share redemption plan. The Company's real estate securities portfolio is
comprised entirely of common stock of publicly traded REITs and is viewed as
part of the Company's available liquidity that could be quickly converted to
cash should the Company decide to do so. In addition, the Company may consider
various options, including reducing its distributions or limiting its share
redemption program.


We refer readers to Part II, Item 1A, Risk Factors, in our quarterly report for
the period ended March 31, 2020 for specific risk factors related to the
coronavirus pandemic.



Portfolio Information



Real Estate Property Portfolio




As of June 30, 2020, we owned 14 properties diversified across geography and
sector, including one medical office property and one student housing property
(a subset of apartment). Excluding The Flats at Carrs Hill, our apartment
property with leases that roll over every year, as of June 30, 2020, our
weighted average remaining lease term for active leases was 5.2 years. The
following table sets forth certain additional information about the properties
we owned as of June 30, 2020:
Property Location Rentable Square Feet Number of Leases/Units Leased(1)
Office Property
Heritage Parkway(2) Woodridge, IL 94,233 1 100.0 %
Anaheim Hills Office Plaza Anaheim, CA 73,892 6 73.7
Loudoun Gateway Sterling, VA 102,015 1 100.0
Allied Drive Dedham, MA 64,127 2 100.0
Office Total 334,267 10 93.9
Retail Property
Wallingford Plaza(3) Seattle, WA 30,761 5 100.0
Terra Nova Plaza Chula Vista, CA 96,114 2 100.0
Elston Plaza(4) Chicago, IL 92,806 11 95.5
Providence Square(5) Marietta, GA 222,805 26 99.3
Retail Total 442,486 44 98.6
Industrial Property
Commerce Corner Logan Township, NJ 259,910 2 100.0
Miami Industrial
Palmetto Lakes Miami Lakes, FL 182,919 1 100.0
Hialeah I Miami, FL 57,000 1 100.0
Hialeah II Miami, FL 50,000 1 100.0
Seattle East Industrial Redmond, WA 210,321 1 100.0
Industrial Total 760,150 6 100.0
Apartment Property
The Flats at Carrs Hill Athens, GA 135,864 138 100.0
Apartment Total 135,864 138 100.0
Grand total 1,672,767 60/138 98.1 %


41



--------------------------------------------------------------------------------



Table of Contents




(1) Leased percentage is based on executed leases as of June 30, 2020, is
calculated based on square footage for a single property, and is weighted by
relative property value when calculated for more than one property together.
Anaheim Hills Office Plaza has one executed lease for approximately 3,300 square
feet that has not yet commenced pending completion of specified tenant
improvements. Commencement is currently expected late in the third quarter of
2020.
(2) Heritage Parkway is 100% occupied by Allstate. In April 2020, we executed a
lease amendment with Allstate that extended the lease maturity date to May 31,
2026
. Allstate has a termination option effective as of May 31, 2024 which is
exercisable at their discretion upon satisfaction of certain conditions and
subject to payment of the applicable early termination fee.
(3) Wallingford Plaza is ground floor retail plus two floors of office space.
(4) The total square footage for Elston Plaza includes a freestanding bank
branch of 4,860 square feet that is subject to a ground lease to a single
tenant.
(5) The total square footage for Providence Square includes a freestanding
restaurant of 5,779 square feet that is subject to a ground lease to a single
tenant.


Real Estate Equity Securities Portfolio




As of June 30, 2020, our real estate equity securities portfolio consisted of
publicly-traded common stock of 32 REITs with a value of $17,988. We believe
that investing a portion of our proceeds from our offerings into a diversified
portfolio of common and preferred shares of REITs and other real estate
operating companies will provide the overall portfolio some flexibility with
near-term liquidity as well as potentially enhance our NAV over a longer period.
The portfolio is regularly reviewed and evaluated to determine whether the
marketable securities held at any time continue to serve their original intended
purposes.


The following chart summarizes our marketable securities by property type as of
June 30, 2020:



[[Image Removed: rpt-20200630_g1.jpg]]



As of June 30, 2020, our top ten holdings in our real estate equity securities
portfolio were as follows:



42



--------------------------------------------------------------------------------



Table of Contents



Security Sector Percent of Securities Portfolio
Prologis, Inc. Industrial 11.2 %
Equinix, Inc. Data Centers 11.1
Welltower, Inc. Healthcare 5.9
Alexandria Real Estate Equities, Inc. Office 5.0
Mid-America Apartment Communities, Inc. Apartment 4.9
Invitation Homes, Inc. Apartment 4.3
Digital Realty Trust, Inc. Data Centers 3.8
Equity Lifestyle Properties Apartment 3.4
Essex Property Trust, Inc. Apartment 3.3
Eastgroup Properties, Inc. Industrial 3.2
Total 56.1 %



Market Outlook

The impact of COVID-19 is generally not yet visible in industry statistics.
According to the National Council of Real Estate Investment Fiduciaries in
March, or NCREIF, in March 2020, in the first quarter of 2020, vacancy rates
(6.2%) were near all-time lows and net operating income grew by more than 4%.
Within the REIT universe, rent collections in June were within 5% of normal
levels for apartment, office, and industrial properties, although they were off
by 40% at shopping centers, as reported by the National Association of Real
Estate Investment Trusts
, or NAREIT, from June 2020. Nevertheless, we believe
that the recession that took hold in March will manifest in rising vacancies and
falling rents in the second half of 2020.

While the recession may prove transitory, its severity will, in our view, exact
a toll on real estate fundamentals. While it appears that loan and rent
forbearance have staved off personal and business bankruptcies, we believe that
these will materialize in the second half of the year as emergency measures
unwind, which in our view may cause some tenants to default on their leases.
Reduced (albeit improving) profitability and employment may also depress leasing
activity. Further, we believe the pipeline of buildings already under
construction will compete for a limited pool of tenants. Overall, we expect that
rents will slide by 7% through 2021, with significant variation by sector and
market. Yet this would represent a victory of sorts: rents declined 18% during
the Global Financial Crisis, or GFC, according to CBRE Economic Analysis in June
2020
. The differences this time as we see it are threefold. First, while this
recession is deeper, the recovery may also be swifter, courtesy of an
unprecedented infusion of fiscal and monetary stimulus. Second, vacancy rates
were lower coming into this recession, so even a significant increase would
leave them below peak GFC levels, according to CBRE Economic Analysis in June
2020
. Third, new construction is generally more constrained (about 25% lower
relative to Gross Domestic Product, or GDP, as reported by the Bureau of
Economic Analysis
in March 2020).

We are optimistic about prospects for rent growth once the COVID-19 crisis
passes. We believe that construction starts will plunge this year, due to
logistical constraints, restrictive financing, and uncertainty around future
demand (a June Federal Reserve survey in June 2020 indicated that a net 52% of
banks were tightening lending standards on construction loans, the highest level
since the GFC). Coupled with an improving economy, this should drive vacancies
lower, and rents higher, beginning in late 2021. Yet the recovery will not be
uniform: we believe that industrial and apartment buildings will be the first to
revive, likely next summer, followed by office and retail properties in 2022.

Taking a longer view, we believe that real estate is positioned to perform well
on a relative basis. Well after the crisis has passed and the economy is on the
mend, we believe interest rates will likely remain low, a pattern that is
reflected in long-term (e.g., 30-year) bond yields. We additionally believe that
capitalization rates provide an attractive spread that could power robust
returns for several years. Furthermore, a constellation of factors, from massive
fiscal and monetary stimulus to trade wars to supply-side constraints, arguably
raise the specter of inflation
43



--------------------------------------------------------------------------------



Table of Contents
over the medium term. Financial markets currently place low odds on an
inflationary spiral (implicit expectations are below 2% for the foreseeable
future), but real estate and other tangible assets may gain currency as a
partial hedge over time, according to the Federal Reserve and DWS, June 2020.



Results of Operations




Through June 30, 2020, we have acquired 14 properties and invested in real
estate equity securities as described above under "Portfolio Information." We
expect to continue to raise additional capital, increase our borrowings and make
future investments in our targeted segments of real estate properties, real
estate equity securities and real estate loans, which we believe will have a
significant impact on our future results of operations.

We review our stabilized operating results, measured by contractual rental
revenue, including tenant reimbursement income, less property operating
expenses, which we refer to as net operating income, for properties that we
owned for the entirety of both the current and prior year reporting periods,
which we refer to as "same-store" properties. We believe that net operating
income, a non-GAAP financial measure, in combination with net income (loss) and
cash flows from operating activities, as defined by GAAP, is a useful
supplemental performance measure that helps us evaluate our operating
performance. We believe this metric is useful to our stockholders and other
users of our reports because it provides additional information regarding our
property acquisitions and their impact on our portfolio. Net operating income
should not be considered as an alternative to net income (loss) or to cash flows
from operating activities (both as defined by GAAP) as an indication of our
performance and is not intended to be used as a liquidity measure indicative of
cash flow available to fund our cash needs, including our ability to make
distributions to our stockholders. No single measure can provide users of
financial information with sufficient information, and only our disclosures read
as a whole can be relied upon to adequately portray our financial position,
liquidity and results of operations.


Three and Six Months Ended June 30, 2020 and 2019




The following table illustrates the changes in lease revenue, property operating
expenses, and net operating income for the three and six months ended June 30,
2020
and 2019. "Non-same-store," as reflected in the table below, includes
properties acquired after January 1, 2019, which for the three and six months
ended June 30, 2020 and 2019 are Providence Square and Seattle East Industrial.
For purposes of comparative analysis, the table below reconciles the net
operating income to net income (loss) determined in accordance with GAAP for the
three and six months ended June 30, 2020 and 2019.
44



--------------------------------------------------------------------------------



Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
Lease revenue
Lease revenue - same-store
portfolio $ 5,209 $ 5,178 $ 31 10,809 10,566 243
Lease revenue - non-same-store
portfolio 2,145 - 2,145 4,236 - 4,236
Total lease revenue 7,354 5,178 2,176 15,045 10,566 4,479

Property operating expenses
Same-store portfolio 1,791 1,723 68 3,695 3,605 90
Non-same-store portfolio 357 - 357 691 - 691
Total property operating expenses 2,148 1,723 425 4,386 3,605 781

Net operating income
Same-store portfolio 3,418 3,455 (37) 7,114 6,961 153
Non-same-store portfolio 1,788 - 1,788 3,545 - 3,545
Total net operating income 5,206 3,455 1,751 10,659 6,961 3,698

Adjustments to lease revenue
Straight-line revenue 459 214 245 616 421 195
Above- and below-market lease
amortization, net 190 195 (5) 380 390 (10)
Lease incentive amortization (26) (26) - (51) (51) -

Depreciation (1,764) (1,336) (428) (3,543) (2,646) (897)
Amortization (1,449) (1,131) (318) (2,930) (2,300) (630)
General and administrative
expenses (487) (468) (19) (1,027) (1,040) 13
Advisory fees (532) (561) 29 (1,071) (932) (139)

Interest expense (1,761) (1,196) (565) (3,713) (2,489) (1,224)

Marketable securities
Investment income on marketable
securities 131 150 (19) 293 301 (8)
Net realized (loss) gain on
marketable securities (1,707) 146 (1,853) (2,150) 265 (2,415)
Net unrealized change in fair
value of marketable securities 3,005 189 2,816 (1,358) 2,355 (3,713)
Net income (loss) $ 1,265 $ (369) $ 1,634 $ (3,895) $ 1,235 $ (5,130)



Property Operations

Our total lease revenue and total property operating expenses for the three and
six months ended June 30, 2020 increased compared to those from the same periods
in 2019 primarily due to the acquisition of Providence Square and Seattle East
Industrial
during the year ended December 31, 2019. Our total same-store net
operating income for the three and six months ended June 30, 2020 and 2019
reflects 12 of the 14 properties in the portfolio.
45
--------------------------------------------------------------------------------
Table of Contents
Lease revenue for the six months ended June 30, 2020 increased from the same
period in 2019 primarily due to three leases at Anaheim Hills Office Plaza which
were executed during 2019 and began paying rent, thereby increasing lease
revenue by $353 compared to the six months ended June 30, 2019. There were two
lease extensions at Wallingford Plaza that became effective in the second half
of 2019 which further increased lease revenue along with contractually stepped
up rents at several leases across the portfolio. These increases in same-store
lease revenue were offset by a decrease in lease revenue of $362 at Heritage
Parkway
due to a 5-year lease renewal with Allstate which provided free rent for
three months in the early part of the amended lease. Lease revenue for the three
months ended June 30, 2020 increased from the same period in 2019 for the same
reasons although to a lesser extent at Anaheim Hills Office Plaza.

Same-store property operating expenses for the six months ended June 30, 2020
increased from the same period in 2019 due to higher real estate taxes and
personnel costs at The Flats at Carrs Hill, increased building maintenance and
repair expenses at Elston Plaza and increased landscape and roof repair costs at
Palmetto Lakes. Same-store property operating expenses for the three months
ended June 30, 2020 increased from the same period in 2019 due to higher HVAC
and legal expenses at Anaheim Hills Office Plaza, increased real estate taxes,
personnel costs and cleaning supplies at The Flats at Carrs Hill, and higher
utility expenses at Loudoun Gateway. These increases in same-store operating
expenses during the 2020 period referred to above were partially offset by lower
utility expenses at Allied Drive.
Straight-Line Revenue

The increase in straight-line revenue for the three and six months ended June
30, 2020
compared to the same periods in 2019 was due to the aforementioned free
rent for Allstate which resulted in higher straight-line revenue during the free
rent months and additional straight-line revenue from Providence Square and
Seattle East Industrial which were acquired in September and December 2019,
respectively. These increases were offset by a decrease at Anaheim Hills Office
Plaza
as the leases signed in 2019 began to pay cash rent in late 2019 thereby
reducing the straight-line revenue for such leases.


Lease Intangible Amortization




During the three and six months ended June 30, 2020, the net amount of above-
and below-market lease amortization is nearly unchanged from the same period in
2019 as the 2019 acquisitions of Providence Square and Seattle East Industrial
had minimal impact. Lease incentive amortization represents amortization of the
lease incentive paid to Dick's Sporting Goods, Inc. at Terra Nova Plaza, which
is being amortized over the approximate 10-year term of that lease.


Depreciation and Amortization



The depreciation and amortization on properties increased in the 2020 period as
a result of the acquisitions of Providence Square and Seattle East Industrial.



General and Administrative




Our general and administrative expenses include a variety of corporate expenses,
the largest of which were directors and officers insurance, audit fees, legal
fees and independent director compensation. The amount for the six months ended
June 30, 2020 decreased from the same period in 2019 primarily due to the
portion of the March 2019 grant of Class I shares to our independent directors
which vested immediately upon grant, and to a lesser extent, lower travel costs
in the 2020 period. These decreases were partially offset by increases in
appraisal costs due to additional properties, audit fees, and higher directors
and officers insurance resulting from higher coverage limits. For the three
months ended June 30, 2020, the increase from the same period in 2019 is due to
higher audit fees, legal fees and directors and officers insurance, offset by
decreases in travel costs and income taxes.

46
--------------------------------------------------------------------------------
Table of Contents
Advisory Fees

The fixed component of the advisory fee pursuant to the advisory agreement is
equal to 1% per annum of the NAV for each share class and is calculated and
accrued daily and reflected in our NAV per share. The fixed component of the
advisory fee was higher in the 2020 period compared to the 2019 period which is
commensurate with the overall increase in our NAV, as we continue to raise and
invest capital.

In accordance with our advisory agreement, our advisor can earn the performance
component of the advisory fee when the total return to stockholders of a
particular share class exceeds a required per annum hurdle for such share class
(the "Hurdle Amount"). The performance component is calculated separately for
each share class and is comprised of the distributions paid to stockholders in
each share class combined with the change in price of each share class. For any
calendar year in which the total return per share allocable to a class exceeds
the Hurdle Amount for such class, RREEF America will receive a percentage of the
aggregate total return allocable to such class. The performance component of the
advisory fee is payable annually based on the results for the entire calendar
year. The actual performance component that our advisor could earn in the
current calendar year depends on several factors, including but not limited to
the performance of our investments, our expenses and interest rates. For the six
months ended June 30, 2020, the total return of each share class did not exceed
the Hurdle Amount, applied on a pro rata basis as applicable. For the six months
ended June 30, 2019, the total return of each share class exceeded the required
Hurdle Amount for each share class, applied on a pro rata basis as applicable,
resulting in our recognition under GAAP of a performance component of the
advisory fee of $150.


Interest Expense




The increase in interest expense for the three and six months ended June 30,
2020
over the same period in 2019 was primarily due to a greater weighted
average outstanding aggregate balance on our fixed rate loans. We originated a
$17,600 loan on Elston Plaza with a fixed interest rate of 3.89% in June 2019, a
$29,700 loan on Providence Square with a fixed interest rate of 3.67% in
September 2019 and $45,140 loan on Seattle East Industrial with a fixed interest
rate of 3.87% in December 2019. As a result, the weighted average outstanding
aggregate balance and interest rate on all of our loan obligations was $202,713
and $112,096 for the six months ended June 30, 2020 and 2019, respectively. A
general decrease in interest rates over the past year reduced the interest rate
on our line of credit, resulting in our all-in interest rate on all of our loan
obligations averaging 3.4% and 4.0% for the six months ended June 30, 2020 and
2019, respectively, partially offsetting the increase in our overall interest
expense for the two periods. Our total outstanding loan balance as of June 30,
2020
consisted of 62% fixed rate loans and 38% floating rate loans.


We expect our interest expense to increase in future periods because we
anticipate acquiring additional properties with borrowings, including by
utilizing additional property-specific debt as a form of permanent financing
along with continuing to use our line of credit.



Marketable Securities




The decrease in investment income for the three and six months ended June 30,
2020
compared to the 2019 periods is primarily due to having less dividend
paying stocks within the portfolio in the 2020 period relative to the 2019
period. Our portfolio of investments in publicly-traded REIT securities is
actively managed and thus is regularly adjusted by increasing and decreasing
specific holdings primarily based upon changes in sector allocations and to a
lesser degree based upon performance of specific securities. These continual
portfolio refinements generate realized gains and losses by using the highest
cost method whereby a sale of any particular security is first attributed to the
shares of that security with the highest cost basis. In response to the COVID-19
pandemic, the financial markets significantly declined in March 2020, and our
marketable securities portfolio similarly suffered. During the three months
ended June 30, 2020, our marketable securities portfolio regained a significant
portion of its first quarter losses, resulting in an unrealized gain of $3,005
for the three months ended June 30, 2020. However, active management resulted in
our marketable securities portfolio incurring net realized losses for the three
months ended June 30, 2020.

47
--------------------------------------------------------------------------------
Table of Contents
Inflation

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


NAV per Share




Our NAV per share is calculated in accordance with the valuation guidelines
approved by our board of directors for the purposes of establishing a purchase
price for our shares sold in our offerings as well as establishing a redemption
price for our share repurchase plan. The following table provides a breakdown of
the major components of our total NAV and NAV per share as of June 30, 2020:
Per Class A Per Class I Per Class T Per Class D
Components of NAV Total NAV Share Share Share Share
Investments in real estate (1) $ 396,300 $ 26.07 $ 26.24 $ 26.15 $ 26.19
Investments in real estate equity
securities (2) 17,988 1.18 1.19 1.19 1.18
Other assets, net 10,243 0.67 0.67 0.68 0.67
Line of credit (77,600) (5.10) (5.14) (5.12) (5.11)
Mortgage loans payable (126,507) (8.32) (8.38) (8.35) (8.33)
Other liabilities, net (7,243) (0.48) (0.48) (0.49) (0.51)
Net asset value $ 213,181 $ 14.02


$ 14.10 $ 14.06 $ 14.09
Note: No Class M-I, N, S, T2, or Z shares were outstanding as of June 30, 2020.






(1) The value of our investments in real estate was approximately 9.0% more than
their historical cost.
(2) The value of our investments in real estate securities was approximately
12.7% more than their historical cost.

As of June 30, 2020, all properties had been appraised by a third-party
appraisal firm in addition to our independent valuation advisor. Set forth below
are the weighted averages of the key assumptions used in the appraisals of the
office, retail and industrial properties as of June 30, 2020. Once we own more
than one property for the apartment property type, we will include the key
assumptions for that property type.

Discount Rate Exit Capitalization Rate
Office properties 7.32% 6.67%
Retail properties 6.93% 6.05%
Industrial properties 5.78% 4.94%



These assumptions are determined by our independent valuation advisor or by
separate third-party appraisers. A change in these assumptions would impact the
calculation of the value of our property investments. For example, assuming all
other factors remain unchanged, an increase in the weighted-average discount
rate used as of June 30, 2020 of 0.25% would yield decreases in the office,
retail and industrial property investment values of 1.8%, 1.9% and 2.0%,
respectively. Similarly, an increase in the weighted-average exit capitalization
rate used as of June 30, 2020 of 0.25% would yield decreases in the office,
retail and industrial property investment values of 2.2%, 2.4%
48
--------------------------------------------------------------------------------
Table of Contents
and 3.2%, respectively.


The table below sets forth a reconciliation of our stockholders' equity to our
NAV, which we calculate for the purpose of establishing the purchase and
redemption price for our shares, as of June 30, 2020.



Per Class A


Per Class I Per Class T Per Class D



Total NAV Share Share Share Share
Total stockholders' equity $ 116,802 $ 7.68 $ 7.71 $ 7.71 $ 7.74
Plus:
Unrealized gain on real estate
investments 32,725 2.15 2.17 2.16 2.16
Accumulated depreciation 25,316 1.67 1.68 1.67 1.67
Accumulated amortization 23,399 1.54 1.55 1.54 1.54
Deferred costs and expenses, net 18,385 1.21 1.22 1.21 1.21



Less:



Deferred rent receivable (3,446) (0.23) (0.23) (0.23) (0.23)

Net asset value $ 213,181 $ 14.02


$ 14.10 $ 14.06 $ 14.09
Note: No Class M-I, N, S, T2 or Z shares were outstanding as of June 30, 2020.






The deferred costs and expenses of $18,385 includes amounts that are initially
excluded from the NAV calculation. This includes $5,187 payable to our advisor,
which is less than the total amount payable to our advisor as reflected on our
consolidated balance sheet as of June 30, 2020, because (1) certain amounts
payable to our advisor as of June 30, 2020 were recorded as assets and as such
have no impact on our NAV as of June 30, 2020, and (2) the amount payable to our
advisor as reflected in due to affiliates and note to affiliate on our
consolidated balance sheet includes accrued advisory fees and other amounts due
under the advisory agreement. The deferred amounts will be included in the NAV
calculation as such costs are reimbursed to our advisor, in accordance with the
advisory agreement, the expense support agreement and the ESA letter agreement
dated March 24, 2020 amending the advisory agreement and expense support
agreement (defined below). The deferred costs and expenses above additionally
includes $14,180 in estimated trailing fees that will be deducted from the NAV
on a daily basis as and when they become payable to DWS Distributors, Inc., or
the dealer manager. Lastly, the deferred cost and expenses above is net of (1)
the portion of the performance component of the advisory fee that is reflected
in the NAV calculation, if any, but does not yet meet the threshold for accrual
under GAAP, and (2) the difference in recognition of (i) certain offering costs
and (ii) compensation costs related to the shares granted to our independent
board members.

Limitations and Risks

As with any valuation methodology, our methodology is based upon a number of
estimates and assumptions that may not be accurate or complete. Different
parties with different assumptions and estimates could derive a different NAV
per share. Accordingly, with respect to our NAV per share, we can provide no
assurance that:

•a stockholder would be able to realize this NAV per share upon attempting to
resell his or her shares;
•we would be able to achieve, for our stockholders, the NAV per share, upon a
listing of our shares of common stock on a national securities exchange, selling
our real estate portfolio, or merging with another company; or
•the NAV per share, or the methodologies relied upon to estimate the NAV per
share, will be found by any regulatory authority to comply with any regulatory
requirements.

Furthermore, the NAV per share was calculated as of a particular point in time.
The NAV per share will fluctuate over time in response to, among other things,
global, national or regional economic events, such as those caused by the
coronavirus pandemic, changes in real estate market fundamentals, capital
markets activities, and attributes specific to the properties and leases within
our portfolio. The extent to which the coronavirus impacts our
49
--------------------------------------------------------------------------------
Table of Contents
investments and operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence. These developments include
the duration of the outbreak, the impact of government stimulus, new information
that may emerge concerning the severity of the coronavirus, and actions taken to
contain the coronavirus or treat its impact, among others.

The coronavirus pandemic is expected to continue to have a significant impact on
local, national and global economies and has resulted in a world-wide economic
slowdown. Our independent valuation advisor and certain independent third-party
appraisal firms engaged by our advisor have included additional cautionary
language in their respective second quarter reports related to the uncertain
impact of the coronavirus pandemic on the property values.


Funds from Operations and Modified Funds from Operations




We believe that funds from operations, or FFO, FFO as adjusted and modified
funds from operations, or MFFO, in combination with net income or loss and cash
flows from operating activities, as defined by GAAP, are useful supplemental
performance measures that we use to evaluate our operating performance. However,
these supplemental, non-GAAP measures should not be considered as an alternative
to net income or loss or to cash flows from operating activities, both as
determined by GAAP, as an indication of our performance and are not intended to
be used as a liquidity measure indicative of cash flow available to fund our
cash needs, including our ability to make distributions to our stockholders. No
single measure can provide users of financial information with sufficient
information, and only our disclosures read as a whole can be relied upon to
adequately portray our financial position, liquidity and results of operations.
In addition, other REITs may define FFO and similar measures differently and
thus choose to treat certain accounting line items in a manner different from us
due to differences in investment and operating strategy or for other reasons.

As defined by the National Association of Real Estate Investment Trusts, or
NAREIT, FFO is a non-GAAP supplemental financial performance measure that
excludes certain items such as real estate-related depreciation and amortization
and the impact of certain non-recurring items such as realized gains and losses
on sales of real estate. We believe FFO is a meaningful supplemental financial
performance measure of our operating performance that is useful to investors
because depreciation and amortization in accordance with GAAP implicitly assume
that the value of real estate assets diminishes predictably over time.
Additionally, realized gains and losses on sales of real estate generally occur
infrequently. As a result, excluding these items from FFO aids our analysis of
our ongoing operations. We use FFO as an indication of our operating performance
and as a guide to making decisions about future investments.

Under GAAP, the net unrealized change in the fair value of our investments in
marketable securities for the period presented is recorded in earnings as part
of operating income or loss. As a result, under the current NAREIT definition of
FFO, the net unrealized change in the fair value of our investments in
marketable securities is included in our FFO. Our investment objective with our
investments in marketable securities is to generate consistent income while
providing an opportunity for long term price appreciation. Additionally, we
believe that investing a portion of our proceeds from our offerings into a
diversified portfolio of common and preferred shares of REITs and other real
estate operating companies will provide our overall investment portfolio some
flexibility with near-term liquidity as well as potentially enhance our NAV over
a longer period. The securities portfolio is regularly reviewed and evaluated to
determine whether the marketable securities held at any time continue to serve
their original intended purposes. In accordance with our objectives, it is our
view that providing FFO as adjusted for the net unrealized change in the fair
value of our securities portfolio, as an additional non-GAAP supplemental
financial performance measure, will enhance an investor's understanding of the
impact of our securities portfolio on our ongoing operations.

As defined by the Institute for Portfolio Alternatives, or IPA, MFFO is a
non-GAAP supplemental financial performance measure used to assist us in
evaluating our operating performance. We believe that MFFO is helpful as a
measure of ongoing operating performance because it excludes costs that
management considers more reflective of investing activities and other
non-operating items included in FFO. Compared to FFO, MFFO additionally excludes
items such as acquisition-related costs (if expensed in accordance with GAAP),
non-cash amounts related to straight-line rent, amortization of above- and
below-market lease intangibles and mark to market valuation
50
--------------------------------------------------------------------------------
Table of Contents
adjustments on securities. In addition, there are certain other MFFO adjustments
as defined by the IPA that are not applicable to us at this time and are not
included in our presentation of MFFO. We believe that excluding acquisition
costs from MFFO, if such costs were expensed in accordance with GAAP, provides
investors with supplemental performance information that is consistent with our
analysis of the operating performance of our portfolio over time, including
periods after our acquisition stage.

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


The following unaudited table presents a reconciliation of net income (loss) to
FFO, FFO as adjusted, and MFFO.



Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Net income (loss) $ 1,265 $ (369) $ (3,895) $ 1,235

Real estate related depreciation 1,764 1,336 3,543 2,646
Real estate related amortization 1,449 1,131 2,930 2,300
NAREIT defined FFO 4,478 2,098 2,578 6,181
Net unrealized change in fair value
of investments in marketable
securities (3,005) (189) 1,358 (2,355)
FFO as adjusted 1,473 1,909 3,936 3,826

Additional adjustments:

Straight line rents, net (459) (214) (616) (421)
Amortization of above- and
below-market lease intangibles, net (190) (195) (380) (390)
Amortization of lease incentive 26 26 51 51

IPA defined MFFO $ 850 $ 1,526 $ 2,991 $ 3,066




Liquidity and Capital Resources




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

51
--------------------------------------------------------------------------------
Table of Contents
Over time, we generally intend to fund our cash needs for items, other than
asset acquisitions and material capital improvements, from operations. Our cash
needs for acquisitions and material capital improvements will be funded
primarily from the sale of shares of our common stock in our offerings. The
amount we may raise in such offerings is uncertain and dependent on a number of
factors, including the impacts of the coronavirus pandemic. We intend to
contribute any additional net proceeds from our offerings that are not used or
retained to pay the fees and expenses attributable to our operations to our
operating partnership.

The coronavirus pandemic has had, and is expected to continue to have, a
significant impact on local, national and global economies and has resulted in a
world-wide economic slowdown. We are closely monitoring the impact of the
coronavirus pandemic on all aspects of our investments and operations, including
how it will impact our tenants and business partners. We collected 100% of our
contractual rental revenue for the three months ended March 31, 2020 and 94% of
our contractual rental revenue for the three months ended June 30, 2020.
Approximately 98% of contractual rental revenue was collected for the month of
July 2020. However, the future impacts of the coronavirus pandemic cannot be
predicted and it has caused, and may cause, certain of our tenants to request
deferral of rental payments or not to pay rent at all. Through July 31, 2020, we
had entered into four lease amendments that resulted in the deferral of
approximately 1.0% of our annualized contractual rental revenue. Such deferred
rent is scheduled to be fully paid within the next 12 months.

We generally intend to maintain sufficient liquidity at all times to satisfy our
operational needs and the maximum potential quarterly redemptions under our
share redemption plan. As of June 30, 2020, among our cash balances, our real
estate securities portfolio, and the available borrowing capacity on our Wells
Fargo line of credit, we had liquidity of $35,932.

We may also satisfy our cash needs for acquisitions and material capital
improvements through the assumption or incurrence of debt. On February 27, 2018,
we entered into an amended and restated secured revolving line of credit with
Wells Fargo Bank, National Association. The Wells Fargo line of credit has a
three-year term with two one-year extension options exercisable by us upon
satisfaction of certain conditions and payment of applicable extension fees. The
first extension option becomes exercisable in November 2020. The interest rate
under the Wells Fargo line of credit is based on the 1-month LIBOR with a spread
of 160 to 180 basis points depending on the debt yield as defined in the
agreement. The Wells Fargo line of credit has a current maximum capacity of
$100,000, and we have the option to expand the Wells Fargo line of credit up to
a maximum capacity of $200,000 upon satisfaction of specified conditions. Each
requested expansion must be for at least $25,000 and may result in the Wells
Fargo line of credit being syndicated.

The Wells Fargo line of credit has as co-borrowers certain of the wholly-owned
subsidiaries of our operating partnership, with the Company serving as the
guarantor. At any time, the borrowing capacity under the Wells Fargo line of
credit is based on the lesser of (1) an amount equal to 65% of the aggregate
value of the properties in the collateral pool as determined by lender
appraisals, (2) an amount that results in a minimum debt yield of 9% based on
the in-place net operating income of the collateral pool as defined or (3) the
maximum capacity of the Wells Fargo line of credit. Proceeds from the Wells
Fargo line of credit can be used to fund acquisitions, redeem shares pursuant to
our redemption plan and for any other corporate purpose. As of June 30, 2020,
our maximum borrowing capacity was $89,310, our outstanding balance was $77,600
and our weighted average interest rate was 1.89%.

The Wells Fargo line of credit agreement contains customary representations,
warranties, borrowing conditions and affirmative, negative and financial
covenants, including that there must be at least five properties in the
collateral pool at all times, and the collateral pool must also meet specified
concentration provisions, unless waived by the lender. In addition, the
guarantor must meet tangible net worth hurdles. Subsequent to June 30, 2020, we
entered into a second amendment to the Wells Fargo line of credit which
pre-emptively amended certain financial covenants in the event the coronavirus
pandemic were to have a negative effect in the future on our properties
encumbered by the Wells Fargo line of credit. As of June 30, 2020, we were in
compliance with all covenants.

Since our inception, we have entered into property specific mortgage loans to
finance the acquisition of certain properties, or refinance certain properties
off of our Wells Fargo line of credit to create room under our Wells Fargo line
of credit to fund future property acquisitions. The following table presents a
summary of the property specific
52
--------------------------------------------------------------------------------
Table of Contents
mortgage loans in place as of June 30, 2020. Each of the below mortgage loans
has a fixed interest rate for the entire term of the mortgage loan. In addition,
each mortgage loan contains provisions allowing for (a) a one-time transfer of
the loan to an unaffiliated borrower at the sole discretion of the lender and
upon payment of applicable fees, and (b) full prepayment of the mortgage loan
within allowable windows subject to payment of applicable penalties, if any.
Outstanding
Lender Encumbered Property Balance Interest Rate Maturity Date
Nationwide Life Insurance
Company Flats at Carrs Hill $ 14,500 3.63 % March 1, 2026
Hartford Life Insurance
Company Commerce Corner 12,617 3.41 December 1, 2023
Transamerica Life
Insurance Company Wallingford Plaza 6,950 4.56 January 1, 2029
State Farm Life Insurance
Company Elston Plaza 17,600 3.89 July 1, 2026
Nationwide Life Insurance
Company Providence Square 29,700 3.67 October 5, 2029
JPMorgan Chase Bank Seattle East Industrial 45,140 3.87 January 1, 2030
$ 126,507



In the future, as our assets increase, it may not be commercially feasible or we
may not be able to secure an adequate line of credit to fund acquisitions,
redemptions or other needs. Moreover, actual availability may be reduced at any
given time if the values of our real estate or our marketable securities
portfolio decline, such as that which may occur as a result of the coronavirus
pandemic. Furthermore, the credit markets have been significantly impacted by
the coronavirus pandemic which has caused certain lenders in the commercial real
estate space to limit available financing options.


Expense Payments by Our Advisor




Pursuant to the advisory agreement, RREEF America is entitled to reimbursement
of certain costs incurred by RREEF America or its affiliates. Costs eligible for
reimbursement include most third-party operating expenses, salaries and related
costs of its employees who perform services for us (but not those employees for
which RREEF America earns a separate fee or those employees who are our
executive officers) and travel related costs for its employees who incur such
costs on our behalf. We will reimburse our advisor for all expenses paid or
incurred by our advisor in connection with the services provided to us, subject
to the limitations described below regarding the 2%/25% guidelines as defined in
our advisory agreement. As of June 30, 2020, we owed $115 to our advisor for
such costs.

On May 29, 2013, we entered into an expense support agreement with our advisor,
which was amended and restated most recently on January 20, 2016, which we refer
to as the expense support agreement. Pursuant to the terms of the expense
support agreement, our advisor incurred expenses related to our operations which
we refer to as expense payments. As of December 31, 2015, our advisor had
incurred $9,200 in expense payments, which was the maximum amount of expense
payments allowed under the expense support agreement.

As the expense payment limit had been reached, pursuant to the expense support
agreement, in January 2016 the reimbursement provisions were triggered. During
the first quarter of 2016, we reimbursed $250 to our advisor under the expense
support agreement. On April 25, 2016, we and our advisor entered into a letter
agreement that amended certain provisions of the advisory agreement and the
expense support agreement. On March 24, 2020, we and our advisor entered into a
second letter agreement which superseded the previous letter agreement, which we
refer to as the ESA letter agreement. The ESA letter agreement provides, in
part, that our obligations to reimburse our advisor for expense payments under
the expense support agreement are suspended until the first calendar month
following the month in which we have reached $500,000 in offering proceeds from
our offerings, which we refer to as the ESA commencement date. Since our
inception through June 30, 2020, we raised $262,333 from the sale of shares of
our
53
--------------------------------------------------------------------------------
Table of Contents
common stock, including proceeds from our dividend reinvestment plan. We
currently owe $5,383 to our advisor under the expense support agreement.
Beginning the month following the ESA commencement date, we will make monthly
reimbursement payments to our advisor in the amount of $250 for the first 12
months and $198 for the second 12 months. In addition, pursuant to the ESA
letter agreement, if RREEF America is serving as our advisor at the time that we
or our operating partnership undertakes a liquidation, our remaining obligations
to reimburse our advisor for the unpaid monthly reimbursements under the expense
support agreement shall be waived.


Limits on Expense Reimbursement




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

In addition to the reimbursement limitations for organization and offering
costs, we are also limited in the amount of operating expenses that we may
reimburse our advisor. Pursuant to our charter, we may reimburse our advisor, at
the end of each fiscal quarter, for total operating expenses incurred by our
advisor; provided, however, that we may not reimburse our advisor at the end of
any fiscal quarter for total operating expenses (as defined in our charter)
that, in the four consecutive fiscal quarters then ended, exceed the greater of
2% of our average invested assets or 25% of our net income determined without
reduction for any additions to reserves for depreciation, bad debts or other
similar non-cash reserves and excluding any gain from the sale of our assets for
that period (which we refer to as the 2%/25% guidelines) for such four-quarter
period. Notwithstanding the foregoing, we may reimburse our advisor for expenses
in excess of the 2%/25% guidelines if a majority of our independent directors
determine that such excess expenses, which we refer to as an excess amount, are
justified based on unusual and non-recurring factors. For the four fiscal
quarters ended June 30, 2020, our total operating expenses (as defined in our
charter) were $4,878, which did not exceed the amount prescribed by the 2%/25%
guidelines.

Pursuant to the expense support agreement, the amount of the reimbursement
payment paid in any calendar quarter will not be aggregated with our cumulative
operating expenses for any four consecutive calendar quarters that includes the
calendar quarter in which such reimbursement payment is paid, and instead the
amount of the unreimbursed expense payments comprising such reimbursement
payment will have previously been aggregated with our total operating expenses
for the four calendar quarter periods ending with the calendar quarter in which
such expense payment was originally incurred, which we refer to as prior 2%/25%
periods. If an unreimbursed expense payment incurred during a prior 2%/25%
period exceeded the 2%/25% guidelines for such prior 2%/25% period, the amount
of such excess will only be reimbursed pursuant to the expense support agreement
to the extent that our independent directors previously approved such excess
with respect to the applicable prior 2%/25% period. Our independent directors
approved the excess amount for every period of four consecutive quarters since
we were first subject to this limitation for the four consecutive quarters ended
June 30, 2014 through September 30, 2016. During the fiscal quarter ended March
31, 2017
, our advisor reimbursed us for the excess amount related to the four
fiscal quarters ended December 31, 2016. Our total operating expenses have not
exceeded the 2%/25% guidelines for any four-quarter period ending after December
31, 2016
.

We anticipate our offering and operating fees and expenses will include, among
other things, the advisory fee that we pay to our advisor, the selling
commissions, dealer manager and distribution fees we pay to the dealer manager,
legal and audit expenses, federal and state filing fees, printing expenses,
transfer agent fees, marketing and distribution expenses and fees related to
appraising and managing our properties. We will not have any office or personnel
expenses as we do not have any employees. Our advisor will incur certain of
these expenses and fees, for which we may reimburse our advisor, subject to
certain limitations. Additionally, our advisor may allocate to us out-of-pocket
expenses in connection with providing services to us, including our allocable
share of our advisor's overhead, such as rent, utilities and personnel costs for
personnel who are directly involved in the performance of services to us and are
not our executive officers. Ultimately, total organization and offering costs
incurred in a given offering will not exceed 15% of the gross proceeds from such
offering. During our initial offering, our advisor paid on our behalf or
reimbursed us for $3,975 in organization and offering costs and $5,229 in
operating expenses.
54
--------------------------------------------------------------------------------
Table of Contents
Pursuant to the ESA letter agreement dated March 24, 2020, our advisor waived
reimbursement of $3,567 of expense payments related to organization and offering
costs from our initial offering. The total organization and offering costs paid
by our advisor did not cause us to exceed the 15% limitation as of June 30, 2020
with respect to the initial offering. If, in future periods, the total
organization and offering costs paid by our advisor and the dealer manager cause
us to exceed the 15% limitation with respect to the initial offering, the excess
would not be reflected on our consolidated balance sheet as of the end of such
period. A similar limitation will apply to the total organization and offering
costs incurred with respect to each follow-on offering. In such event, we may
become obligated to reimburse all or a portion of this excess as we raise
additional proceeds from such follow-on offering. As of June 30, 2020, our total
organization and offering costs incurred with respect to the follow-on offering
and the second follow-on offering did not exceed the 15% limitation for each
such follow-on offering.

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


Cash Flow Analysis




Cash flow provided by operating activities during the six months ended June 30,
2020
and 2019 was $4,634 and $2,493, respectively. The increase in cash flow
from operating activities for the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 is due to additional operating cash flows from
our 2019 acquisitions as well as additional cash paying leases at Anaheim Hills
Office Plaza
and increased payable balances as of June 30, 2020. These increases
were partially offset by higher debt service costs in the 2020 period as a
result of our higher average outstanding debt balances and higher deferred
leasing costs of $892 most of which relates to the renewal of the Allstate lease
at Heritage Parkway.

Cash flow used in investing activities during the six months ended June 30, 2020
and 2019 was $1,389 and $1,469, respectively. In 2020 we paid approximately
$1,114 on improvements to our real estate investments, primarily for tenant
improvements at Anaheim Hills Office Plaza related to new leases as well as
building improvements at our Miami Industrial properties. This compares to paid
real estate improvements of only $1,181 in the 2019 period.

Cash flow used in financing activities was $1,246 for the six months ended June
30, 2020
. We received proceeds of $23,536 in our offerings and paid $1,721 in
offering costs. Cash distributions to stockholders paid during the six months
ended June 30, 2020 were $2,709. Of the total distributions declared for the six
months ended June 30, 2020, $2,694 was reinvested via our distribution
reinvestment plan. Additionally, we processed redemptions during the six months
ended June 30, 2020 that resulted in payments by us of $16,222, after deductions
for any applicable 2% short-term trading discounts. We used the proceeds from
our offerings to repay $13,500 against our outstanding balance on the Wells
Fargo line of credit. We borrowed $9,500 from our Wells Fargo line of credit
during the six months ended June 30, 2020. Additionally, we made principal
payments on the Hartford Loan of $130 which required monthly principal payments
beginning in January 2019.

Cash flow used in financing activities was $585 for the six months ended June
30, 2019
. We received proceeds of $26,192 in our offerings and paid $1,434 in
offering costs. Cash distributions to stockholders paid during the six months
ended June 30, 2019 were $2,064. Of the total distributions declared for the six
months ended June 30, 2019, $1,794 was reinvested via our distribution
reinvestment plan. Additionally, we processed redemptions during the six months
ended June 30, 2019 that resulted in payments by us of $2,949, after deductions
for any applicable 2% short-term trading discounts. We originated a $17,600
property specific loan from State Farm on Elston Plaza and used the proceeds
along with proceeds from our offerings to repay $39,819 against our outstanding
balance on the Wells Fargo line of credit. We also borrowed $2,200 from our
Wells Fargo line of credit during the six months ended June 30, 2019.
Additionally, we made principal payments on the Hartford Loan of $126 which
required monthly principal payments beginning in January 2019.

55
--------------------------------------------------------------------------------
Table of Contents
Distributions

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

Six
Three Months Ended Months
Ended
June 30,
March 31, 2020 June 30, 2020 2020
Distributions:
Declared daily distribution rate,
before adjustment for class-specific
fees $ 0.00198576 $ 0.00195203


Distributions paid or payable in cash $ 1,369 $ 1,330



$ 2,699
Distributions reinvested 1,339 1,355 2,694
Distributions declared $ 2,708 $ 2,685 $ 5,393

Net Cash Provided by Operating
Activities: $ 1,949 $ 2,685 $ 4,634

Funds From Operations: $ (1,900) $ 4,478 $ 2,578



For the six months ended June 30, 2020, our distributions were covered 85.9% by
cash flow from operations and 14.1% by borrowings. We expect that we will
continue to pay distributions monthly in arrears. Any distributions not
reinvested will be payable in cash, and there can be no assurances regarding the
portion of the distributions that will be reinvested. We intend to fund
distributions from cash generated by operations. However, we may fund
distributions from borrowings under our line of credit, from the proceeds of our
offering or any other source.

As discussed above under "Funds from Operations and Modified Funds from
Operations," FFO, as defined by NAREIT, includes the net unrealized change in
fair value of our investments in marketable securities. For the three and six
months ended June 30, 2020, the net unrealized change in fair value of our
investments in marketable securities was a gain of $3,005 and a loss of $1,358,
respectively. Without this net unrealized change in fair value, our FFO for the
three and six months ended June 30, 2020 would have been $1,473 and $3,936,
respectively, which we refer to as FFO as adjusted, and which is presented above
under "Funds from Operations and Modified Funds from Operations" for the three
and six months ended June 30, 2020.

The coronavirus pandemic has caused a world-wide economic slowdown, and resulted
in numerous temporary retail store closings as well as temporary closings of
many other businesses due to government imposed or elected shelter-in-place
orders. The duration and ultimate impact of these measures cannot be predicted
and may cause reduced operating cash flows from our investments. The payment of
distributions from sources other than cash flow from operations or FFO may be
dilutive to our NAV per share because it may reduce the amount of proceeds
available for investment and operations or cause us to incur additional interest
expense as a result of borrowed funds.


Redemptions



For details on our redemptions, please see Note 9 ("Capitalization") to our
consolidated financial statements included in this quarterly report on Form
10-Q. As of June 30, 2020, we had no unfulfilled redemption requests.



Critical Accounting Policies



Our accounting policies have been established to conform with GAAP. The
preparation of financial statements



56
--------------------------------------------------------------------------------
Table of Contents
in conformity with GAAP requires management to use judgment in the application
of accounting policies, including making estimates and assumptions. These
judgments affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the dates of the financial statements
and the reported amounts of revenue and expenses during the reporting periods.
If management's judgment or interpretation of the facts and circumstances
relating to various transactions had been different, it is possible that
different accounting policies would have been applied, thus resulting in a
different presentation of the financial statements. Additionally, other
companies may utilize different estimates that may impact the comparability of
our results of operations to those of companies in similar businesses. We
consider our critical accounting policies to be the policies that relate to the
following concepts:

•Real Estate Investments and Lease Intangibles
•Revenue Recognition
•Organization and Offering Expenses

A complete description of such policies and our considerations is contained in
Note 2 ("Summary of Significant Accounting Policies") to our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2019, as supplemented by the most recent quarterly report on
Form 10-Q.


Certain Accounting Pronouncements Effective in the Future




We refer you to Note 2 ("Summary of Significant Accounting Policies") to our
consolidated financial statements included in this quarterly report on Form 10-Q
for a discussion of the potential impact on us from certain accounting
pronouncements that become effective in the future.


REIT Compliance and Income Taxes




We elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code beginning with the year ended December 31, 2013, and we believe
that we have operated in such a manner to continue to be taxed as a REIT for
federal income tax purposes. In order to maintain our qualification as a REIT,
we are required to, among other things, distribute as dividends at least 90% of
our REIT taxable income, determined without regard to the dividends-paid
deduction and excluding net capital gains, to our stockholders and meet certain
tests regarding the nature of our income and assets. If we qualify for taxation
as a REIT, we generally will not be subject to federal income tax to the extent
our income meets certain criteria and we distribute our REIT taxable income to
our stockholders. Even if we qualify for taxation as a REIT, we may be subject
to (1) certain state and local taxes on our income, property or net worth and
(2) federal income and excise taxes on undistributed income, if any income
remains undistributed. Many of these requirements are highly technical and
complex. We will monitor the business and transactions that may potentially
impact our REIT status. If we were to fail to meet these requirements, we could
be subject to federal income tax on our taxable income at regular corporate
rates. We would not be able to deduct distributions paid to stockholders in any
year in which we fail to qualify as a REIT. We will also be disqualified for the
four taxable years following the year during which qualification was lost unless
we are entitled to relief under specific statutory provisions.


Off Balance Sheet Arrangements




As of June 30, 2020, we had no material off-balance sheet arrangements that had
or are reasonably likely to have a current or future effect on our financial
condition, results of operations, liquidity or capital resources.

© Edgar Online, source Glimpses

© Acquiremedia 2020
Copier lien
Latest news about "Companies"
4h ago
4h ago
4h ago
4h ago
4h ago