CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Investments:
Rental properties, net	$	192,812		$	196,483
Identified intangible assets, net		—			173
Total investments		192,812			196,656

Cash		25,193			28,430
Restricted cash		1,761			1,916
Tenant receivables, net		36			31
Due from related parties		2			—
Prepaid expenses and other assets		937			599
Total assets	$	220,741		$	227,632

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable, net	$	143,980		$	145,503
Accounts payable and accrued expenses		1,516			2,552
Accrued real estate taxes		724			601
Due to related parties		3,036			4,938
Tenant prepayments		158			194
Security deposits		391			382
Distributions payable		—			1,587
Total liabilities		149,805			155,757

Stockholders’ equity:
Preferred stock, par value $0.01: 10,000,000 shares authorized, none issued and outstanding		—			—
Convertible stock, par value $0.01: 50,000 shares authorized, issued and outstanding		1			1
Class A common stock, par value $0.01: 25,000,000 shares authorized, 625,848 and 628,691 issued and outstanding, respectively		6			6
Class T common stock, par value $0.01: 25,000,000 shares authorized, 1,121,639 and 1,115,458 issued and outstanding, respectively		11			11
Class I common stock, par value $0.01: 75,000,000 shares authorized, 10,406,822 and 10,327,291 issued and outstanding, respectively		104			103
Additional paid-in capital		104,480			103,725
Accumulated other comprehensive loss		(26	)		(32	)
Accumulated deficit		(33,640	)		(31,939	)
Total stockholders’ equity		70,936			71,875
Total liabilities and stockholders’ equity	$	220,741		$	227,632

September 30,
2017 December 31, 2016
(unaudited)
ASSETS
Investments:
Rental properties, net $ 29,654,938
$ 2,445,835
Identified intangible assets, net 562,568
27,870
Total investments 30,217,506
2,473,705

Cash 10,914,545
3,351,536
Restricted cash 427,116
7,733
Tenant receivables, net 721
788
Due from related parties 4,553
2,352
Subscriptions receivable 676,851
210,000
Prepaid expenses and other assets 147,562
100,485
Deferred offering costs 4,933,424
2,848,199
Total assets $ 47,322,278
$ 8,994,798

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Mortgage notes payable, net of unamortized deferred financing costs of $353,061 and $34,166 $ 22,769,848
$ 1,590,834
Accounts payable and accrued expenses 253,350
214,284
Accrued real estate taxes 236,986
—
Due to related parties 7,594,906
3,616,713
Tenant prepayments 19,644
—
Security deposits 64,066
3,300
Distributions payable 91,561
25,174
Total liabilities $ 31,030,361
$ 5,450,305

Stockholders’ equity:

Preferred stock, par value $0.01: 10,000,000 shares authorized, none issued and outstanding —
—
Convertible stock, par value $0.01: 50,000 shares authorized, 50,000 and 50,000 issued and outstanding, respectively 500
500
Class A common stock, par value $0.01: 25,000,000 and 250,000,000 shares authorized, respectively, 618,569 and 384,195 issued and outstanding, respectively 6,186
3,842
Class T common stock, par value $0.01: 25,000,000 and 750,000,000 shares authorized, respectively, 1,073,229 and 114,037 issued and outstanding, respectively 10,732
1,140
Class R common stock, par value $0.01: 750,000,000 and 0 shares authorized, respectively, 617,186 and 0 issued and outstanding, respectively 6,172
—
Class I common stock, par value $0.01: 75,000,000 and 0 shares authorized, respectively, 28,602 and 0 issued and outstanding, respectively 286
—
Additional paid-in capital 19,922,440
�� 4,380,126
Accumulated other comprehensive loss (9,396 ) —
Accumulated deficit (3,645,003 ) (841,115 )
Total stockholders’ equity $ 16,291,917
$ 3,544,493
Total liabilities and stockholders’ equity $ 47,322,278
$ 8,994,798

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Revenues:
Rental income	$	5,089		$	3,723
Total revenues		5,089			3,723

Expenses:
Rental operating - expenses		869			682
Rental operating - payroll		489			371
Rental operating - real estate taxes		730			497
Subtotal- rental operating		2,088			1,550
Property management fees		—			2
Management fees - related parties		780			574
General and administrative		416			860
Loss on disposal of assets		129			87
Depreciation and amortization expense		2,360			2,237
Total expenses		5,773			5,310
Loss before net gains on dispositions		(684	)		(1,587	)
Net gain on disposition of property		530			—
Loss before other income (expense)		(154	)		(1,587	)

Other income (expense):
Interest income		27			70
Interest expense		(1,543	)		(1,268	)
Total other income (expense)		(1,516	)		(1,198	)
Net loss	$	(1,670	)	$	(2,785	)

Other comprehensive (loss) income:
Designated derivatives, fair value adjustments		6			(2	)
Total other comprehensive (loss) income		6			(2	)
Comprehensive loss	$	(1,664	)	$	(2,787	)

~~(unaudited)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenues:
Rental income $ 544,431
$ 25,178
$ 645,585
$ 25,178
Total revenues 544,431
25,178
645,585
25,178

Expenses:
Rental operating 236,562
3,249
277,163
3,249
Acquisition costs 823,411
112,711
906,644
112,711
Property management fees 2,776
1,501
7,538
1,501
Management fees - related parties 82,938
3,110
96,395
3,110
General and administrative 342,956
322,765
883,360
349,223
Loss on disposal of assets 185,114
—
185,114
—
Depreciation and amortization expense 345,352
10,376
394,050
10,376
Total expenses 2,019,109
453,712
2,750,264
480,170
Loss before other income (expense) (1,474,678 ) (428,534 ) (2,104,679 ) (454,992 )

Other income (expense):
Other income —
—
1,500
—
Interest income 3,902
432
9,386
432
Interest expense (132,007 ) (2,989 ) (157,987 ) (2,989 )
Net loss $ (1,602,783 ) $ (431,091 ) $ (2,251,780 ) $ (457,549 )

Other comprehensive loss:
Designated derivatives, fair value adjustments (9,396 ) —
(9,396 ) —
Total other comprehensive loss (9,396 ) —
(9,396 ) —
Comprehensive loss $ (1,612,179 ) $ (431,091 ) $ (2,261,176 ) $ (457,549 )

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - (continued)

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Class A common stock:
Net loss attributable to Class A common stockholders	$	(88	)	$	(170	)
Net loss per Class A share, basic and diluted	$	(0.14	)	$	(0.27	)
Weighted average Class A common shares outstanding, basic and diluted		629			635

Class T common stock:
Net loss attributable to Class T common stockholders	$	(130	)	$	(325	)
Net loss per Class T share, basic and diluted	$	(0.12	)	$	(0.29	)
Weighted average Class T common shares outstanding, basic and diluted		1,118			1,114

Class R common stock:
Net loss attributable to Class R common stockholders	$	—		$	(2,200	)
Net loss per Class R share, basic and diluted	$	—		$	(0.28	)
Weighted average Class R common shares outstanding, basic and diluted		—			7,937

Class I common stock:
Net loss attributable to Class I common stockholders	$	(1,452	)	$	(90	)
Net loss per Class I share, basic and diluted	$	(0.14	)	$	(0.24	)
Weighted average Class I common shares outstanding, basic and diluted		10,355			380

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(in thousands)

(unaudited)

	Common Stock																			Convertible Stock
	Shares											Amount
	A Shares			T Shares			R Shares		I Shares			A Shares		T Shares		R Shares		I Shares		Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance, at January 1, 2020		629			1,115			—		10,327		$	6	$	11	$	—	$	103		50	$	1	$	103,725		$	(32	)	$	(31,939	)	$	71,875
True-up of prior year cash distributions declared		—			—			—		—			—		—		—		—		—		—		—			—			(31	)		(31	)
Common stock issued through distribution reinvestment plan		2			10			—		82			—		—		—		1		—		—		856			—			—			857
Other comprehensive income		—			—			—		—			—		—		—		—		—		—		—			6			—			6
Net loss		—			—			—		—			—		—		—		—		—		—		—			—			(1,670	)		(1,670	)
Share redemptions		(5	)		(3	)		—		(2	)		—		—		—		—		—		—		(101	)		—			—			(101	)
Balance, at March 31, 2020		626			1,122			—		10,407		$	6	$	11	$	—	$	104		50	$	1	$	104,480		$	(26	)	$	(33,640	)	$	70,936

Balance, at January 1, 2019	634	1,111	7,182	330	$	6	$	11	$	72	$	3	50	$	1	$	77,896		$	(40	)	$	(15,459	)	$	62,490
Issuance of common stock	—	—	1,510	126		—		—		15		2	—		—		15,777			—			—			15,794
Offering costs	—	—	—	—		—		—		—		—	—		—		(1,876	)		—			—			(1,876	)
Cash distributions declared	—	—	—	—		—		—		—		—	—		—		—			—			(1,258	)		(1,258	)
Common stock issued through distribution reinvestment plan	3	8	52	—		—		—		—		—	—		—		577			—			—			577
Other comprehensive loss	—	—	—	—		—		—		—		—	—		—		—			(2	)		—			(2	)
Net loss	—	—	—	—		—		—		—		—	—		—		—			—			(2,785	)		(2,785	)
Balance, at March 31, 2019	637	1,119	8,744	456	$	6	$	11	$	87	$	5	50	$	1	$	92,374		$	(42	)	$	(19,502	)	$	72,940

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net loss	$	(1,670	)	$	(2,785	)
Adjustment to reconcile net loss to net cash used in operating activities:
Loss on disposal of assets		129			87
Depreciation and amortization		2,360			2,237
Amortization of deferred financing costs		74			59
Net gain on disposition of property		(530	)		—
Realized loss on change in fair value of interest rate cap		6			1
Changes in operating assets and liabilities:
Tenant receivables, net		(8	)		7
Due from related parties		(2	)		3
Prepaid expenses and other assets		(341	)		(155	)
Due to related parties		(1,901	)		(408	)
Accounts payable and accrued expenses		37			645
Tenant prepayments		(37	)		53
Security deposits		22			1
Net cash used in operating activities		(1,861	)		(255	)

Cash flows from investing activities:
Proceeds from disposal of properties, net of closing costs		1,340			—
Property acquisition		—			(7,286	)
Capital expenditures		(1,904	)		(1,130	)
Net cash used in investing activities		(564	)		(8,416	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		—			15,894
Redemptions of common stock		(101	)		—
Payments on borrowings		(105	)		(9	)
Payment of deferred financing costs		—			(269	)
Distributions paid on common stock		(761	)		(493	)
Net cash (used in) provided by financing activities		(967	)		15,123

Net (decrease) increase in cash and restricted cash		(3,392	)		6,452
Cash and restricted cash at beginning of period		30,346			33,711
Cash and restricted cash at end of period	$	26,954		$	40,163

Reconciliation to consolidated balance sheets:
Cash	$	25,193		$	38,702
Restricted Cash		1,761			1,461
Cash and restricted cash at end of period	$	26,954		$	40,163

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Class A common stock:
Net loss attributable to Class A common stockholders $ (524,863 ) $ (428,286 ) $ (952,550 ) $ (455,028 )
Net loss per Class A share, basic and diluted $ (0.85 ) $ (1.72 ) $ (1.76 ) $ (4.60 )
Weighted average Class A common shares outstanding, basic and diluted 616,733
249,051
540,022
98,905

Class T common stock:
Net loss attributable to Class T common stockholders $ (935,090 ) $ (2,805 ) $ (1,214,317 ) $ (2,521 )
Net loss per Class T share, basic and diluted $ (0.87 ) $ (1.72 ) $ (1.78 ) $ (4.60 )
Weighted average Class T common shares outstanding, basic and diluted 1,068,753
1,631
682,945
548

Class R common stock:
Net loss attributable to Class R common stockholders $ (130,032 ) $ —
$ (77,304 ) $ —
Net loss per Class R share, basic and diluted $ (0.77 ) $ —
$ (1.37 ) $ —
Weighted average Class R common shares outstanding, basic and diluted 167,935
—
56,594
—

Class I common stock:
Net loss attributable to Class I common stockholders $ (12,798 ) $ —
$ (7,609 ) $ —
Net loss per Class I share, basic and diluted $ (0.77 ) $ —
$ (1.37 ) $ —
Weighted average Class I common shares outstanding, basic and diluted 16,527
—
5,570
—

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

~~CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY~~

~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017~~

~~(unaudited)~~

Common Stock Convertible Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total
A Shares T Shares R Shares I Shares A Shares T Shares R Shares I Shares Shares Amount
Shares Amount
Balance, at January 1, 2017 384,195
114,037
—
—
$ 3,842
$ 1,140
$ —
$ —
50,000
$ 500
$ 4,380,126
$ —
$ (841,115 ) $ 3,544,493
Issuance of common stock 219,259
936,581
616,508
28,557
2,192
9,366
6,165
286
—
—
17,146,464
—
—
17,164,473
Offering costs —
—
—
—
—
—
—
—
—
—
(1,971,106 ) —
—
(1,971,106 )
Cash distributions declared —
—
—
—
—
—
—
—
—
—
—
—
(300,541 ) (300,541 )
Stock dividends 10,956
14,993
—
—
110
150
—
—
—
—
251,307
—
(251,567 ) —
Common stock issued through distribution reinvestment plan 4,159
7,618
678
45
42
76
7
—
—
—
115,649
—
—
115,774
Other comprehensive loss —
—
—
—
—
—
—
—
—
—
—
(9,396 ) —
(9,396 )
Net loss —
—
—
—
—
—
—
—
—
—
—
—
(2,251,780 ) (2,251,780 )
Balance, at September 30, 2017 618,569
1,073,229
617,186
28,602
$ 6,186
$ 10,732
$ 6,172
$ 286
50,000
$ 500
$ 19,922,440
$ (9,396 ) $ (3,645,003 ) $ 16,291,917

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

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~CONSOLIDATED STATEMENT OF CASH FLOWS~~

~~(unaudited)~~

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (2,251,780 ) $ (457,549 )
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Loss on disposal of assets 185,114
—
Depreciation and amortization 394,050
10,376
Amortization of deferred financing costs 5,390
651
Changes in operating assets and liabilities:
Restricted cash (38,443 ) —
Tenant receivable, net 67
(3,800 )
Due from related parties 4,971
(1,489 )
Prepaid expenses and other assets 285,774
(241,402 )
Due to related parties 982,779
494,154
Accounts payable and accrued expenses 13,040
204,886
Tenant prepayments 16,912
—
Security deposits 7,222
—
Net cash (used in) provided by operating activities (394,904 ) 5,827

Cash flows from investing activities:
Property acquisitions (7,591,828 ) (2,493,672 )
Capital expenditures (22,965 ) (1,979 )
Restricted cash (6,056 ) —
Net cash used in investing activities (7,620,849 ) (2,495,651 )

Cash flows from financing activities:
Net proceeds from issuance of common stock 15,719,233
2,254,961
Proceeds from borrowings —
555,000
Payments on borrowings (22,091 ) (250,000 )
Distributions paid on common stock (118,380 ) —
Net cash provided by financing activities 15,578,762
2,559,961

Net increase in cash 7,563,009
70,137
Cash at beginning of period 3,351,536
200,000
Cash at end of period $ 10,914,545
$ 270,137

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

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

NOTE 1 - NATURE OF BUSINESS AND OPERATIONS

Resource Apartment REIT III, Inc. (the "Company") was organized in Maryland on July 15, 2015. The Company islaunched an initial public offering on April 28, 2016 pursuant to which it offered up to $1.1 billion of shares of its common stock, consisting of up to $1.0 billion of shares in its primary offering and up to $100.0 million of shares pursuant to its distribution reinvestment plan (the "DRIP").

Through July 2, 2017, the Company offered shares of Class A and Class T common stock ~~at prices of $10.00 per share~~in the primary and ~~$9.47 per share, respectively.~~DRIP offering. As of July 3, 2017, the Company ceased offering shares of Class A and Class T common stock in its primary offering and commenced offering shares of Class R and Class I common stock ~~at prices of $9.52 per share~~in both the primary and ~~$9.13 per share, respectively. The initial offering price for shares offered pursuant to the~~ DRIP ~~is $9.60 per share for Class A, $9.09 per share for Class T, $9.14 per share for Class R and $8.90 per share for Class I.~~ offering.

The Company ~~will determine its net asset value ("NAV") per share on a date no later than June 30, 2018 (the "NAV Pricing Date"). Commencing on the NAV Pricing Date, if the primary~~ceased offering ~~is ongoing, the Company will offer Class R and Class I~~ shares in the primary offering ~~at a price equal~~on October 31, 2019 and ceased processing subscriptions in the offering on November 15, 2019. The Company continues to the NAV per share for Class R and Class I shares, respectively, plus applicable selling commissions and dealer manager fees, and pursuant to the DRIP at a price equal to 96% of the new primary offering price. If the Company’s primary offering is not ongoing on the NAV Pricing Date, or on the date of any subsequent NAV pricing, it will offer Class A, Class T ~~Class R~~ and Class I shares pursuant to the DRIP at a price equal to 96% of the most recently determined NAV per share. The Company will update its NAV at least annually following the NAV Pricing Date and further adjust the per share price in the primary offering and DRIP accordingly. The Company qualifies as an emerging growth company. DRIP.

As of ~~September 30, 2017,~~March 31, 2020, the Company has raised ~~aggregated~~aggregate gross primary offering proceeds of approximately ~~$21.9~~$111.4 million from the sale of 601,207 Class A shares, 1,049,996 Class T shares, ~~616,508~~9,356,067 Class R shares and ~~28,557~~624,325 Class I shares of common stock.

On June ~~29, 2016,~~27, 2018, March 21, 2019, and March 19, 2020, the board of directors of the Company ~~satisfied~~determined an estimated net asset value (“NAV”) per share of the ~~$2.0 million minimum~~common stock of $9.05, $9.12, and $9.01, respectively, based on the estimated market value of the portfolio of investments of the Company as of March 31, 2018, December 31, 2018, and December 31, 2019, respectively. Based on the estimated NAV per share, the board of directors established updated offering ~~amount~~prices for ~~its~~shares of Class R and Class I common stock to be sold in the primary portion of the initial public offering ~~excluding shares purchased~~ by ~~residents~~adding certain offering costs to the estimated NAV per share. Pursuant to the terms of ~~Pennsylvania, New York and Washington. As a result,~~ the ~~Company broke escrow and issued~~DRIP, following the establishment of an estimated NAV per share, shares of common stock inare sold at the ~~offering.~~ most recent estimated NAV per share.

The ~~Company broke escrow in New York on October 11, 2016 and in Washington on September 18, 2017. Having raised~~prices per share for each class of shares of the ~~minimum offerings, the offering proceeds~~Company's common stock through March 31, 2020 were released by the escrow agent to the Company and available for acquisition of properties and other purposes. Subscription payments received from residents of Pennsylvania will continue to be held in escrow until the Company has received aggregate subscriptions of at least $50.0 million.as follows:

	Class A		Class T		Class R		Class I
Primary Offering Price
Inception through July 2, 2017	$	10.00	$	9.47	n/a		n/a
July 3, 2017 through July 1, 2018	n/a		n/a		$	9.52	$	9.13
July 2, 2018 through March 24, 2019	n/a		n/a		$	9.68	$	9.28
March 25, 2019 through October 31, 2019	n/a		n/a		$	9.75	$	9.35

Offering Price under the DRIP
Inception through July 2, 2017	$	9.60	$	9.09	n/a		n/a
July 3, 2017 through July 1, 2018	$	9.60	$	9.09	$	9.14	$	8.90
July 2, 2018 through March 24, 2019 ⁽¹⁾	$	9.05	$	9.05	$	9.05	$	9.05
March 25, 2019 through March 30, 2020 ⁽¹⁾	$	9.12	$	9.12	$	9.12	$	9.12
March 31, 2020 ⁽¹⁾	$	9.01	$	9.01	n/a		$	9.01

(1)	Shares of common stock pursuant to the DRIP are sold at the Company’s most recent estimated NAV per share.

Resource REIT Advisor, LLC ~~(formerly known as Resource Apartment Advisor III, LLC)~~ (the "Advisor"), ~~which is~~ an indirect wholly-owned subsidiary of Resource America, Inc. ("RAI"), contributed $200,000 to the Company in exchange for 20,000 shares of Class A common stock on August 10, 2015. On June 29, 2016, RAI purchased 222,222 shares of Class A common stock for $2.0 million in the offering. On August 5, 2016, the Advisor exchanged 5,000 shares of ~~Class A~~ common stock for 50,000 shares of convertible stock. Under limited circumstances, these shares may be converted into shares of the Company's Class A common stock satisfying ~~the Company's~~its obligation to pay the Advisor an incentive fee and diluting ~~the~~its other stockholders’ interest in the Company.

RAI is a wholly-owned subsidiary of C-III Capital Partners, LLC ("C-III"), a leading commercial real estate investment management and services company engaged in a broad range of activities. C-III controls the Advisor, Resource

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

Securities LLC ("Resource Securities"), the Company's dealer manager, and Resource Apartment Manager III, LLC (the "Manager"), the Company's property manager. C-III also controls all of the shares of the Company's common stock held by RAI and the Advisor.

The Company’s objective is to take advantage of ~~Resource Real Estate, Inc.’s (the "Sponsor")~~the multifamily investing and lending platforms of Resource Real Estate, LLC (its "Sponsor") to invest in apartment communities in order to provide the investor with growing cash flow and increasing asset values. The Company ~~intends to acquire~~has acquired underperforming apartments which it will renovate and stabilize in order to increase rents. ~~To a lesser extent, the Company will also seek to originate and acquire commercial real estate debt secured by apartments having the same characteristics.~~

The Company believes multiple opportunities exist within the apartment industry today and will continue to present themselves over the next few years to real estate investors who possess the following characteristics: (i) extensive experience in multifamily investing, (ii) strong management platforms specializing in operational and financial performance optimization, (iii) financial sophistication allowing them to benefit from complex opportunities, and (iv) the overall scale and breadth of a national real estate platform in both the equity and debt markets. At September 30, 2017, the Company owned two apartment properties located in Alexandria, Virginia and Jacksonville, Florida.

~~The Company intends to elect and qualify~~elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ending

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

December 31, 2017. As such, to maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its net income (excluding net capital gains) to its stockholders as well as comply with certain other requirements. Accordingly, ~~once qualified as a REIT,~~ the Company generally will not be subject to U.S. federal income taxes to the extent that it annually distributes all of its REIT taxable income to its stockholders. The Company also ~~intends to operate~~operates its business in a manner that will permit it to maintain its exemption from registration under the Investment Company Act of 1940, as amended.

The consolidated financial statements and the information and tables contained in the notes thereto 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 U.S. Securities and Exchange Commission ("SEC"), pertaining to interim financial statements in Form 10-Q. 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 consolidated balance sheet as of December 31, ~~2016~~2019 was derived from the audited consolidated financial statements as of and for the year ended, December 31, ~~2016.~~2019. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. The results of operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 may not necessarily be indicative of the results of operations for the full year ending December 31, ~~2017.~~

2020.

COVID-19 Pandemic

Currently, one of the most significant risks and uncertainties facing the Company and the real estate industry generally is the potential adverse effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See Note 15, “Subsequent Events” for a further discussion on the COVID-19 pandemic.

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as follows:


Subsidiaries
~~Subsidiary~~	Number of Units		Property Location
Resource Apartment REIT III Holdings, LLC	N/A			N/A
Resource Apartment REIT III OP, LP	N/A			N/A
RRE Payne Place Holdings, LLC	11 N/A⁽¹⁾		~~Alexandria, VA~~	N/A⁽¹⁾
RRE Bay Club Holdings, LLC	~~220~~	220		Jacksonville, FL
RRE Tramore Village Holdings, LLC	~~231~~	324		Austell, GA
RRE Matthews Reserve Holdings, LLC		212		Matthews, NC
RRE Kensington Holdings, LLC		204		Riverview, FL
RRE Wimbledon Oaks Holdings, LLC		248		Arlington, TX
RRE Summit Holdings, LLC		141		Alexandria, VA
		1,349

N/A - Not applicable

(1) Property was sold on March 5, 2020.

All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

The Company does not evaluate performance on a relationship-specific or transactional basis and does not distinguish

its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the

Company believes it has a single operating segment for reporting purposes in accordance with GAAP.

Concentration of Risk

At March 31, 2020, the Company's real estate investments in Florida, Georgia, and Virginia represented 28%, 22%, and 19%, respectively, of the net book value of its rental property assets. Any adverse economic or real estate developments in these markets, such as the impact of the COVID-19 pandemic, business layoffs or downsizing, industry slowdowns, relocations of businesses, adverse weather events, changing demographics and other factors, or any decrease in demand for multifamily rentals resulting from the local business climate, could adversely affect the Company's operating results and its ability to make distributions to stockholders.

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

~~(Back~~

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 "Financial Instruments - Credit Losses", which requires measurement and recognition of expected credit losses for financial assets held. On January 1, 2020, the Company adopted ASU No. 2016-13 and the adoption had no impact on its consolidated financial statements and disclosures since the Company did not have instruments subject to ~~Index)~~

~~(Back~~this guidance at the adoption or at March 31, 2020.

In January 2017, FASB issued ASU No. 2017-04, "Intangibles- Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment", which alters the current goodwill impairment testing procedures. On January 1, 2020, the Company adopted ASU No. 2017-04 and the adoption did not have a significant impact on its consolidated financial statements due to ~~Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~the fact that the Company did not have any goodwill subject to this guidance at the adoption or at March 31, 2020.

In August 2018, FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - ~~Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

Changes to the Disclosure Requirements for Fair Value Measurement”. This update removes, modifies and adds certain disclosure requirements in the FASB Accounting Standards Codification ("ASC") 820, “Fair Value Measurement”. On January 1, 2020, the Company adopted ASU No. 2018-13 and the adoption did not have a significant impact on its consolidated financial statements due to the fact there were no required changes to the Company’s disclosures.

In November 2018, FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. On January 1, 2020, the Company adopted ASU No. 2018-19 and the adoption did not have a material effect on its consolidated financial statements and disclosures.

In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Real Estate Investments

The Company records acquired real estate at fair value on their respective acquisition dates. The Company considers the period of future benefit of an asset to determine its appropriate useful life and depreciates the asset using the straight line method. The Company anticipates the estimated useful lives of its assets by class as follows:

Buildings		27.5 years

~~Buildings~~	~~27.5 years~~
Building improvements	~~3.0~~	5.0 to 27.5 years
Furniture, fixtures, and equipment		3.0 to 5.0 years
Tenant improvements		Shorter of lease term or expected useful life
Lease intangibles		Weighted average remaining term of related ~~lease~~leases

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

Improvements and replacements in excess of $1,000 are capitalized when they have a useful life greater than or equal to one year. The Manager earns a construction management fee of ~~5.0%~~5% of actual aggregate costs to construct improvements, or to repair, rehab or reconstruct a property. These costs are capitalized along with the related asset. Costs of repairs and maintenance are expensed as incurred.

Impairment of Long Lived Assets

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. The review also considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.

If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income. As of March 31, 2020, the Company evaluated whether the global economic disruption caused by the COVID-19 pandemic was an impairment indicator. The Company examined a number of factors and concluded that there was no indication that the carrying value of the Company’s investments in real estate might not be recoverable as of March 31, 2020. There were no impairment losses recorded on long lived assets during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~

~~Loans Held for Investment~~

The Company records acquired real estate loans at cost and reviews them for potential impairment at each balance sheet date. A loan receivable is considered impaired when it becomes probable, based on current information, that the Company will be unable to collect all amounts due according to the loan’s contractual terms. The amount of impairment, if any, is measured by comparing the recorded amount of the loan to the present value of the expected cash flows or the fair value of the collateral. If a loan is deemed to be impaired, the Company will record a reserve for loan losses through a charge to income for any shortfall. Failure to recognize impairment would result in the overstatement of the carrying values of the Company’s real estate loans receivable and an overstatement of the Company’s net income.

The Company may acquire real estate loans at a discount due to credit quality. Revenues from these loans are recorded under the effective interest method. Under this method an effective interest rate ("EIR") is applied to the cost basis of the real estate loan receivable. The EIR that is calculated when the real estate loan is acquired remains constant and is the basis for subsequent impairment testing and income recognition. If the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate loan receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the real estate loan receivable has been fully recovered.

Interest income from loans receivable will be recognized based on the contractual terms of the debt instrument. Fees related to any buydown of the interest rate will be deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. Closing costs related to the purchase of a loan receivable will be amortized over the term of the loan and accreted as an adjustment against interest income.

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

2019.

Allocation of Purchase Price of Acquired Assets

Acquisitions that do not meet the definition of a business under ASU No, 2017-01 are accounted for as asset acquisitions. In most cases, the Company believes acquisitions of real estate will no longer be considered a business combination as in most cases substantially all of the fair value is concentrated in a single identifiable asset or group of tangible assets that are physically attached to each other (land and building). However, if the Company determines that substantially all of the fair value of the gross assets acquired is not concentrated in either a single identifiable asset or in a group of similar identifiable assets, the Company will then perform an assessment to determine whether the set is a business by using the framework outlined in the ASU. If the Company determines that the acquired asset is not a business, the Company will allocate the cost of the acquisition including transaction costs to the assets acquired or liabilities assumed based on their related fair value.

Upon the acquisition of real properties, the Company allocates the purchase price to tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The Company amortizes any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases, which the Company expects will range from one month to one year.

The Company measures the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if vacant. Management’s estimates of value are ~~expected to be made using methods similar to those used~~determined by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered ~~by management~~ in ~~its~~the analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management ~~also~~ includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.

The Company amortizes the value of in-place leases to expense over the ~~initial~~weighted average remaining term of the ~~respective~~underlying leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. ~~Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.~~

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the fair value of these assets and liabilities, which could impact the amount of the Company’s reported net income. ~~These estimates are subject to change until all information is finalized, which is generally within one year of the acquisition date.~~

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease and includes amounts expected to be received in later years in deferred rents. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

lease. The future minimum rental payments to be received from noncancelable operating leases for residential rental properties are approximately ~~$1.8~~$10.8 million and ~~$27,158~~approximately $530,000 for the 12 month periods ending ~~September 30, 2018~~March 31, 2021 and ~~2019,~~2022, respectively, and none thereafter.

Revenue is primarily derived from the rental of residential housing units ~~however, included within rental~~for which the Company receives minimum rents and utility reimbursements pursuant to underlying tenant lease agreements. The Company also receives other ancillary fees for administration of leases, late payments, amenities, and revenue sharing arrangements for cable income from contracts with cable providers at the Company's properties. A performance obligation is other income such as pet fees, parking fees, and late fees, as well as property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs.a promise in a contract to transfer a distinct good or service to a customer. The Company records the utility reimbursement income and ancillary charges in the period when the performance obligation is completed, either at a point in ~~which they are earned~~time or ~~received and records~~on a monthly basis as the reimbursements in the period in which the related expenses are incurred. Total other income included within rental income was $35,162 and $0 for the three months ended September 30, 2017 and 2016, respectively. Total other income included within rental income was $42,957 and $0 for the nine months ended September 30, 2017 and 2016, respectively.

service is utilized.

Tenant Receivables

Tenant receivables are stated in the consolidated financial statements as 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 Company determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history, the tenants’ current ability to pay their obligations to the Company, and the condition of the general economy and the industry as a whole. The Company writes off receivables when they become uncollectible. At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, there were no~~2019, the Company recorded $1,501 and $3,927 of allowances for uncollectible ~~receivables.~~

receivables, respectively.

Income Taxes

The Company ~~intends to elect and qualify~~elected to be taxed as a REIT commencing with its taxable year ending December 31, 2017. ~~Accordingly, once qualified as~~As a REIT, the Company will generally not be subject to corporate U.S. federal or state income tax to the extent that it makes qualifying distributions to its stockholders, and provided it satisfies, on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution and stock ownership tests. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S. federal, state and local income taxes and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year in which it lost its REIT qualification. Accordingly, the Company’s failure to qualify as a REIT could have a material adverse impact on its results of operations and amounts available for distribution to its stockholders.

The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements. Taxable income, generally, differs from net

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

The Company may elect to treat certain of its subsidiaries as a taxable REIT ~~subsidiaries~~subsidiary ("~~TRSs"~~TRS"). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A TRS is subject to U.S. federal, state and local corporate income taxes. At ~~September 30, 2017,~~March 31, 2020 and December 31, 2019, the Company did not ~~have~~treat any of its subsidiaries as a TRS.

While a TRS may generate net income, a TRS can declare dividends to the Company which will be included in the Company’s taxable income and necessitate a distribution to its stockholders. Conversely, if the Company retains earnings at a TRS level, no distribution is required and the Company can increase book equity of the consolidated entity.

The Company is subject to examination by the U.S. Internal Revenue Service and by the taxing authorities in other states in which the Company has significant business operations. The Company is not currently undergoing any examinations by taxing authorities. The Company is not subject to IRS examination for the tax return years 2015 and prior.

Earnings Per Share

Basic earnings per share are computed by dividing net income (loss) attributable to common stockholders for each period by the weighted-average common shares outstanding during the period for each share class. Diluted net income (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. None of the 50,000 shares of convertible stock (discussed in Note 10) are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of March 31, 2020 (were such date to represent the end of the contingency period). For the purposes of calculating earnings per share, all common shares and per share information in the financial statements have been retroactively adjusted for the effect of any stock dividends and stock splits.

~~(Back~~ For the three months ended March 31, 2020 and 2019, common shares potentially issuable to ~~Index)~~

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

settle distributions payable are excluded from the calculation of diluted earnings per share calculations, as their inclusion would be anti-dilutive.

In accordance with ~~the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") No.~~ASC 260-10-45, "Earnings Per Share", the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on their relative percentage of each class of shares to the total number of outstanding shares. The Company did not have any participating securities outstanding other than Class A common stock, Class T common stock, Class R common stock and Class I common stock during the periods presented (see Note 10).

Organization and Offering Costs

Organization and offering costs (other than selling commissions, ~~and~~ dealer manager fees, and distribution and shareholder servicing fees) of the Company ~~are~~were initially ~~being~~ paid by the Advisor on behalf of the Company.

Pursuant to the ~~advisory agreement~~Advisory Agreement between the Company and the Advisor, the Company iswas obligated to reimburse the Advisor for organization and other offering costs paid by the Advisor on behalf of the Company, up to an amount equal to 4.0% of gross offering proceeds as of the termination of the initial public offering ifas the Company ~~raises~~raised less than ~~$500~~$500.0 million in the primary portion of the initial public offering.

The Advisory Agreement provides that the Company is not responsible for the repayment of any unreimbursed organization and offering ~~and 2.5% of gross offering proceeds as of~~expenses or operational expenses incurred by the Advisor on the Company’s behalf through March 31, 2018 until after the termination of ~~the initial public offering if the Company raises $500 million or more in~~ the primary portion of the ~~initial public offering.~~

Through September 30, 2017, the Company has charged $501,303 to equity for the payment of offering costs consisting of accounting, advertising, allocated payroll, due diligence, marketing, legal, printing and similar costs. At September 30, 2017, the Advisor has advanced approximately $5.4 million of these costs on behalf of the Company, of which approximately $4.9 million has been deferred at September 30, 2017. A portion of deferred offering costs will be charged to equity upon the sale of each share of common stock sold under the public offering. Such deferred costs will only become a liability of the Advisor to the extent that organization and offering costs incurred by us exceed 4% of the gross proceeds of theCompany’s ongoing initial public offering. ~~However, if the Company raises the maximum offering amount in the primary offering,~~Additionally, such unreimbursed organization and offering expenses ~~(excluding selling commissions,~~or operational expenses incurred or paid by the ~~dealer manager fee and~~Advisor on the ~~distribution and stockholder servicing fee)~~Company’s behalf through March 31, 2018 are ~~estimated~~required to be ~~approximately 1.0%~~reimbursed ratably starting after the termination of the ~~gross proceeds~~primary portion of the Company’s ongoing initial public ~~offering. When recorded by~~offering through April 30, 2021 for organization and offering expenses and through April 30, 2020 for operating expenses. These payments began on November 1, 2019. During the three months ended March 31, 2020, the Company repaid $1.9 million to the Advisor for both deferred organization and offering and operational expenses.

Organization costs, ~~are expensed as incurred,~~ which ~~include~~included all expenses incurred by the Company in connection with its formation, including but not limited to legal fees and other costs to ~~incorporate. There can be no assurance that the Company's plans to raise capital will be successful.~~incorporate, were expensed as incurred. Prior to the Company breaking escrow,

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

the Advisor incurred ~~$104,266~~approximately $104,000 of formation and other operating expenses on the Company's behalf, which will not be reimbursed to the Advisor.

Outstanding Class T shares issued in the Company's primary offering ~~are~~were subject to ~~a 1%~~an annual distribution and shareholder servicing fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018) for up to five years from the date on which such ~~shares were~~share is issued. ~~The~~Effective November 1, 2019, the Company ~~will cease paying~~ceased accruing the distribution and shareholder servicing fee on each Class T share ~~prior to~~as the ~~fifth anniversary of its issuance on the earliest of the following, should any of these events occur: (i) the date at which, in the aggregate,~~Company had reached certain underwriting compensation from all sources equals 10% of the gross proceeds from the Company's primary offering (i.e., excluding proceeds from sales pursuant to the DRIP); (ii) the date on which the Company lists its common stock on a national securities exchange; and (iii) the date of a merger or other extraordinary transaction in which the Company is a party and in which the common stock is exchanged for cash or other securities. The Company cannot predict if or when any of these events will occur.

limits.

Outstanding Class R shares issued in the Company's primary offering ~~are~~were also subject to ~~a 1%~~an annual distribution and shareholder servicing ~~fee. The~~fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018). Effective November 1, 2019, following the termination of the initial public offering, each of the outstanding Class R shares of common stock automatically converted into a Class I share of common stock pursuant to the terms of the Articles Supplementary for the Class R shares and the Company ~~will cease paying~~ceased accruing the distribution and shareholder servicing fee with respect to Class R shares ~~held in~~as the Company no longer had any ~~particular account, and those~~ Class R shares will convert into a number of Class I shares determined by multiplying each Class R share to be converted by the applicable "Conversion Rate," on the earlier of (i) the date after the termination of the primary offering at which, in the aggregate, underwriting compensation from all sources equals 10% of the gross proceeds from its primary offering; (ii) a listing of the Class I shares on a national securities exchange; (iii) a merger or consolidation of the company with or into another entity, or the sale or other disposition of all or substantially all of its assets; and (iv) the end of the month in which the total underwriting compensation (which consists of selling commissions, dealer manager fees and distribution and shareholder servicing fees) paid with respect to such Class R shares purchased in a primary offering is not less than 8.5% (or a lower limit, provided that, in the case of a lower limit, the agreement between the Resource Securities and the broker-dealer in effect at the time Class R shares were first issued to such account sets forth the lower limit and Resource Securities advises the Company's transfer agent of the lower limit in writing) of the gross offering price of those Class R shares purchased in such primary offering (excluding shares purchased through its distribution reinvestment plan).

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

outstanding.

The Company ~~records~~initially recorded distribution and shareholder servicing fees as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum fees payable in relation to the Class T and Class R shares on the date the shares ~~are~~were issued. The liability ~~will be~~was relieved over time, as the fees ~~are~~were paid to the Dealer ~~Manager, or adjusted if~~Manager. Upon termination of the offering, the fees ~~are~~were no longer payable ~~pursuant to the conditions~~as described above. For issued Class T shares, the Company has accrued an estimate of the total distribution and shareholder servicing fee of $497,173 for the full five year period at September 30, 2017 based on a total of 5% of the gross proceeds from all Class T shares sold, of which the Company paid $40,491 cumulatively through September 30, 2017. For issued Class R shares, the Company has accrued an estimate of the total distribution and shareholder servicing fee of $176,075 at September 30, 2017 based on a total of 3% of the gross proceeds from all Class R shares sold, of which the Company paid $713 cumulatively through September 30, 2017. The remaining payable of $632,044 is included in due to related parties on the consolidated balance sheets.

~~Reclassifications~~

Certain amounts in the prior year financial statements have been reclassified to conform to the current-year presentation. The impact of the reclassifications made to prior year amounts are not material and did not affect net loss.

~~Adoption of New Accounting Standards~~

In November 2016, FASB issued Accounting Standards Update ("ASU") No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which provides guidance on the classification of restricted cash in the statement of cash flows. On July 1, 2017, the Company adopted ASU No. 2016-18above and the ~~adoption of ASU No. 2016-18 did not have a material effect on its consolidated financial statements and disclosures.~~

~~Accounting Standards Issued But Not Yet Effective~~

In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers", which will replace most existing revenue recognition guidance in GAAP. The core principle of ASU No. 2014-09 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. ASU No. 2014-09 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. ASU No. 2014-09 will be effective for the Company beginning January 1, 2018, including interim periods in 2018, and allows for both retrospective and prospective methods of adoption. In accordance with the Company’s plan for the adoption of ASU 2014-09, the Company has identified revenue streams and is performing an in-depth review to identify the related performance obligations and to evaluate the impact on the Company’s consolidated financial statements and internal accounting processes and controls. As the majority of the Company’s revenue is derived from lease contracts, the Company does not expect that the adoption of ASU 2014-09 or related amendments and modifications issued by the FASB will have a material impact on its consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, "Leases", which is intended to improve financial reporting about leasing transactions and requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In September 2017, the FASB issued ASU 2017-13, "Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)", which provides additional implementation guidance on the previously issued ASU No. 2016-02 Leases (Topic 842). ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is continuing to evaluate this guidance, however, the Company expects that its operating leases where it is the lessor will be accounted for on its balance sheet similar to its current accounting with the underlying leased asset recognized as real estate. The Company expects that executory costs and certain other non-lease components will need to be accounted for separately from the lease component of the lease with the lease component continuing to be recognized on a straight-line basis over the lease term and the executory costs and certain other non-lease components being accounted for under the new revenue recognition guidance in ASU 2014-09. For leases in which the Company is the lessee, primarily consisting of office equipment leases, the Company expects to recognize a right-of-use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and to interest expense and the right-of-use asset being amortized to expense on a straight-line basis over the term of the lease.

In June 2016, FASB issued ASU No. 2016-03 "Financial Instruments - Credit Losses", which requires measurement and recognition of expected credit losses for financial assets held. The standard update is effective for the Company beginning January 1, 2019. The Company is continuing to evaluate this guidance; however, it does not expect the adoption of ASU No. 2016-03 to have a significant impact on its consolidated financial statements.

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

In August 2016, FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which addresses eight specific cash flow issues with the objective of reducing existing diversity in practice. The guidance is effective for the Company as of January 1, 2018. Early application is permitted. The adoption of the new requirements is not expected to have a material impact on the Company's consolidated statement of cash flows.

In January 2017, FASB issued ASU No. 2017-01, "Business Combinations (Topic 850): Clarifying the Definition of Business," which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. ASU No. 2017-01 is effective for the Company beginning January 1, 2018 but early adoption is allowed. The Company is currently evaluating the impact the adoption of ASU No. 2017-01 may have on its consolidated financial statements.

In January 2017, FASB issued ASU No. 2017-04, "Intangibles- Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment", which alters the current goodwill impairment testing procedures. ASU No. 2017-04 will be effective for the Company beginning December 15, 2019. Early application is permitted. The Company is evaluating this guidance and assessing the impact of this guidance on its consolidated financial statements.

In August 2017, FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The update to the standard is effective for the Company on January 1, 2019, with early adoption permitted in any interim period. The Company is continuing to evaluate this guidance and assessing the impact of this guidance on its consolidated financial statements.

was adjusted accordingly.

NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION

The following table presents the Company's supplemental cash flow ~~information:~~information (in thousands):

	Three Months Ended March 31,
	2020		2019
Non-cash operating, financing and investing activities:
Offering costs payable to related parties	$	—	$	324
Distribution and shareholder servicing fee payable to related parties		—		240
Cash distributions on common stock declared but not yet paid		—		1,225
Stock issued from distribution reinvestment plan		857		577
Subscriptions receivable		—		262
Escrow deposits funded directly by mortgage notes payable		—		350

Non-cash activity related to acquisitions:
Mortgage notes payable used to acquire real properties		—		18,060

Non-cash activity related to sales:
Mortgage notes payable settled directly with proceeds from sale of rental property		1,519		—

Cash paid during the period for:
Interest	$	1,476	$	1,133

Nine Months Ended September 30,
2017 2016
Non-cash operating, financing and investing activities:
Offering costs payable $ 2,474,799
$ 2,324,925
Cash distributions on common stock declared but not yet paid 91,561
—
Stock issued from distribution reinvestment plan 115,774
—
Stock dividend issued 251,567
—
Subscriptions receivable 676,851
—
Exchange of common stock for convertible stock —
500
Deferred financing costs and escrow deposits funded directly by mortgage notes payable 454,918
—

Non-cash activity related to acquisitions:
Mortgage notes payable used to acquire real property 21,520,000
—

Cash paid during the year for:
Interest $ 92,819
$ —

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

NOTE 4 - RESTRICTED CASH

Restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance, and capital improvements. The following table presents a summary of the components of the Company's restricted ~~cash:~~cash (in thousands):

	March 31, 2020		December 31, 2019
Real estate taxes	$	944	$	979
Insurance		151		179
Capital improvements		666		758
Total	$	1,761	$	1,916

September 30, 2017 December 31, 2016
Real Estate Taxes $ 226,529
$ 7,733
Insurance 67,031
—
Capital Improvements 133,556
—
Total $ 427,116
$ 7,733

In addition, the Company ~~had~~designated unrestricted cash ~~earmarked~~ for capital expenditures of ~~approximately $1.96~~$7.4 million and ~~$84,702~~$8.1 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively.

~~NOTE 5 - ACQUISITIONS~~

~~At September 30, 2017, the Company owned interests in two properties. The Company estimated the fair values of certain~~

of the acquired assets and liabilities based on preliminary valuations at the date of purchase. The Company has up to 12 months from the date of acquisition to finalize the valuation for each property. The valuation for Payne Place was finalized at December 31, 2016. The initial purchase price allocation for Bay Club (as defined below) has not been finalized at September 30, 2017.

On July 31, 2017, the Company, through its wholly-owned subsidiary, purchased a multifamily community located in Jacksonville, Florida ("Bay Club"). Bay Club, constructed in 1990, contains 220 units and amenities, including private garages for each unit, a clubhouse, pool, fitness center and business center. Bay Club encompasses 223,568 rentable square feet. At September 30, 2017, Bay Club was 96% leased.

~~The following table presents the Company's wholly-owned acquisition during the three and nine months ended September 30, 2017 and the respective fair values assigned:~~

Fair Value Assigned
Multifamily Community Name City and State Date of Acquisition
Contractual Purchase Price⁽¹⁾
Land Building and Improvements Furniture, Fixtures and Equipment Intangible Assets Other Liabilities
Bay Club Jacksonville, Florida 7/31/2017 $ 28,300,000
$ 3,321,081
$ 23,879,553
$ 376,064
$ 723,302
$ (232,980 )

~~(1) Contractual purchase price excludes closing costs, acquisition expenses, and other immaterial settlement date adjustments and pro-rations.~~

~~The following table presents the total revenues, net loss, and acquisition costs of Bay Club, the Company's wholly-owned acquisition during the three and nine months ended September 30, 2017:~~

Three months ended September 30, 2017 Nine Months Ended September 30, 2017
Total Revenues $ 489,521
$ 489,521
Net Loss (707,429 ) (707,429 )
Acquisition Costs 211,080
294,313
Acquisition Fee 612,331
612,331

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

NOTE 65 - RENTAL PROPERTIES, NET

The following table presents the Company's investment in rental ~~properties:~~properties (in thousands):

	March 31, 2020			December 31, 2019
Land	$	29,800		$	31,220
Building and improvements		171,458			171,265
Furniture, fixtures, and equipment		4,420			4,014
Construction in progress		340			1,205
		206,018			207,704
Less: accumulated depreciation		(13,206	)		(11,221	)
Total rental property, net	$	192,812		$	196,483

September 30, 2017 December 31, 2016
Land $ 4,740,979
$ 1,419,898
Building and improvements 24,901,228
1,018,051
Furniture, fixtures, and equipment 227,243
21,317
Construction in progress 4,365
—
29,873,815
2,459,266
Less: accumulated depreciation (218,877 ) (13,431 )
Total rental property, net $ 29,654,938
$ 2,445,835

Depreciation expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and 2019 was ~~$184,618~~$2.2 million and ~~$205,446,~~$1.6 million respectively. ~~Depreciation expense for both the three and nine months ended September 30, 2016 was $3,288.~~

Loss on disposal of assets: During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020 and 2019, the Company ~~had~~recorded losses ~~of $185,114~~ on the disposal of assets of approximately $129,000 and $87,000, respectively, due to the replacement of appliances at its rental properties in conjunction with unit upgrades.

NOTE 6 – DISPOSITION OF PROPERTY

The following table presents the Company’s disposition activity during the three months ended March 31, 2020 (in thousands):

Multifamily Community

Location

Sale Date

Contract Sales

Price

Net Gain on Disposition

Revenue Attributable to Property Sold

Net Income Attributable to Property Sold ⁽¹⁾

Payne Place

Alexandria, Virginia

March 5, 2020

3,100

530

(1) Excludes net gain on disposition.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

NOTE 7 - IDENTIFIED INTANGIBLE ASSETS, NET

Identified intangible assets, net, consist of acquired in-place rental leases. The net carrying value of the ~~acquired in-place~~ leases at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 was ~~$562,568~~$0 and ~~$27,870,~~approximately $173,000, respectively, net of the accumulated amortization of ~~$210,675~~$4.6 million and ~~$22,071,~~$4.4 million, respectively. At ~~September 30, 2017, the weighted average remaining life of the rental leases was seven months.~~

March 31, 2020, intangible assets were fully amortized.

Amortization for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was ~~$160,734~~approximately $173,000 and ~~$7,088,~~$639,000, respectively. Amortization for the nine months ended September 30, 2017 and 2016 was $188,604 and $7,088, respectively. At September 30, 2017, expected amortization for the in-place rental leases for the next 12 months is $562,568 and none thereafter.

NOTE 8 - MORTGAGE NOTES PAYABLE ~~NET~~

The following table presents a summary of the Company's mortgage notes payable, net ~~at September 30, 2017 and December~~(in thousands):

	March 31, 2020							December 31, 2019
Collateral	Outstanding Borrowings		Deferred Financing Costs, net			Carrying Value		Outstanding borrowings		Deferred Financing Costs, net			Carrying Value
Payne Place	$	—	$	—		$	—	$	1,525	$	(28	)	$	1,497
Bay Club		21,298		(196	)		21,102		21,398		(208	)		21,190
Tramore Village		32,625		(289	)		32,336		32,625		(304	)		32,321
Matthews Reserve		23,850		(255	)		23,595		23,850		(267	)		23,583
The Park at Kensington		21,760		(248	)		21,512		21,760		(260	)		21,500
Wimbledon Oaks		18,410		(225	)		18,185		18,410		(235	)		18,175
Summit		27,580		(330	)		27,250		27,580		(343	)		27,237
Total	$	145,523	$	(1,543	)	$	143,980	$	147,148	$	(1,645	)	$	145,503

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, ~~2016:~~

September 30, 2017 December 31, 2016
Collateral Outstanding Borrowings Deferred Financing Costs, net Carrying Value Outstanding borrowings Deferred Financing Costs, net Carrying Value
Payne Place $ 1,602,909
$ (32,860 ) $ 1,570,049
$ 1,625,000
$ (34,166 ) $ 1,590,834
Bay Club 21,520,000
(320,201 ) 21,199,799
—
—
—
Total $ 23,122,909
$ (353,061 ) $ 22,769,848
$ 1,625,000
$ (34,166 ) $ 1,590,834

2020

(unaudited)

The following table presents additional information about the Company's mortgage notes payable, ~~net:~~net (in thousands, except percentages):

Collateral	Maturity Date	Annual Interest Rate				Average Monthly Debt Service		Average Monthly Escrow
Bay Club	8/1/2024		2.86	%	⁽¹⁾⁽⁴⁾	$	89	$	56
Tramore Village	4/1/2025		2.79	%	⁽²⁾⁽⁵⁾		77		84
Matthews Reserve	9/1/2025		4.47	%	⁽³⁾⁽⁵⁾		90		20
The Park at Kensington	10/1/2025		4.36	%	⁽³⁾⁽⁵⁾		80		53
Wimbledon Oaks	3/1/2026		4.33	%	⁽³⁾⁽⁵⁾		67		64
Summit	7/1/2026		3.84	%	⁽³⁾⁽⁵⁾		89		43

Collateral Maturity Date Annual Interest Rate Average Monthly Debt Service Average Monthly Escrow
Payne Place 1/1/2047 3.11%
₍₁₎₍₄₎
$ 6,948
$ 1,933
Bay Club 8/1/2024 3.10%
₍₂₎₍₃₎
56,479
40,667

(1)	Variable rate based on one-month LIBOR of 0.99% (at March 31, 2020) plus 1.87%, with a maximum interest rate of 5.75%.

(2)

Variable rate based on one-month LIBOR of 0.99% (at March 31, 2020) plus 1.80%, with a maximum interest rate of 6.25%.

~~(1)~~

(3)	Fixed rate.

~~(2) Variable rate based~~

(4)	Monthly payment of principal and interest required.

(5)	Monthly interest-only payment currently required.

All of the mortgage notes are collateralized by a first mortgage lien on ~~one-month LIBOR plus 1.87%,~~the assets of the respective property named in the table above. The amount outstanding on the mortgages may be prepaid in full during the entire term with a ~~maximum interest rate of 5.75%.~~

~~(3) Monthly interest-only payment currently required.~~

~~(4) RAI co-guarantees this loan with the Company. See Note 9~~prepayment penalty for ~~more details.~~

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

~~On July 31, 2017, the Company, through~~ a wholly owned subsidiary, entered into a seven years, $21.5 million secured mortgage loan with CBRE Capital Markets, Inc., an unaffiliated lender, secured by Bay Club (the "Bay Club Mortgage Loan"). The Bay Club Mortgage Loan matures on August 1, 2024. The Bay Club Mortgage Loan bears interest at a rate of LIBOR plus 1.87%, with a maximum interest rate of 5.75%. Monthly payments are interest only for the first 24 months.

Beginning on September 1, 2019, the Company will pay both principal and interest based on 30 year amortization. Any remaining principal balance and all accrued and unpaid interest and fees will be due at maturity. The Company may prepay the Bay Club Mortgage Loan in full at any time (1) after July 31, 2019 and until April 30, 2024 upon payment of a prepayment premium equal to 1%portion of the ~~principal amount prepaid; and (2) after April 30, 2024 with no prepayment premium. The non-recourse carveouts under the loan documents for the Bay Club Mortgage Loan are guaranteed by the Company.~~

term.

The following table presents the Company's annual principal payments on outstanding borrowings for each of the next five ~~12-month periods~~years ending ~~September 30,~~March 31, and ~~thereafter:~~thereafter (in thousands):

2021	$	452
2022		1,446
2023		2,574
2024		2,822
2025		21,843
Thereafter		116,386
	$	145,523

2018 $ 34,006
2019 70,044
2020 474,335
2021 491,320
2022 506,982
Thereafter 21,546,222
$ 23,122,909

Deferred financing costs incurred to obtain financing are amortized over the term of the related debt. During the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, amortization of deferred financing costs of ~~$4,572~~approximately $74,000 and ~~$651, respectively, was included in interest expense. During the nine months ended September 30, 2017 and 2016, amortization of deferred financing costs of $5,390 and $651,~~$59,000, respectively, was included in interest expense. Accumulated amortization at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 was ~~$5,390~~approximately $483,000 and ~~$2,775,~~$415,000, respectively.

The following table presents the Company's estimated amortization of the existing deferred financing costs for the next five ~~12-month periods~~years ending ~~September 30,~~March 31, and ~~thereafter:~~thereafter (in thousands):

2021	$	294
2022		292
2023		288
2024		284
2025		248
Thereafter		137
	$	1,543

2018 $ 49,998
2019 49,956
2020 49,517
2021 48,346
2022 47,271
Thereafter 107,973
$ 353,061

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

NOTE 9 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Relationship with the Advisor

The Company is externally managed and advised by the Advisor. Pursuant to the terms of the Advisory Agreement, the Advisor provides the Company with its management team, including its officers, along with appropriate support personnel. The Advisor will be reimbursed for the Company’s allocable share of costs for Advisor personnel, including allocable personnel salaries and benefits. Each of the Company’s officers is an employee of the Sponsor or one of its affiliates. The Company does not expect to have any employees. The Advisor is not obligated to dedicate any specific portion of its time or its employees' time to the Company’s business. The Advisor and any employees of the Sponsor or its affiliates acting on behalf of the Advisor, are at all times subject to the supervision and oversight of the Company’s board of directors and have only such functions and authority as the Company delegates to it. Effective April 28, ~~2017,~~2020, the Company renewed the ~~advisory agreement~~Advisory Agreement with the Advisor through April 27, ~~2018. The terms of the agreement are identical to those of the advisory agreement in effect through April 27, 2017.~~

2021.

During the course of the offering, the Advisor ~~will provide~~provided offering-related services to the Company and ~~will advance~~advanced funds to the Company for both operating costs and organization and offering costs. These amounts ~~will~~were to be reimbursed to the

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

Advisor from the proceeds from the offering, subject to the aforementioned limits on organization and offering expense ~~reimbursements, although there can be no assurance that~~reimbursements. As of March 31, 2020, the ~~Company’s plans to raise capital will be successful. At September 30, 2017, the Advisor has advanced~~Company incurred a total of $9.2 million of organization and offering costs, of which the Advisor advanced $9.0 million on a cumulative basis on behalf of the Company. The Company paid the remaining amount of approximately ~~$5.4 million.~~

$249,000 of these costs directly. The maximum liability of the Company was $4.4 million based on the limit on organization and offering expenses payable by the Company included in the Advisory Agreement, which was comprised of the $249,000 initially paid by the Company and $4.2 million of the advance from the Advisor. An adjustment was made during the year ended December 31, 2019 to relieve the Company from the remaining $4.8 million liability due to the Advisor. As of March 31, 2020, the Company has reimbursed $1.7 million to the Advisor.

The Advisory Agreement has a ~~one-year~~one -year term and may be renewed for an unlimited number of successive ~~one-year~~one -year terms upon the approval of the Conflicts Committee of the Company's board of directors. Under the Advisory Agreement, the Advisor will receive fees and will be reimbursed for its expenses as set forth below:

Acquisition fees. The Advisor earns an acquisition fee of 2.0% of the cost of investments acquired on behalf of the Company, plus any capital ~~expenditure~~ reserves allocated, or the amount funded by the Company to acquire or originate loans, including acquisition expenses and any debt attributable to such investments.

Asset management fees. The Advisor earns a monthly asset management fee equal to 0.083% (one-twelfth of 1.0%) of the ~~cost of each~~appraised asset value for all assets owned at the end of each month, without deduction for depreciation, bad debts or other non-cash reserves. The asset management fee is based only on the portion of the costs or value attributable to the Company’s investment in an asset if the Company does not own all of an asset and does not manage or control the asset.

Disposition fees. The Advisor ~~will earn~~earns a disposition fee in connection with the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.0% of the contract sales price.

Debt financing fees. The Advisor ~~earns~~will earn a debt financing fee equal to 0.5% of the amount available under any debt financing ~~obtained for which it provided substantial services.~~obtained.

Expense reimbursements.The Company ~~also will pay~~paid directly or ~~reimburse~~reimbursed the Advisor for all of the expenses paid or incurred by the Advisor or its affiliates on behalf of the Company or in connection with the services provided to the Company in relation to its public offering, including its distribution reinvestment plan offering. This includes all organization and offering costs of up to 4.0% of gross offering proceeds ifas the Company ~~raises~~raised less than ~~$500 million in the primary offering and 2.5% of gross offering proceeds if the Company raises more than $500~~$500.0 million in the primary offering. Reimbursements also include expenses the Advisor incurs in connection with providing services to the Company, including the Company’s allocable share of costs for Advisor personnel and overhead, out-of-pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not the Company ultimately acquires the investment. However, the Company will not reimburse the Advisor or its affiliates for employee costs in connection with services for which the Advisor earns acquisition or disposition fees. Prior to the Company breaking escrow, the Advisor incurred ~~$104,266~~approximately $104,000 of formation and other operating expenses the Company's behalf, which will not be reimbursed to the Advisor.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

On ~~August 18, 2016,~~April 13, 2018, the board of directors approved an amendment to the Advisory Agreement that provides that the Company is not responsible for the reimbursement of any unreimbursed organization and offering expenses or operational expenses incurred by the Advisor ~~provided a $555,000 bridge loan (the "Bridge Loan") to~~on the ~~Company. The Company used~~Company’s behalf through March 31, 2018 until after the ~~proceeds~~termination of the ~~Bridge Loan to partially finance~~primary portion of the ~~acquisition~~Company’s ongoing initial public offering. Additionally, the amendment provides that such unreimbursed organization and offering expenses or operational expenses incurred or paid by the Advisor on the Company’s behalf through March 31, 2018 will be reimbursed ratably starting after the termination of ~~Payne Place.~~the primary portion of the Company’s ongoing initial public offering through April 30, 2021 for organization and offering expenses and through April 30, 2020 for operating expenses. The ~~Bridge Loan incurred interest at an annual rate of LIBOR plus 3.00%. On~~payments commenced on November 1, 2016, the Company repaid the outstanding balance of the Bridge Loan and accrued interest before its scheduled maturity date of February 18, 2017. Interest expense associated with Bridge Loan for the year ended December 31, 2016 was $2,921.

2019.

Relationship with ~~Resource Apartment~~the Manager ~~III, LLC~~

The Manager manages real estate properties and real estate-related debt investments and coordinates the leasing of, and manages construction activities related to, some of the Company’s real estate properties pursuant to the terms of the management agreement with the Manager.

Property management fees. The Manager earns a property management fee equal to 4.5% of actual gross cash receipts from the operations of real property investments that it manages and an oversight fee in the same amount on any real property investments that are managed by third parties. Property management fees are deducted directly from the property's operating account by the property manager. The Manager subcontracts operational management of the properties to an unaffiliated third party and pays for those services from its property management fee. Any property management fees paid to unaffiliated third party property managers in excess of 4.5% of actual gross receipts will be reimbursed to the Company by the Advisor. At September 30, 2017 and December 31, 2016, the Advisor owed the Company $3,086 and $1,041, respectively, for property management fees in excess of the 4.5% cap paid to the unaffiliated third party property manager.

Construction management fees. The Manager earns a construction management fee equal to 5.0% of actual aggregate costs to construct improvements to a property.

Debt servicing fees. The Manager will earn a debt servicing fee equal to 2.75% of gross receipts from real estate-related debt investments.

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

Expense reimbursement. During the ordinary course of business, the Manager or other affiliates of RAI may pay certain shared operating expenses on behalf of the Company. The Company is obligated to reimburse the Manager or other affiliates for such shared operating expenses.

Relationship with Resource Securities

Resource Securities, an affiliate of the Advisor, serves as the Company’s dealer manager and iswas responsible for marketing the Company’s shares during the primary public offering.

Dealer manager fee and selling commissions. Pursuant to the terms of the amended and restated dealer manager agreement with Resource Securities, the Company generally ~~pays~~paid Resource Securities a selling commission of up to 3.0% of gross offering proceeds from the sale of Class R shares and a dealer manager fee of up to 3.5% of gross offering proceeds from the sale of Class R shares (but the aggregate of such fees shall not exceed 5.5% of gross offering proceeds). The Company generally ~~pays~~paid Resource Securities a dealer manager fee of up to 1.5% of gross offering proceeds from the sale of the Class I shares. ~~Prior to July 3, 2017, the Company paid~~ Resource Securities of selling commissions up to 7.0% of gross primary offering proceeds from the sale of Class A shares and up to 2.0% of gross primary offering proceeds from the sale of Class T shares and a dealer manager fee of up to 3.0% of gross primary offering proceeds from the sale of either Class A or Class T shares. Resource Securities allowsallowed all selling commissions earned and a portion of the dealer manager fee as a marketing fee to participating broker-dealers. No selling commissions or dealer manager fees ~~are~~were earned by Resource Securities in connection with sales under the distribution reinvestment plan. Additionally, the Company may reimburse Resource Securities for bona fide due diligence expenses. ~~No selling commissions or dealer manager fees were paid in connection with the sales of Class A shares~~

(Back to ~~the Advisor or RAI.~~

Index)

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

Distribution and shareholder servicing fee. Resource Securities iswas paid an annual fee of 1.0% of the ~~purchase~~NAV (purchase price ~~(or, once reported, the NAV)~~prior to June 29, 2018) per share of Class T common stock sold in the primary offering for up to five years from the date on which each share ~~is issued up to a total of 5.0%.~~was issued. Resource Securities iswas also paid an annual fee of 1.0% of the ~~purchase~~NAV (purchase price ~~(or, once reported, the NAV)~~prior to June 29, 2018) per share of Class R common stock sold in the primary ~~offering. The Company will cease paying~~offering subject to the ~~distribution and shareholder servicing fee with respect to~~terms of the Class R shares held in any particular account, and those Class R shares will convert into a number of Class I shares determined by multiplying each Class R share to be converted by the applicable "Conversion Rate," on the earlier of (i) the date after the termination of the primary offering at which,as included in the ~~aggregate, underwriting compensation from all sources equals 10.0%~~Articles Supplementary. Effective November 1, 2019, pursuant to the terms of the gross proceeds from the primary offering; (ii) a listing of the Class I shares on a national securities exchange; (iii) a merger or consolidation of the Company with or into another entity, or the sale or other disposition of all or substantially all of our assets; and (iv) the end of the month in which the total underwriting compensation (which consists of selling commissions, dealer manager fees and distribution and shareholder servicing fees) paid with respect to such Class R shares purchased in a primary offering is not less than 8.5% (or a lower limit, provided that, in the case of a lower limit, the agreement between Resource Securities and the broker-dealer in effect at the time Class R shares were first issued to such account sets forth the lower limit and Resource Securities advises the Company’s transfer agent of the lower limit in writing) of the gross offering price of those Class R shares purchased in such primary offering (excluding shares purchased through the distribution reinvestment plan).

The differences between the Class A, Class T, Class R and Class I shares relate to the fees and selling commissions payable with respect to each class and the differing distribution amounts and expense allocations due to differing ongoing fees and expenses. The per share amount of distributions on Class T and Class R shares, ~~will likely be lower than~~no further distribution and shareholder servicing fees were payable to Resource Securities so the ~~distributions on the Class A and Class I shares for so long as~~Company ceased to accrue the distribution and shareholder servicing ~~fee applies because this fee is a class-specific expense. The following table summarizes the differences in fees and selling commissions between the classes of common stock:~~

Class A Share Class T Share Class R Share Class I Share
Initial Offering Price $10.00 $9.47 $9.52 $9.13
Selling Commissions Paid by Company (per shares) 7.0% 2.0% 3.0%
⁽¹⁾
None
Dealer Manager Fee (per share) 3.0% 3.0% 3.5%
⁽¹⁾
1.5%
Annual Distributions and Shareholder Servicing Fee None 1.0%
⁽²⁾
1.0%
⁽³⁾
None
Initial Offering Price Under the DRIP $9.60 $9.09 $9.14 $8.90


⁽¹⁾	~~The aggregate amount paid to Resource Securities for selling commissions and dealer manager fees shall not exceed 5.5% of gross offering proceeds.~~

~~(Back to Index)~~

~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

⁽²⁾

Each outstanding Class T share issued in the primary offering is subject to an annual distribution and shareholder servicing fee for five years from the date on which such share is issued. The Company will cease paying the distribution and shareholder servicing fee on each Class T share prior to the fifth anniversary of its issuance on the earliest of the following, should any of these events occur: (i) the date at which, in the aggregate, underwriting compensation from all sources equals 10% of the gross proceeds from the Company's primary offering (i.e., excluding proceeds from sales pursuant to the DRIP); (ii) the date on which the Company lists its common stock on a national securities exchange; and (iii) the date of a merger or other extraordinary transaction in which the Company is a party and in which the common stock is exchanged for cash or other securities. The Company cannot predict if or when any of these events will occur.

⁽³⁾

The Company will cease paying the distribution and shareholder servicing fee with respect to Class R shares held in any particular account, and those Class R shares will convert into a number of Class I shares determined by multiplying each Class R share to be converted by the applicable "Conversion Rate," on the earlier of (i) the date after the termination of the primary offering at which, in the aggregate, underwriting compensation from all sources equals 10.0% of the gross proceeds from the primary offering; (ii) a listing of the Class I shares on a national securities exchange; (iii) a merger or consolidation of the Company with or into another entity, or the sale or other disposition of all or substantially all of our assets; and (iv) the end of the month in which the total underwriting compensation (which consists of selling commissions, dealer manager fees and distribution and shareholder servicing fees) paid with respect to such Class R shares purchased in a primary offering is not less than 8.5% (or a lower limit, provided that, in the case of a lower limit, the agreement between Resource Securities and the broker-dealer in effect at the time Class R shares were first issued to such account sets forth the lower limit and Resource Securities advises the Company’s transfer agent of the lower limit in writing) of the gross offering price of those Class R shares purchased in such primary offering (excluding shares purchased through the distribution reinvestment plan). The Company cannot predict if or when any of these events will occur.

fee.

Relationship with RAI and C-III

Property loss pool.~~The~~ Until February 28, 2019, the Company's properties ~~participate~~participated in a property loss self-insurance pool with other properties directly and indirectly managed by RAI and C-III, which iswas backed by a catastrophic insurance policy. The pool covered losses up to $2.5 million, in aggregate, after a $25,000 deductible per incident. Claims beyond the insurance pool limits were covered by the catastrophic insurance policy, which covered claims up to $250.0 million, after either a $25,000 or a $100,000 deductible per incident, depending on location and/or type of loss. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limits could have a material adverse effect on the Company's financial condition and operating results.

Beginning March 1, 2019, the Company now participates (with other properties directly and indirectly managed by RAI and C-III) only in the catastrophic insurance policy, which covers claims up to $250.0 million, after either a $25,000 or a $100,000 deductible per incident, depending on location and/or type of loss. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limits could have a material adverse effect on the Company's financial condition and operating results. Substantially all of the receivables from related parties represent insurance deposits held in escrow by RAI and C-III related to the self-insurance pool which, if unused, will be returned to the Company. The pool covers losses up to $2.5 million, in aggregate, after a $25,000 deductible per incident. Claims beyond the insurance pool limits will be covered by the catastrophic insurance policy, which covers claims up to $250 million, after a $100,000 deductible per incident. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limited could have a material adverse effect on the Company's financial condition and operating results. During the three and nine months ended September 30, 2017, the Company paid $7,172 and $7,591 into the property loss insurance pool.

General liability ~~loss pool.~~coverage. The ~~Company's properties~~Company also participated in a general liability pool with other properties directly and indirectly managed by RAI and C-III until April 22, 2017. The pool covers claims up to $50,000 per incident through April 22, 2017. Effective April 23, 2017, the loss pool was eliminated and the Company now participates (with other properties directly and indirectly managed by RAI and C-III) in a general liability policy. The insured limit for the general liability policy is ~~$76~~$76.0 million in total claims, after a $25,000 deductible per incident.

Internal audit fees.RAI performs internal audit services for the Company. ~~The 2017 annual fee for the services provided is $12,500.~~

~~Other transactions.~~

Directors and officers liability insurance. RAI co-guarantees the mortgage on Payne Place with the Company until such time as the Company achieves the following: (a) owns a minimum of five apartment complexes; (b) has a minimum net worth of $50 million; (c) has liquidity of no less than $5 million; and (d) has an aggregate portfolio leverage of no more than 65% (see Note 8 for further details).

The Company ~~paid The Planning & Zoning Resource Company, an affiliate of~~participates in a liability insurance program for directors and officers coverage with other C-III ~~$1,079~~managed entities and subsidiaries for ~~a zoning report in connection with its acquisition of Bay Club.~~

coverage up to $100.0 million.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

The following table presents the Company's amounts receivable from and amounts payable to such related ~~parties:~~parties (in thousands):

	March 31, 2020		December 31, 2019
Due from related parties:
Advisor	$	2	$	—
	$	2	$	—

Due to related parties:
Advisor:
Organization and offering costs	$	2,499	$	3,076
Operating expense reimbursements (including prepaid expenses)		447		1,778
		2,946		4,854

Manager:
Property management fees		78		81
Operating expense reimbursements		—		3
		78		84

Other:
Resource Real Estate Opportunity REIT I deposited check	12			—

	$	3,036	$	4,938

September 30, 2017 December 31, 2016
Due from related parties:
Advisor $ 3,086
$ 1,041
RAI and affiliate - insurance funds held in escrow 1,467
1,311
$ 4,553
$ 2,352
Due to related parties:
Advisor:
Acquisition related reimbursements $ 6,533
$ 14,050
Asset management fees —
2
Organization and offering costs 5,382,494
2,848,317
Operating expense reimbursements (including prepaid expenses) 1,517,776
682,661
$ 6,906,803
$ 3,545,030
Manager:
Property management fees $ 10,946
$ —
Operating expense reimbursements 8,514
—
$ 19,460
$ —
RAI:
Internal audit fee $ 750
$ 8,250
Operating expense reimbursements 1,372
—
$ 2,122
$ 8,250
Resource Securities:
Selling commissions and dealer-manager fees $ 34,477
$ 10,363
Distribution and shareholder servicing fee 632,044
53,015
$ 666,521
$ 63,378

Other: $ —
$ 55

$ 7,594,906
$ 3,616,713

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

The following table presents the Company's fees earned by and expenses incurred from such related ~~parties:~~parties (in thousands):

	Three Months Ended March 31,
	2020		2019
Fees earned / expenses incurred:
Advisor:
Acquisition fees and acquisition related reimbursements ⁽¹⁾	$	—	$	610
Asset management fees⁽²⁾		555		415
Disposition fees ⁽¹⁰⁾		62		—
Debt financing fees⁽³⁾		—		92
Organization and offering costs ⁽⁴⁾		—		324
Operating expense reimbursement ⁽⁵⁾⁽⁹⁾		6		405

Manager:
Property management fees⁽²⁾	$	225	$	159
Construction management fees⁽¹⁾		130		42
Operating expense reimbursements ⁽⁶⁾		—		30

RAI:
Internal audit fee⁽⁵⁾	$	—	$	12

Resource Securities:
Selling commissions and dealer-manager fees⁽⁷⁾	$	—	$	820
Distribution and shareholder servicing fee⁽⁷⁾⁽⁸⁾		—		424

Other:
The Planning & Zoning Resource Company ⁽¹⁾	$	—	$	1

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Fees earned / expenses incurred:
Advisor:
Acquisition fees and acquisition related reimbursements ⁽¹⁾
$ 641,193
$ 51,505
$ 641,193
$ 51,505
Asset management fees ⁽²⁾
60,396
3,110
73,853
3,110
Debt financing fees ⁽³⁾
107,600
2,775
107,600
2,775
Interest expense ⁽⁴⁾
—
2,337
—
2,337
Organization and offering costs ⁽⁵⁾
676,441
999,096
2,534,177
2,286,011
Operating expense reimbursement⁽⁶⁾
173,729
210,351
487,934
210,351

Manager:
Property management fees ⁽²⁾
$ 22,542
$ —
$ 22,542
$ —
Construction management fees ⁽⁷⁾
336
—
336
—

RAI:
Internal audit fees ⁽⁶⁾
$ 3,500
$ —
$ 9,750
$ —

Resource Securities:
Selling commissions and dealer-manager fees⁽⁸⁾
$ 325,954
$ 32,700
$ 961,987
$ 32,700
Distribution and shareholder servicing fee ⁽⁸⁾
176,075
5,200
619,546
5,200

Other:
The Planning & Zoning Resource Company ⁽¹⁾
$ 1,079
$ 1,495
$ 1,079
$ 1,495

(1)	Capitalized and included in Rental properties, net on the consolidated balance sheets.

(2)

Included in Management fees - related parties on the consolidated statements of operations and comprehensive loss.

~~(1)~~ ~~Included in Acquisition costs on the consolidated statements of operations and comprehensive loss.~~

~~(2) Included in Management fees - related parties on the consolidated statements of operations and comprehensive loss.~~

~~(3) Included in Mortgage notes payable on the consolidated balance sheets.~~

~~(4) Included in Interest expense on the consolidated statements of operations and comprehensive loss.~~

(3)	Included in Mortgage notes payable on the consolidated balance sheets.

~~(5)~~

(4)

Organizational expenses were expensed when incurred and offering costs are included in Deferred offering costs ~~and~~until they are charged to Stockholders' equity on the consolidated balance ~~sheets.~~sheets as proceeds are raised in the offering.

(5)
~~(6)~~	Included in General and administrative on the consolidated statements of operations and comprehensive loss and excludes third party costs that are advanced by the Advisor.

(6)
~~(7)~~	Included in Rental ~~properties, net~~operating expenses on the consolidated statements of operations and comprehensive loss.

(7)	Included in Stockholders' equity on the consolidated balance sheets.

~~(8) Included in Stockholders' equity on the consolidated balance sheets.~~

(8)	During the year ended December 31, 2019, there was an adjustment in conjunction with the termination of the primary offering; see Note 2.

(9)	During the year ended December 31, 2019, the Advisor suspended the allocation of rent and payroll costs to the Company.

(10)	Included in Net gain on disposition of property on the consolidated statements of operations and comprehensive loss.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

NOTE 10 - EARNINGS PER SHARE

The following table presents a reconciliation of ~~the Company's~~ basic and diluted ~~earnings~~earnings/(loss) per share for the periods ~~presented:~~presented as follows (in thousands, except per share data):

	Three Months Ended March 31,
	2020			2019
Net loss	$	(1,670	)	$	(2,785	)
Less: Class A common stock cash distributions declared		—			85
Less: Class T common stock cash distributions declared		27			123
Less: Class R common stock cash distributions declared		—			988
Less: Class I common stock cash distributions declared		4			62
Undistributed net loss attributable to common stockholders	$	(1,701	)	$	(4,043	)

Class A common stock:
Undistributed net loss attributable to Class A common stockholders	$	(88	)	$	(255	)
Class A common stock cash distributions declared		—			85
Net loss attributable to Class A common stockholders	$	(88	)	$	(170	)
Net loss per Class A common share, basic and diluted	$	(0.14	)	$	(0.27	)
Weighted-average number of Class A common shares outstanding, basic and diluted ⁽¹⁾		629			635

Class T common stock:
Undistributed net loss attributable to Class T common stockholders	$	(157	)	$	(448	)
Class T common stock cash distributions declared		27			123
Net loss attributable to Class T common stockholders	$	(130	)	$	(325	)
Net loss per Class T common share, basic and diluted	$	(0.12	)	$	(0.29	)
Weighted-average number of Class T common shares outstanding, basic and diluted		1,118			1,114

Class R common stock:
Undistributed net loss attributable to Class R common stockholders	$	—		$	(3,188	)
Class R common stock cash distributions declared		—			988
Net loss attributable to Class R common stockholders	$	—		$	(2,200	)
Net loss per Class R common share, basic and diluted	$	—		$	(0.28	)
Weighted-average number of Class R common shares outstanding, basic and diluted		—			7,937

Class I common stock:
Undistributed net loss attributable to Class I common stockholders	$	(1,456	)	$	(152	)
Class I common stock cash distributions declared		4			62
Net loss attributable to Class I common stockholders	$	(1,452	)	$	(90	)
Net loss per Class I common share, basic and diluted	$	(0.14	)	$	(0.24	)
Weighted-average number of Class I common shares outstanding, basic and diluted		10,355			380

(1)Weighted-average number of shares excludes the convertible stock as they are not participating securities.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net loss $ (1,602,783 ) $ (431,091 ) $ (2,251,780 ) $ (457,549 )
Less: Class A common stock cash distributions declared 81,555
—
119,955
—
Less: Class T common stock cash distributions declared 115,789
—
142,039
—
Less: Class R common stock cash distributions declared 35,094
—
35,094
—
Less: Class I common stock cash distributions declared 3,453
—
3,453
—
Undistributed net loss attributable to common stockholders $ (1,838,674 ) $ (431,091 ) $ (2,552,321 ) $ (457,549 )

Class A common stock:
Undistributed net loss attributable to Class A common stockholders $ (606,418 ) $ (428,286 ) $ (1,072,505 ) $ (455,028 )
Class A common stock cash distributions declared 81,555
—
119,955
—
Net loss attributable to Class A common stockholders $ (524,863 ) $ (428,286 ) $ (952,550 ) $ (455,028 )
Net loss per Class A common share, basic and diluted $ (0.85 ) $ (1.72 ) $ (1.76 ) $ (4.60 )
Weighted-average number of Class A common shares outstanding, basic and diluted 616,733
249,051
540,022
98,905

Class T common stock:
Undistributed net loss attributable to Class T common stockholders $ (1,050,879 ) $ (2,805 ) $ (1,356,356 ) $ (2,521 )
Class T common stock cash distributions declared 115,789
—
142,039
—
Net loss attributable to Class T common stockholders $ (935,090 ) $ (2,805 ) $ (1,214,317 ) $ (2,521 )
Net loss per Class T common share, basic and diluted $ (0.87 ) $ (1.72 ) $ (1.78 ) $ (4.60 )
Weighted-average number of Class T common shares outstanding, basic and diluted 1,068,753
1,631
682,945
548

Class R common stock:
Undistributed net loss attributable to Class R common stockholders $ (165,126 ) $ —
$ (112,398 ) $ —
Class R common stock cash distributions declared 35,094
—
35,094
—
Net loss attributable to Class R common stockholders $ (130,032 ) $ —
$ (77,304 ) —
$ —
Net loss per Class R common share, basic and diluted $ (0.77 ) $ —
$ (1.37 ) $ —
Weighted-average number of Class R common shares outstanding, basic and diluted 167,935
—
56,594
—

Class I common stock:
Undistributed net loss attributable to Class I common stockholders $ (16,251 ) $ —
$ (11,062 ) $ —
Class I common stock cash distributions declared 3,453
—
3,453
—
Net loss attributable to Class I common stockholders $ (12,798 ) $ —
$ (7,609 ) $ —
Net loss per Class I common share, basic and diluted $ (0.77 ) $ —
$ (1.37 ) $ —
Weighted-average number of Class I common shares outstanding, basic and diluted 16,527
—
5,570
—

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

Diluted earnings per share take into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. None of the 50,000 shares of convertible stock (see Note 11) are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of September 30, 2017 (were such date to represent the end of the contingency period). Due to reported losses for the three and nine ended September 30, 2017, common shares potentially issuable to settle accrued distributions are excluded from the calculation of diluted earnings per share calculations, as their inclusion would be anti-dilutive.

NOTE 11 - EQUITY

Preferred Stock

The Company’s charter authorizes the Company to issue 10 million shares of its $0.01 par value preferred stock. ~~At September 30, 2017,~~As of March 31, 2020, no shares of preferred stock were issued or outstanding.

Convertible Stock

The Company’s charter authorizes the Company to issue 50,000 shares of its $0.01 par value convertible stock. On August 5, 2016, the Company's board of directors approved the issuance of 50,000 convertible shares in exchange offor 5,000 shares of Class A common stock. ~~At September 30, 2017,~~As of March 31, 2020, the Company had 50,000 shares of $0.01 par value convertible stock outstanding, which are owned by the Advisor. The convertible stock will convert into shares of the Company’s Class A common stock upon the occurrence of (a) the Company having paid distributions to common stockholders that in the aggregate equal 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 6% cumulative, non-compounded annual return on the shares at that price; or (b) if the Company lists its common stock on a national securities exchange or the Company consummates a merger pursuant to which consideration received by the stockholders is securities of another issuer that are listed on a national securities exchange.

Each of these two events is a "Triggering Event." Upon a Triggering Event, the Company's convertible stock will, unless its ~~advisory agreement~~Advisory Agreement has been terminated or not renewed on account of a material breach by its Advisor, generally be converted into a number of shares of common stock equal to 1/50,000 of the quotient of:


(A)	15% of the amount, if any, by which


(1)	the value of the Company as of the date of the event triggering the conversion plus the total distributions paid to its stockholders through such date on the then-outstanding shares of its common stock exceeds


(2)	the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by

~~(B)~~

(B)

the value of the Company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion.

No triggering events have occurred or were considered probable to occur as of ~~the as of the date of the event triggering the conversion.~~

March 31, 2020.

Common Stock

The Company’s charter authorizes the issuance of 1 billion shares of common stock with a par value of $0.01 per share, of which, the Company ~~initially~~has allocated ~~250~~750 million shares ~~of its $0.01 par value~~as Class R common ~~stock~~stock; 75 million shares as Class I common stock; 25 million shares as Class A common ~~stock and 750 million shares of its $0.01 par value common stock as Class T common stock.~~

On June 28, 2017, the Company amended its charter to authorize 750 million shares of its $0.01 par value common stock as Class R common stock, 75 million shares of its $0.01 par value common stock as Class I common stock, 25 million shares of its $0.01 par value common stock as Class A common stockstock; and 25 million shares ~~of its $0.01 par value common stock~~ as Class T common stock. 125 million shares of ~~the Company's $0.01 par value~~ common stock remain undesignated. As of July 3, 2017, the Company ceased offering shares of Class A and Class T common stock and commenced the offering of Class R and Class I common stock in its primary offering.

The Company ceased offering Class R and Class I shares in the primary offering on October 31, 2019 and ceased processing subscriptions in the offering on November 15, 2019. The Company continues to offer shares of Class A, Class T, and Class I common stock pursuant to the DRIP.

On November 1, 2019, each Class R share of common stock of the Company automatically converted into a Class I share of common stock of the Company pursuant to the terms of the Articles Supplementary for the Class R shares. The Class R shares converted into Class I shares on a one-for-one basis, because the most recently approved estimated net asset value per share approved by its board of directors ($9.12 as of March 21, 2019) was the same for all classes of common stock. Stockholders who received Class I shares upon the conversion will no longer be subject to the class-specific expenses associated with Class R shares. As of November 1, 2019, the Company no longer has any shares of Class R common stock outstanding.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~SEPTEMBER 30, 2017~~

MARCH 31, 2020

(unaudited)

At ~~September 30, 2017, there were 618,569~~March 31, 2020, shares of the Company's $0.01 par value Class A, ~~common stock, 1,073,229 shares of~~ Class T, ~~common stock, 617,186 shares of~~ Class R, ~~common stock~~ and ~~28,602 shares of~~ Class I common stock have been issued ~~and outstanding~~ as ~~follows:~~follows (dollars in thousands):

	Class A					Class T					Class R					Class I
	Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds
Shared issued through primary offering ⁽¹⁾		586,207		$	5,601		1,049,996		$	9,943		9,356,068		$	89,917		624,325		$	5,760
Shares issued through stock dividends		12,860			—		15,495			—		—			—		—			—
Shares issued through distribution reinvestment plan		34,179			318		91,763			834		356,453			3,244		115,513			1,050
Shares issued in conjunction with the Advisor's initial investment, net of 5,000 share conversion		15,000			200		—			—		—			—		—			—
Total		648,246		$	6,119		1,157,254		$	10,777		9,712,521		$	93,161		739,838		$	6,810
Shares redeemed and retired		(22,398	)				(35,615	)				(32,122	)				(13,415	)
Class R share conversion ⁽²⁾		—					—					(9,680,399	)				9,680,399
Total shares issued and outstanding at March 31, 2020		625,848					1,121,639					—					10,406,822

Class A Class T Class R Class I
Shares Issued Gross Proceeds Shares Issued Gross Proceeds Shares Issued Gross Proceeds Shares Issued Gross Proceeds
Shared issued through primary offering ⁽¹⁾
586,207
$ 5,601,476
1,049,996
$ 9,943,465
616,508
$ 5,869,158
28,557
$ 260,000
Shares issued through stock dividends 12,860
—
15,495
—
—
—
—
—
Shares issued through distribution reinvestment plan 4,502
43,216
7,738
70,333
678
6,198
45
407
Shares issued in conjunction with the Advisor's initial investment, net of 5,000 share conversion 15,000
200,000
—
—
—
—
—
—
Total at September 30, 2017 618,569
$ 5,844,692
1,073,229
$ 10,013,798
617,186
$ 5,875,356
28,602
$ 260,407

(1)

Includes 222,222 of Class A shares issued to RAI.

(2)

On November 1, 2019, all outstanding Class R shares converted to Class I shares.

~~(1) Includes 222,222~~

Share Redemption Program

During the three months ended March 31, 2020, the Company redeemed shares of its outstanding Class A, Class T, and Class I common stock, as follows:

	Class A				Class T				Class I
Period	Total Number of Shares Redeemed		Average Price Paid per Share		Total Number of Shares Redeemed		Average Price Paid per Share		Total Number of Shares Redeemed		Average Price Paid per Share
January 2020		—		—		—		—		—		—
February 2020		—		—		—		—		—		—
March 2020		5,484	$	8.89		3,587	$	8.89		2,416	$	8.44
		5,484				3,587				2,416

All redemptions requests tendered were honored during the three months ended March 31, 2020.

The Company will not redeem in excess of 5% of the weighted-average number of shares ~~issued~~of common stock outstanding during the 12-month period immediately prior to the ~~Advisor~~

~~Distributions~~

~~Cash Distributions~~

~~During the nine months ended September 30, 2017, the~~effective date of redemption. The Company's board of directors will determine at least quarterly whether it has sufficient excess cash to repurchase shares. Generally, the cash available for redemptions will be limited to proceeds from the Company's distribution reinvestment plan plus, if the Company has positive operating cash flow from the previous fiscal year, 1% of all operating cash flow from the previous year.

The Company's board of directors, in its sole discretion, may suspend, terminate or amend the Company's share redemption program without stockholder approval upon 30 days' notice if it determines that such suspension, termination or amendment is in the Company's best interest. The Company's board may also reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund the Company's share redemption program are needed for other purposes.

These limitations apply to all redemptions, including redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility.

On March 27, 2020, the board of directors of the Company suspended the share redemption program with exceptions for redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility. The suspension is effective as of April 29, 2020. While the share redemption program is partially suspended, both pending and new redemption requests for redemptions submitted other than in connection with a stockholder’s death, qualifying disability or

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

confinement to a long-term care facility will not be honored or retained, but will be cancelled with the ability to resubmit if the share redemption program is fully resumed.

Distributions

During the year ended December 31, 2019, the Company’s board of directors declared a cash ~~distribution~~distributions on the outstanding shares of all classes of its common stock based on daily record dates for the period from December 31, 2019 through March ~~31, 2017 through October~~ 30, ~~2017,~~2020 which were paid on ~~April~~January 31, 2020, February 28, ~~2017, May 31, 2017, June 30, 2017, July 31, 2017, August 31, 2017, September 29, 2017~~2020, and ~~October 31, 2017. The distributions declared for the periods from~~ March 31, ~~2017 through July 30, 2017~~2020.

The distributions were calculated based on the stockholders of record each day during ~~these periods~~the period at a rate of ~~(i) $0.000547945~~$0.001469178 per share per ~~day less (ii) the applicable daily distribution and shareholder servicing fees accrued for and allocable to any class of common stock.~~

~~The distributions declared for the periods from July 31, 2017 through October 30, 2017~~day.

Distributions were calculated based on stockholders of record each day during these periods at a rate of (i) $0.001434521 per share per day less (ii) the applicable daily distribution and shareholder servicing fees accrued for and allocable to any class of common stock.

~~Distributions are~~ generally paid to stockholders on the last business day of the month for which the distribution has accrued. Distributions reinvested pursuant to the distribution reinvestment plan are reinvested in shares of the same class as the shares on which distributions are made.

There were no distributions declared during the three months ended March 31, 2020.

The following ~~tables present~~table presents information regarding the Company's distributions ~~declared and~~ paid to stockholders during the three ~~and nine~~months ended ~~September~~March 31, 2020 (in thousands):

	Three Months Ended March 31, 2020
	Class A		Class T		Class R		Class I		Total
True-up of prior year cash distributions declared	$	—	$	27	$	—	$	4	$	31

Distributions reinvested in shares of common stock paid	$	24	$	89	$	—	$	744	$	857
Cash distributions paid		60		61		—		640		761
Total distributions paid	$	84	$	150	$	—	$	1,384	$	1,618

The Company announced on March 30, ~~2017:~~

Three Months Ended September 30, 2017
Class A Class T Class R Class I Total
Distributions declared $ 81,555
$ 115,789
$ 35,094
$ 3,453
$ 235,891

Distributions reinvested in shares of common stock paid $ 23,836
$ 53,027
$ 6,198
$ 407
$ 83,468
Cash distributions paid 39,686
30,906
7,399
1,733
79,724
Total distributions paid $ 63,522
$ 83,933
$ 13,597
$ 2,140
$ 163,192

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

Nine Months Ended September 30, 2017
Class A Class T Class R Class I Total
Distributions declared $ 119,955
$ 142,039
$ 35,094
$ 3,453
$ 300,541

Distributions reinvested in shares of common stock paid $ 39,923
$ 69,246
$ 6,198
$ 407
115,774
Cash distributions paid 72,248
37,000
7,399
1,733
118,380
Total distributions paid $ 112,171
$ 106,246
$ 13,597
$ 2,140
$ 234,154

~~At September 30, 2017, the Company had accrued $91,561 for the cash~~2020 that it was suspending distributions ~~paid on October 31, 2017, which is reported in distributions payable in the consolidated balance sheet.~~

~~Stock Dividends~~

On April 25, 2017, the Company's board of directors authorized a stock dividend in the amount of 0.01 shares of common stock, on each outstanding share of common stock to all common stockholders of record as of April 1, 2020 in order to preserve cash and offset any impact to the ~~close~~Company’s liquidity that may occur as a result of ~~business~~the COVID-19 pandemic on ~~July 1, 2017. The stock dividend was issued in the same class of shares as the shares for which such stockholder received the stock dividend. The Company issued this stock dividend on July 14, 2017.~~

its operations.

NOTE 12 - FAIR VALUE MEASURES AND DISCLOSURES

In analyzing the fair value of its financial ~~instruments~~investments accounted for on a fair value basis, the Company 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 Company 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 investment. The fair value of cash, tenant receivables and accounts payable, approximate their carrying value due to their short 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 and liabilities 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 and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

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 or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter; depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

The fair value of rental properties is usually estimated based on information obtained from a number of sources, including information obtained about each property as a result of pre-acquisition due diligence, marketing and leasing activities. The Company allocates the purchase price of properties to acquired tangible assets, consisting of land, buildings, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, the value of in-place leases and the value of tenant relationships, based in each case on their fair values.

~~Derivatives (interest rate caps) were acquired in conjunction with the acquisition of Bay Club for $14,600.~~

Derivatives are reported at fair value in the consolidated balance sheets and are valued by a third party pricing agent using an income approach with models that use, as their primary inputs, readily observable market parameters. This valuation process considers factors including interest rate yield curves, time value, credit and volatility factors. (Level 2)

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

The following table presents information about the Company's assets measured at fair value on a recurring basis and

indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair ~~value:~~value (in thousands):

	Level 1		Level 2		Level 3		Total
March 31, 2020
Assets:
Interest rate caps	$	—	$	1	$	—	$	1

December 31, 2019
Assets:
Interest rate caps	$	—	$	—	$	—	$	—

Level 1 Level 2 Level 3 Total
September 30, 2017
Assets:
Interest rate caps $ —
$ 5,204
$ —
$ 5,204

December 31, 2016
Assets:
Interest rate caps $ —
$ —
$ —
$ —

The carrying and fair values of the Company’s mortgage notes ~~payable - outstanding~~payable-outstanding borrowings, which ~~was~~were not carried at fair value on the consolidated balance sheets at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019 were as ~~follows:~~follows (in thousands):

March 31, 2020

December 31, 2019

Carrying

Amount

Fair

Value

Carrying

Amount

Fair

Value

Mortgage notes payable- outstanding borrowings

145,523

144,927

147,148

144,902

September 30, 2017 December 31, 2016
Carrying Amount Fair Value Carrying Amount Fair Value
Mortgage notes payable - outstanding borrowings $ 23,122,909
$ 21,335,161
$ 1,625,000
$ 1,625,000

The carrying amount of the mortgage notes payable presented above is the outstanding borrowings excluding premium or discount and deferred finance costs, net. At ~~September 30, 2017,~~March 31, 2020, the fair value of mortgage notes payable was estimated using a discounted cash flow model and rates available to the Company for debt with similar terms and remaining maturity. ~~At December 31, 2016, the carrying value of the mortgage note payable was estimated to be the fair value due to the recent issuance of the mortgage obtained (Level 3).~~

NOTE 13 - DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

As a condition to certain of the Company’s financing facilities, from time to time the Company may be required to enter into certain derivative transactions as may be required by the lender. These transactions would generally be in line with the Company’s own risk management objectives and also serve to protect the lender.

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company entered into ~~one~~two interest rate ~~cap~~caps that ~~was~~were designated as a cash flow ~~hedge.~~hedges. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in ~~Accumulated Other Comprehensive Income~~accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, such derivatives were used to hedge the variable cash flows, indexed to USD-LIBOR, associated with ~~the Bay Club Mortgage Loan.~~existing variable-rate loan agreements. The ineffective portion of the

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~~RESOURCE APARTMENT REIT III, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~SEPTEMBER 30, 2017~~

~~(unaudited)~~

change in fair value of the derivatives iswill be recognized directly in earnings. During the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, the Company recorded no$5,659 and $853, respectively, of hedge ineffectiveness in earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. At ~~September 30, 2017,~~March 31, 2020, the Company ~~had~~estimates that an additional $26,756 will be reclassified as an increase to interest expense over the next 12 months.

The following table presents the Company's outstanding interest rate derivatives that were designated as cash flow hedges of interest rate ~~risk:~~risk at March 31, 2020 and December 31, 2019 (dollars in thousands):

Interest Rate

Derivative

Number of

Instruments

Notional

Amount

Maturity Dates

March 31, 2020

Interest rate caps

54,145

August 1, 2020 and April 1, 2021

December 31, 2019

Interest rate caps

54,145

August 1, 2020 and April 1, 2021

Interest Rate Derivative Number of Instruments Notional Amount Maturity Dates
Interest rate cap 1 $ 21,520,000
August 1, 2020

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The following table presents the fair value of the Company’s derivative financial ~~instrument, an interest rate cap,~~instruments as well as ~~its~~their classification on the consolidated balance sheets at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~2019 (in thousands):

Asset Derivatives

Liability Derivatives

March 31, 2020

December 31, 2019

March 31, 2020

December 31, 2019

Balance Sheet

Fair Value

Balance

Sheet

Fair Value

Balance

Sheet

Fair Value

Balance

Sheet

Fair Value

Prepaid expenses and other assets

$ 1

Prepaid expenses

and other assets

$ —

—

$ —

—

$ —

Asset Derivatives Liability Derivatives
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Balance Sheet Fair Value Balance Sheet Fair Value Balance Sheet Fair Value Balance Sheet Fair Value
Prepaid expenses and other assets $ 5,204
N/A $ —
— $ —
N/A $ —

NOTE 14 - OPERATING EXPENSE LIMITATION

Under its charter, the Company must limit its total operating expenses to the greater of 2% of its average invested assets or 25% of its net income for the four most recently completed fiscal quarters, unless the ~~conflicts committee~~Conflicts Committee of the Company’s board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors.

Operating expenses for the four fiscal quarters ended ~~September 30, 2017 exceeded~~March 31, 2020 were in compliance with the charter imposed limitation; however, the conflicts committee determined that the relationship of the Company's operating expenses to its average invested assets was justified for these periods given the costs of operating a public company and the early stage of the Company's operations.

limitation.

NOTE 15 - SUBSEQUENT EVENTS

On October 30, 2017, the Company's board of directors declared cash distributions on the outstanding shares of all classes of the Company's common stock based on daily record dates from October 31, 2017 through December 28, 2017, which distributions the Company expects to pay on November 30, 2017 and December 29, 2017, respectively. Distributions for these periods have been or will be calculated based on stockholders of record each day during these periods at a rate of (i) $0.001434521 per share per day less (ii) the applicable daily distribution and shareholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business of each respective record date.

The Company has evaluated subsequent events through the filing of ~~these financial statements~~this report and determined nothat there have not been any events that have occurred ~~other than those discussed above~~ that would require adjustments to or ~~additional disclosure~~disclosures in the consolidated financial ~~statements.~~

statements, except for the following:

Renewal of Advisory Agreement

Effective April 28, 2020, the Company renewed the Advisory Agreement with the Advisor through April 27, 2021. The terms of the agreement are identical to those of the Advisory Agreement in effect through April 27, 2020.

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~~ITEM 2.~~	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

COVID-19 Pandemic

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how the pandemic will impact its tenants. While the Company did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, during April 2020, a small percent of tenants have requested rent deferral as a result of the pandemic. The Company is evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor is the Company forgoing its contractual rights under its lease agreements.

On April 10, 2020, FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance to those leases. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

The Company is unable to predict the impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

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ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Resource Apartment REIT III, Inc. and the notes thereto. See also "Cautionary Note Regarding Forward-Looking Statements" preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. As used herein, the terms "we," "our" and "us" refer to Resource Apartment REIT III, Inc., a Maryland corporation, and, as required by context, Resource Apartment REIT III OP, LP, a Delaware limited partnership, and to their subsidiaries.

Overview

Resource Apartment REIT III, Inc. is a Maryland corporation that intends to take advantage of its sponsor's multifamily investing and lending platforms to invest in apartment communities in order to provide stockholders with growing cash flow and increasing asset values. We ~~intend to acquire~~have acquired underperforming apartments which we will renovate and stabilize in order to increase rents. ~~To a lesser extent, we will also seek to originate and acquire commercial real estate debt secured by apartments. We cannot predict, however, the ultimate allocation of net proceeds from our initial~~Our primary public offering ~~between property acquisitions and debt investments at this time because this allocation will depend, in part, on market conditions and opportunities and on~~stage terminated as of October 31, 2019 having raised substantially less than the ~~amount of financing that~~maximum offering amount. Therefore, we ~~are~~do not expect to be able to ~~obtain with respect to the types~~invest in as diverse a portfolio of ~~assets in which~~properties as we seek to invest. If we are not able to raise a substantial amount of offering proceeds, our plan of operation will be scaled down considerably, and we would expect to acquire a limited number of assets.otherwise would. We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that Resource REIT Advisor, LLC ~~(formerly known as Resource Apartment Advisor III, LLC)~~ (our "Advisor") presents us with attractive investment opportunities that allow us to meet the real estate investment trust ("REIT") requirements under the Internal Revenue Code of 1986, as amended, our portfolio composition may vary from what we initially expect.

COVID-19 Pandemic and Portfolio Outlook

Since initially being reported in December 2019, COVID-19 has spread around the world, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the pandemic is rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including the real estate industry, directly or indirectly. The rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact the pandemic may have on our business, financial condition, results of operations and cash flows.

In the near term many of our tenants may suffer difficulties with their personal financial situations as a result of job loss or reduced income and, depending upon the duration of quarantines and the corresponding economic slowdown, some of our tenants have or will seek rent deferrals or become unable to pay their rent. As of April 30, 2020, we had received April rent payments equal to approximately 97.3% of the monthly rent for April, which is a reduction in the rate of collections of approximately 0.9% from our rent collections in March 2020. In addition, we have approved short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion, from approximately 0.1% of our tenants, equal to approximately 0.1% of our monthly rent for April. Not all tenant requests will ultimately result in modified agreements, nor are we forgoing our contractual rights under our lease agreements. April collections and rent relief requests to-date may not be indicative of collections or requests in any future period. The impact of the COVID-19 pandemic on our rental revenue for the second quarter of 2020 and thereafter cannot however, be determined at present. In addition, we expect the economic disruptions caused by the COVID-19 pandemic will cause elevated credit losses and impede our ability to increase rental rates or lease vacant units, in particular if our current tenants default on their leases and vacate. We are temporarily waiving late fees, halting evictions, and offering a payment deferral plan to residents who have been adversely financially impacted by the COVID-19 pandemic. To help mitigate the impact on our operating results of the COVID-19 pandemic, we have initiated various operational cost saving initiatives across our portfolio. In addition, we have taken measures to preserve cash and offset any impact to our liquidity that may occur as a result of the COVID-19 pandemic. These measures included the suspension of distributions as of April 1, 2020 as well as the partial suspension of our share redemption program effective April 29, 2020. Additionally, most of our value-add rehabilitation projects will be deferred temporarily.

The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we operate and our multifamily tenants reside and work could have material and adverse effects on our business,

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financial condition, results of operations and cash flows due to, among other factors: reduced economic activity, general economic decline or recession, which may result in job loss or bankruptcy for residents at our properties and may cause our residents to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations; health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease; disruption in supply and delivery chains; a general decline in business activity and demand for real estate; difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and the potential negative impact on the health of personnel of our advisor, particularly if a significant number of our advisor’s employees are impacted, which would result in a deterioration in our ability to ensure business continuity and maintain our properties during a disruption.

The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. However, notwithstanding the challenging economic circumstances created by the COVID-19 pandemic, we believe our focus on multifamily assets makes us better positioned relative to other classes of real estate to withstand many of the adverse impacts of the COVID-19 pandemic as housing is a basic need, rather than a discretionary expense. In addition, as noted above, we have taken several steps to offset any disruptions in rent that may occur as a result of the COVIC-19 pandemic. Further, we have no debt maturing until August 2024 and are conservatively leveraged with an aggregate portfolio leverage of 66%. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows.

Results of Operations

We were formed on July 15, 2015. We commenced active real estate operations on August 19, 2016 with the acquisition of our first multifamily property. ~~As such,~~Since our inception, we ~~had limited~~have acquired interests in seven multifamily properties. At March 31, 2020, we owned six multifamily properties.

Although the COVID-19 pandemic did not significantly impact our operating results ~~during~~for the ~~three and nine months ended September 30, 2017 and 2016. At September 30, 2017, we owned two multifamily properties.~~

Our management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting our targeted portfolio or the U.S. apartment community industry, which may reasonably be expected to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of such assets or those thatquarter ending March 31, 2020, we expect that the COVID-19 outbreak will adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, ~~acquire.~~

rental revenues and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are outside of our control, as discussed above.

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Three Months Ended March 31, 2020Compared to theThree Months Ended March 31, 2019

The following table sets forth the results of our operations:

	Three Months Ended March 31,
	2020			2019
Revenues:
Rental income	$	5,089		$	3,723
Total revenues		5,089			3,723

Expenses:
Rental operating - expenses		869			682
Rental operating - payroll		489			371
Rental operating - real estate taxes		730			497
Subtotal- rental operating		2,088			1,550
Property management fees		—			2
Management fees - related parties		780			574
General and administrative		416			860
Loss on disposal of assets		129			87
Depreciation and amortization expense		2,360			2,237
Total expenses		5,773			5,310
Loss before net gains on dispositions		(684	)		(1,587	)
Net gain on disposition of property		530			—
Loss before other income (expense)		(154	)		(1,587	)

Other income (expense):
Interest income		27			70
Interest expense		(1,543	)		(1,268	)
Total other income (expense)		(1,516	)		(1,198	)
Net loss	$	(1,670	)	$	(2,785	)

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The following table presents the results of operations separated into three categories: the results of operations of the four properties that we owned for the entirety of both periods presented, properties purchased or sold during either of the periods presented and company level activity for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019 (in thousands):

	Three Months Ended March 31, 2020												Three Months Ended March 31, 2019
	Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total			Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total
Revenues:
Rental income	$	3,446		$	1,643		$	—		$	5,089		$	3,251		$	472		$	—		$	3,723
Total revenues		3,446			1,643			—			5,089			3,251			472			—			3,723

Expenses:
Rental operating -expenses		477			392			—			869			636			46			—			682
Rental operating - payroll		320			169			—			489			318			53			—			371
Rental operating - real estate taxes		371			359			—			730			390			107			—			497
Subtotal- rental operating		1,168			920			—			2,088			1,344			206			—			1,550
Property management fees		—			—			—			—			—			2			—			2
Management fees - related parties		153			72			555			780			144			15			415			574
General and administrative		99			54			263			416			156			20			684			860
Loss on disposal of assets		98			31			—			129			87			—			—			87
Depreciation and amortization expense		1,571			789			—			2,360			1,915			322			—			2,237
Total expenses		3,089			1,866			818			5,773			3,646			565			1,099			5,310
Loss before net gains on dispositions		357			(223	)		(818	)		(684	)		(395	)		(93	)		(1,099	)		(1,587	)
Net gain on disposition of property		—			530			—			530			—			—			—			—
Loss before other income (expense)		357			307			(818	)		(154	)		(395	)		(93	)		(1,099	)		(1,587	)

Other income (expense):
Interest income		5			1			21			27			—			—			70			70
Interest expense		(1,039	)		(504	)		—			(1,543	)		(1,144	)		(124	)		—			(1,268	)
Total other income (expense)		(1,034	)		(503	)		21			(1,516	)		(1,144	)		(124	)		70			(1,198	)
Net loss	$	(677	)	$	(196	)	$	(797	)	$	(1,670	)	$	(1,539	)	$	(217	)	$	(1,029	)	$	(2,785	)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Rental income $ 544,431
$ 25,178
$ 645,585
$ 25,178
Total revenues 544,431
25,178
645,585
25,178

Expenses:
Rental operating 236,562
3,249
277,163
3,249
Acquisition costs 823,411
112,711
906,644
112,711
Property management fees 2,776
1,501
7,538
1,501
Management fees - related parties 82,938
3,110
96,395
3,110
General and administrative 342,956
322,765
883,360
349,223
Loss on disposal of assets 185,114
—
—
185,114
—
Depreciation and amortization expense 345,352
10,376
394,050
10,376
Total expenses 2,019,109
453,712
2,750,264
480,170
Loss before other income (expense) (1,474,678 ) (428,534 ) (2,104,679 ) (454,992 )

Other income (expense):
Other income —
—
1,500
—
Interest income 3,902
432
9,386
432
Interest expense (132,007 ) (2,989 ) (157,987 ) (2,989 )
Net loss $ (1,602,783 ) $ (431,091 ) $ (2,251,780 ) $ (457,549 )

~~During~~

Total revenues

Total revenues for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 increased by $1.4 million as compared to the three months ended March 31, 2019 due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019. In addition, the increase reflects the implementation of our investment strategy to increase monthly rental income after renovating and ~~2016, we incurred~~stabilizing operations.

Rental operating - expenses, payroll, and real estate taxes

Rental operating - expenses, payroll, and real estate taxes for the ~~following general~~three months ended March 31, 2020 increased by approximately $538,000 as compared to the three months ended March 31, 2019 due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019.

Management fees - related parties

(Back to Index)

Management fees - related parties expense for the three months ended March 31, 2020 increased by approximately $206,000 as compared to the three months ended March 31, 2019 due to an increase in property management fees and asset management fees due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019.

General and administrative

General and administrative ~~expenses:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Allocated payroll and benefits $ 139,404
$ 174,636
$ 390,813
$ 174,636
Directors' fees 18,770
29,000
84,868
29,000
Allocated rent 24,202
16,928
71,693
16,928
Professional fees 37,047
24,434
111,726
50,472
Travel and entertainment 25,117
2,188
38,905
2,188
Insurance 25,809
30,080
18,486
30,404
IT related expenses 60,369
36,409
131,845
36,505
Other 12,238
9,090
35,024
9,090
$ 342,956
$ 322,765
$ 883,360

$ 349,223

Asexpense for the three months ended March 31, 2020 decreased by approximately $444,000 as compared to the three months ended March 31, 2019 due to a ~~result~~decrease in allocated expenses effective July 1, 2019.

Depreciation and amortization

Depreciation and amortization expense is comprised of the ~~timing~~depreciation on our rental properties and amortization of ~~the commencement~~intangible assets related to in-place leases which are amortized over a period of ~~our public offering and our active real estate operations, comparative operating results are not relevant~~approximately six to ~~a discussion of operations~~eight months after acquisition. Depreciation expense for the ~~two periods represented. We expect revenues and expenses~~three months ended March 31, 2020 increased by approximately $589,000 as compared to ~~increase in future periods~~the three months ended March 31, 2019 due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as ~~we acquire additional investments.~~

compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019. Amortization expense for the three months ended March 31, 2020 decreased by approximately $466,000 as compared to the three months ended March 31, 2019 due to in-place leases being fully amortized during the three months ended March 31, 2020.

Interest expense

Interest expense for the three months ended March 31, 2020 increased by approximately $275,000 as compared to the three months ended March 31, 2019 due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019.

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Liquidity and Capital Resources

~~We are~~

On April 28, 2016, our Registration Statement on Form S-11 (File No. 333-207740), covering a public offering ~~and selling to the public in our public offering~~of up to $1.1 billion inof shares of our common stock, consisting of up to $1.0 billion of shares in our primary offering and up to $100.0 million of shares pursuant to our distribution reinvestment plan ("DRIP") was declared effective under the Securities Act of 1933, as amended (the “Securities Act”).

Through ~~June 30,~~July 2, 2017, we offered shares of Class A and Class T common ~~stock in our primary offering at prices of $10.00 per share and $9.47 per share, respectively.~~stock. As of July 3, 2017, we ceased offering shares of Class A and Class T common stock in our primary offering and commenced offering shares of Class R and Class I common ~~stock in~~stock.

The primary portion of our initial public offering closed on October 31, 2019, having raised aggregate primary offering at

~~(Back~~proceeds of $111.4 million from the sale of 601,207 Class A shares, 1,049,996 Class T shares, 9,356,067 Class R shares and 624,325 Class I shares of common stock. We are continuing to ~~Index)~~

~~(Back to Index)~~

~~prices of $9.52 per share~~offer Class A, Class T, and ~~$9.13 per share, respectively. The initial offering price for~~Class I shares ~~offered~~ pursuant to the ~~DRIP is $9.60 per share for Class A, $9.09 per share for Class T, $9.14 per share for Class R and $8.90 per share for Class I.~~

DRIP.

We anticipate deriving the capital required to ~~purchase real estate investments and~~ conduct our operations from our operating income, the proceeds of our ~~initial public~~DRIP offering, ~~and any future offerings we may conduct,~~ from secured or unsecured financings from banks or other lenders and from proceeds from the sale of assets. ~~In addition, our Advisor has and will advance funds to us for certain accrued organization and offering costs. As of September 30, 2017,~~At March 31, 2020, we have purchased ~~two~~seven properties using both offering proceeds and debt ~~financing.~~

Iffinancing and have sold one property.

Our primary public offering stage terminated as of October 31, 2019 having raised substantially less than the maximum offering amount. Therefore, we ~~are unable to raise substantial funds in the offering, we will make~~have made fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we ~~acquire.~~have acquired. Further, we will have certain fixed operating expenses, including certain expenses as a publicly ~~offered REIT, regardless of whether we are able to raise substantial funds in our offering.~~registered REIT. Our ~~inability to raise substantial funds would increase our~~ fixed operating expenses as a percentage of gross income ~~reducing~~will reduce our net income and ~~limiting~~could limit our ability to make distributions. ~~As of September 30, 2017, we have raised approximately $21.9 million in our public offering.~~

We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of properties we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties, debt investments or other assets we may hold. We cannot assure you that we will be able to access additional funds when we need them or upon acceptable terms.In addition, our ability to derive the capital needed to conduct our operations may be adversely affected by the impact of the COVID-19 pandemic as discussed above.

Capital Expenditures

We deployed a total of $1.9 million during the three months ended March 31, 2020 for capital expenditures (in thousands) We expect capital expenditures to be reduced in future periods as we have temporarily suspended certain capital improvement projects at our properties in order to preserve cash and offset any impact to our liquidity that may occur as a result of the COVID-19 pandemic on our operations:

Multifamily Community	Capital deployed during three months ended March 31, 2020		Remaining capital budgeted
Payne Place	$	—	$	—
Bay Club		122		570
Tramore Village		464		1,083
Matthews		304		1,297
Kensington		197		1,205
Wimbledon Oaks		518		797
Summit		299		2,415
	$	1,904

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Gross offering proceeds

At March 31, 2020, shares of our $0.01 par value Class A, Class T, Class R, and Class I common stock have been issued as follows (dollars in thousands):

	Class A					Class T					Class R					Class I
	Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds
Shared issued through primary offering ⁽¹⁾		586,207		$	5,601		1,049,996		$	9,943		9,356,068		$	89,917		624,325		$	5,760
Shares issued through stock dividends		12,860			—		15,495			—		—			—		—			—
Shares issued through distribution reinvestment plan		34,179			318		91,763			834		356,453			3,244		115,513			1,050
Shares issued in conjunction with the Advisor's initial investment, net of 5,000 share conversion		15,000			200		—			—		—			—		—			—
Total		648,246		$	6,119		1,157,254		$	10,777		9,712,521		$	93,161		739,838		$	6,810
Shares redeemed and retired		(22,398	)				(35,615	)				(32,122	)				(13,415	)
Class R share conversion ⁽²⁾		—					—					(9,680,399	)				9,680,399
Total shares issued and outstanding at March 31, 2020		625,848					1,121,639					—					10,406,822

(1)Includes 222,222 of Class A shares issued to RAI.

(2)On ~~December 15, 2016, we, through~~November 1, 2019, all outstanding Class R shares converted to Class I shares.

Debt

The following table presents a ~~wholly owned subsidiary, entered into a 30-year secured~~summary of our mortgage ~~loan with JPMorgan Chase Bank, N.A., an unaffiliated lender, for borrowings~~notes payable, net (in thousands):

	March 31, 2020							December 31, 2019
Collateral	Outstanding Borrowings		Deferred Financing Costs, net			Carrying Value		Outstanding borrowings		Deferred Financing Costs, net			Carrying Value
Payne Place	$	—	$	—		$	—	$	1,525	$	(28	)	$	1,497
Bay Club		21,298		(196	)		21,102		21,398		(208	)		21,190
Tramore Village		32,625		(289	)		32,336		32,625		(304	)		32,321
Matthews Reserve		23,850		(255	)		23,595		23,850		(267	)		23,583
The Park at Kensington		21,760		(248	)		21,512		21,760		(260	)		21,500
Wimbledon Oaks		18,410		(225	)		18,185		18,410		(235	)		18,175
Summit		27,580		(330	)		27,250		27,580		(343	)		27,237
Total	$	145,523	$	(1,543	)	$	143,980	$	147,148	$	(1,645	)	$	145,503

For maturity dates, related interest rates, monthly debt service, and monthly escrow payments, see Note 8 of approximately $1.6 million secured by Payne Place (the "Payne Place Mortgage Loan"). The Payne Place Mortgage Loan matures on January 1, 2047. The Payne Place Mortgage Loan bears interest at an initial fixed ratethe notes to our consolidated financial statements.

As of ~~3.11% until January 1, 2020. Beginning January 1,~~March 31, 2020, the loan will bear interest at a rate of LIBOR plus 2.25%. Monthly payments include repayments of principal and interest. Any remaining principal balance and all accrued and unpaid interest and fees will be due at maturity. We may prepay the Payne Place Mortgage Loan in full at any time or in part from time to time: (1) during the first year of the loan upon payment of a prepayment premium equal to 3% of the amount prepaid; (2) during the second year of the loan upon payment of a prepayment premium equal to 2% of the amount prepaid; (3) during the third year of the loan upon payment of a prepayment premium equal to 1% of the amount prepaid; and (4) after the third year of the loan with no prepayment premium. The Payne Place Mortgage Loan is guaranteed by us and Resource America, Inc. ("RAI"), the parent of our Manager.

On July 31, 2017, we, through a wholly owned subsidiary, entered into a seven year, $21.5 million secured mortgage loan with CBRE Capital Markets, Inc., an unaffiliated lender, secured by Bay Club (the "Bay Club Mortgage Loan"). The Bay Club Mortgage Loan matures on August 1, 2024. The Bay Club Mortgage Loan bears interest at a rate of LIBOR plus 1.87%, with a maximumweighted average interest rate of 5.75%. Monthly payments are interest only for the first 24 months. Beginning on August 1, 2019, we will pay both principal and interest based on 30 year amortization. Any remaining principal balance and all accrued and unpaid interest and fees will be due at maturity. We may prepay the Bay Club Mortgage Loan in full at any time (1) after July 31, 2019 and until April 30, 2024 upon payment of a prepayment premium equal to 1% of the principal amount prepaid; and (2) after April 30, 2024 with no prepayment premium. The non-recourse carveouts under the loan documents for the Bay Club Mortgage Loan are guaranteed by us.

our outstanding indebtedness was 3.71%.

Although there is no limit on the amount we can borrow to acquire a single real estate investment, we may not leverage our assets with debt financing such that our borrowings are in excess of 300% of our net assets unless a majority of our independent directors find substantial justification for borrowing a greater amount. Examples of such a substantial justification include, without limitation, obtaining funds for the following: (i) to repay existing obligations, (ii) to pay sufficient distributions to maintain REIT status, or (iii) to buy an asset where an exceptional acquisition opportunity presents itself and the terms of the debt agreement and the nature of the asset are such that the debt does not increase the risk that we would become unable to meet

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our financial obligations as they became due. On a total portfolio basis, however, based on current lending market conditions, we expect to leverage our assets in an amount equal to ~~55%~~65% to ~~60%~~75% of the cost of our assets.

We ~~may finance~~have financed the acquisition costs of ~~individual~~ real estate investments ~~as well as the acquisition costs of all or a group of real estate investments acquired by us,~~ by causing our subsidiaries to borrow directly from third-party financial institutions or other commercial lenders. ~~Under these circumstances, our Advisor anticipates that certain~~The properties acquired ~~will~~ serve as collateral for the debt we ~~incur to acquire those particular properties~~incurred and ~~that we will seek to obtain nonrecourse financing for the acquisition of the properties. However, there is no guarantee that our Advisor will be successful in obtaining financing arrangements on a~~

~~(Back to Index)~~

~~property-by-property basis and that the loans would be~~are nonrecourse to us. Additionally, we may obtain corporate-level financing through a line of credit from third-party financial institutions or other commercial ~~lenders. Our~~lenders and our assets ~~will~~would serve as collateral for this type of debt incurred to acquire real estate investments.

Central banks and regulators in a number of major jurisdictions (including both the U.S. and the U.K.) have convened working groups to find, and implement the transition to, suitable replacements for Interbank Offered Rates (“IBORs”), including London Interbank Offered Rate (“LIBOR”). The Financial Conduct Authority of the U.K., which regulates LIBOR, has announced it will not compel panel banks to contribute to LIBOR after 2021.

We ~~may also obtain seller financing~~have exposure to IBORs through floating rate mortgage debt with ~~respect~~maturity dates beyond 2021 for which the interest rates are tied to ~~specific assets that we acquire.~~

LIBOR. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Any changes in benchmark interest rates could increase our cost of capital, which could impact our results of operations, cash flows, and the market value of our real estate investments.

Organization and Offering Costs

We ~~incur~~incurred organization and offering costs in pursuit of our ~~financing.~~capital raise. Our organization and offering costs (other than selling commissions, the dealer manager fees and distribution and shareholder servicing fees) ~~are~~were initially being paid by the Advisor on our behalf. Organization costs ~~include~~included all expenses that we ~~incur~~incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate.

Pursuant to the Advisory Agreement, we ~~will be~~are obligated to reimburse the Advisor for organization and offering costs paid by the Advisor on our behalf, up to an amount equal to 4.0% of gross offering proceeds as of the termination of this offering ifas we ~~raise~~raised less than $500.0 million in the primary ~~offering, and 2.5% of gross offering proceeds as of the termination of this offering if we raise $500.0 million or more in the primary~~ offering. However, if we raise the maximum offering amount in the primary offering, we expect organization and offering expenses (other than selling commissions, the dealer manager fee and the distribution and shareholder servicing fee) to be approximately $10.0 million or 1% of gross offering proceeds. These organization and offering expenses ~~include~~included all actual expenses (other than selling commissions, the dealer manager fee and the distribution and shareholder servicing fee), including reimbursements to our Advisor for the portion of named executive officer salaries allocable to activities related to this offering, to be incurred on our behalf and paid by us in connection with the offering.

~~Through September~~

Our Advisory Agreement provides that we were not responsible for the repayment of any unreimbursed organization and offering expenses or operational expenses incurred by our Advisor on our behalf through March 31, 2018 until after the termination of the primary portion of our ongoing initial public offering. Additionally, the Advisory Agreement provides that such unreimbursed organization and offering expenses or operational expenses incurred or paid by our Advisor on our behalf through March 31, 2018 are required to be reimbursed ratably starting after the termination of the primary portion of our ongoing initial public offering through April 30, ~~2017,~~2021 for organization and offering expenses and through April 30, 2020 for operating expenses. These payments began on November 1, 2019.

As of March 31, 2020, we have ~~charged~~incurred approximately ~~$501,000 to equity~~$9.2 million for ~~the payment of~~public offering costs consisting of accounting, advertising, allocated payroll, due diligence, marketing, legal ~~printing~~ and similar costs. ~~At September 30, 2017, the Advisor has incurred~~Initially, we had paid approximately ~~$5.4 million~~$249,000 of these costs directly and our Advisor advanced $9.0 million on our ~~behalf, of~~behalf.

Of this total, we have charged $4.4 million to equity, which ~~approximately $4.9 million has been deferred at September 30, 2017. A~~represents the portion of deferred offering costs ~~will be charged~~allocated to ~~equity upon the sale of~~ each share of common stock sold ~~under~~in the public ~~offering. Such costs will only become a~~offering and is the maximum liability ~~of the Advisor to the extent that~~for organization and offering ~~expenses (excluding selling commissions, dealer manager fees and and~~costs, based on the ~~distribution and shareholder servicing fee) incurred~~4.0% limit described above. Due to the maximum liability of $4.4 million, we are responsible for the $249,000 initially paid by us ~~exceed 4.0%~~and $4.2 million of the ~~gross proceeds~~advance from our Advisor. An adjustment was made during the year ended December 31, 2019, to relieve us from the remaining $4.8 million liability due to our Advisor. As of ~~the initial public offering if~~March 31, 2020, we ~~raise less than $500~~have reimbursed $1.7 million or 2.5% of gross proceeds of the initial public offering if we raise $500 million or more. If, however, we raise the maximum offering amount in the primary offering, organization and offering expenses (excluding selling commissions, dealer manager fees and the distribution and shareholder servicing fee) are estimated to ~~be approximately 1.0% of the gross proceeds of the initial public offering. When recorded by us, organization~~our Advisor.

Organization costs, ~~are expensed as incurred,~~ which include all expenses incurred by us in connection with our formation, including but not limited to legal fees and other costs to ~~incorporate. There can be no assurance that our plans to raise capital will be successful.~~

incorporate, were expensed as incurred.

Outstanding Class T shares issued in our primary offering ~~are~~were subject to ~~a 1.0%~~an annual distribution and shareholder servicing fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018) for up to five years from the date on which such share is issued. ~~We will cease paying~~Effective November 1, 2019, in connection with the termination of our initial public primary offering, we ceased accruing the distribution and shareholder servicing fee on each Class T share ~~prior to the fifth anniversary of its issuance on the earliest of the following, should any of these events occur: (i) the date at which, in the aggregate,~~as we had reached certain underwriting compensation ~~from all sources equals 10% of the gross proceeds from our primary offering (i.e., excluding proceeds from sales pursuant~~limits.

(Back to our DRIP); (ii) the date on which we list our common stock on a national securities exchange; and (iii) the date of a merger or other extraordinary transaction in which we are a party and in which our common stock is exchanged for cash or other securities. We cannot predict if or when any of these events will occur.

Index)

(Back to Index)

Outstanding Class R shares issued in our primary offering ~~are~~were also subject to ~~a 1.0%~~an annual distribution and shareholder servicing ~~fee. We will cease paying~~fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018). Effective November 1, 2019, following the termination of our initial public primary offering, each of our Class R shares of common stock automatically converted into a Class I share of common stock pursuant to the terms of the Articles Supplementary for the Class R shares and we ceased accruing the distribution and shareholder servicing fee with respect to Class R shares ~~held in~~as we no longer had any ~~particular account, and those~~ Class R shares ~~will convert into a number of Class I shares determined by multiplying each Class R share to be converted by~~outstanding.

We recorded the applicable "Conversion Rate," on the earlier of (i) the date after the termination of the primary offering at which, in the aggregate, underwriting compensation from all sources equals 10% of the gross proceeds from our primary offering; (ii) a listing of the Class I shares on a national securities exchange; (iii) a merger or consolidation of the company with or into another entity, or the sale or other disposition of all or substantially all of our assets; and (iv) the end of the month in which the total underwriting compensation (which consists of selling commissions, dealer manager fees and distribution and shareholder servicing fees) paid with respect to such Class R shares purchased in a primary offering is not less than 8.5% (or a lower limit, provided that, in the case of a lower limit, the agreement between the Dealer Manager and the broker-dealer in effect at the time Class R shares were first issued to such account sets forth the lower limit and the Dealer Manager s advises our transfer agent of the lower limit in writing) of the gross offering price of those Class R shares purchased in such primary offering (excluding shares purchased through our distribution reinvestment plan).

~~(Back to Index)~~

~~We record the distribution and stockholder serving~~ fees as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum fees payable in relation to the Class T and Class R shares on the date the shares are issued. The liability ~~will be~~was relieved over time, as the fees ~~are~~were paid to the Dealer Manager, or ~~it will be adjusted if~~as the fees are adjusted (if the fees were no longer payable pursuant to the conditions described above. For issued Class T shares, we have accrued an estimate of the total distribution and shareholder servicing fee of $497,173 for the full five year period at September 30, 2017, of which we paid $40,491 cumulatively through September 30, 2017. For issued Class R shares, we have accrued an estimate of the total distribution and shareholder servicing fee of $176,075 at September 30, 2017, of which we paid $713 cumulatively through September 30, 2017.

~~Acquisition and~~ above).

Asset Management Costs

~~In addition to making investments in accordance with our investment objectives, we~~

We expect to use our capital resources to make payments to our Advisor. During our acquisition stage, we expect to make payments to our Advisor in connection with the acquisition of real estate investments. In addition, we expect to continueoperating income to make payments to our Advisor for the management of our assets and costs incurred by our Advisor in providing services to us.

Operating Expenses

At the end of each fiscal quarter, our Advisor must reimburse us the amount by which our aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of our average invested assets or 25% of our net income, unless the ~~conflicts committee~~Conflicts Committee of our ~~board of directors~~Board has determined that such excess expenses were justified based on unusual and non-recurring factors.

Operating expenses for the four quarters ended March 31, 2020 were in compliance with the charter-imposed limitation.

Operating expenses for the four fiscal quarters ended ~~September 30, 2017~~March 31, 2020 exceeded the charter imposed limitation; however, the conflicts committee determined that the relationship of our operating expenses to our average invested assets was justified for these periods given the costs of operating a public company and the early stage of our operations.

"Average invested assets" means the average monthly book value of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. "Total operating expenses" means all expenses paid or incurred by us, as determined under accounting principles generally accepted in the United States ("GAAP"), that are in any way related to our operation, including advisory fees, but excluding (i) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of our stock; (ii) interest payments; (iii) taxes; (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves; (v) incentive fees paid in accordance with the NASAA Statement of Policy Regarding Real Estate Investment Trusts (the "NASAA REIT Guidelines"); (vi) acquisition fees and expenses (including expenses relating to potential investments that we do not close); (vii) real estate commissions on the sale of property; and (viii) other fees and expenses connected with the acquisition, disposition, management and ownership of real estate interests, loans or other property (such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).

Distributions

~~Cash Distributions~~

For the three ~~and nine~~months ended ~~September 30, 2017,~~March 31, 2020, we ~~declared and~~ paid aggregate distributions, ~~which~~as follows (in thousands):

	Three Months Ended March 31, 2020
	Class A		Class T		Class R		Class I		Total
True-up of prior year cash distributions declared	$	—	$	27	$	—	$	4	$	31

Distributions reinvested in shares of common stock paid	$	24	$	89	$	—	$	744	$	857
Cash distributions paid		60		61		—		640		761
Total distributions paid	$	84	$	150	$	—	$	1,384	$	1,618

We announced on March 30, 2020 that we were ~~paid from debt financing~~suspending distributions as of April 1, 2020 in order to preserve cash and ~~offering proceeds,~~offset any impact to the Company’s liquidity that may occur as ~~follows:~~

a result of the COVID-19 pandemic on our operations.

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Nine Months Ended September 30, 2017
Class A Class T Class R Class I Total
Distributions declared $ 119,955
$ 142,039
$ 35,094
$ 3,453
$ 300,541

Distributions reinvested in shares of common stock paid $ 39,923
$ 69,246
$ 6,198
$ 407
$ 115,774
Cash distributions paid 72,248
37,000
7,399
1,733
118,380
Total distributions paid $ 112,171
$ 106,246
$ 13,597
$ 2,140
$ 234,154

At September 30, 2017, the Company had accrued $91,561 for the cash distributions paid on October 31, 2017, which is reported in distributions payable in the consolidated balance sheet and included in the distributions declared above.

Distributions paid ~~distributions declared~~ and sources of distributions paid were as follows for the ~~nine~~three months ended ~~September 30, 2017:~~March 31, 2020 (in thousands):

	Distributions Paid									Sources of Distributions Paid
										Property Dispositions	Offering Proceeds
2020	Cash		Distributions Reinvested (DRIP)		Total		Cash Used in Operating Activities			Amount Paid / Percent of Total	Amount Paid / Percent of Total
First quarter	$	761	$	857	$	1,618	$	(1,861	)	$530 / 33%	$1,088 / 67%

Cash distributions paid since inception were as follows (in thousands):

Fiscal Period Paid	Per Share ₍₁₎	Distributions Reinvested in Shares of Common Stock		Net Cash Distributions		Total Aggregate Distributions
12 months ended December 31, 2016	$0.000547945 per day	$	4	$	11	$	15,904
Seven months ended July 31, 2017	$0.000547945 per day		41		48		88,694
Five months ended December 31, 2017	$0.001434521 per day		248		228		476,274
Six months ended June 30, 2018	$0.001434521 per day		606		496		1,102
Six months ended December 31, 2018	$0.001458630 per day		923		781		1,703,753
Three months ended March 31, 2019	$0.001458630 per day		577		493		1,070
Nine months ended December 31, 2019	$0.001469178 per day		2,189		1,964		4,153
Three months ended March 31, 2020	$0.001469178 per day		857		761		1,618
		$	5,445	$	4,782	$	2,292,568

Distributions Paid Distributions Declared Sources of Distributions Paid
2017 Cash Distributions Reinvested (DRIP) Total Cash Used in Operating Activities Total
Per Share⁽¹⁾
Operating Activities Offering Proceeds Debt Financing
Amount Paid / Percent of Total Amount Paid / Percent of Total Amount Paid / Percent of Total
First quarter $ 16,429
$ 11,092
$ 27,521
$ (4,598 ) $ 11,083
$0.015 - / - $ 27,521
/100% - / -
Second quarter $ 22,227
$ 21,214
$ 43,441
$ (64,700 ) $ 53,567
$0.051 - / - $ 43,441
/100% - / -
Third quarter $ 79,724
$ 83,468
$ 163,192
$ (325,606 ) $ 235,891
$0.132 - / - - / - $ 163,192
/100%
Total $ 118,380
$ 115,774
$ 234,154
$ (394,904 ) $ 300,541

(1)Distributions for Class T and Class R shareholders were reduced for the distribution and shareholder servicing ~~fee.~~

~~Cash distributions paid since inception were as follows:~~fee

Fiscal Period Paid
Per Share ⁽¹⁾
Distributions
Reinvested in
Shares of
Common Stock Net
Cash
Distributions Total
Aggregate
Distributions
12 months ended December 31, 2016 $.000547945 per day $ 4,380
$ 11,524
$ 15,904
Seven months ended July 31, 2017 $.000547945 per day 41,012
47,682
88,694
Two months ended September 30, 2017 $.001434521 per day 74,762
70,698
145,460
$ 120,154
$ 129,904
$ 250,058

~~(1) Distributions for Class T and Class R shareholders were reduced for the distribution and shareholder servicing fee.~~

through October 31, 2019.

Our net loss attributable to common stockholders for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 was ~~$2,251,780~~$1.7 million and net cash used in operating activities was ~~$394,904.~~$1.9 million. Our cumulative cash distributions and net loss attributable to common stockholders from inception through ~~September 30, 2017~~March 31, 2020 are ~~$250,058~~$10.2 million and ~~approximately $3.0~~$23.1 million, respectively. We have funded our cumulative distributions, which include net cash distributions and distributions reinvested by stockholders, with cash flows from operating activities, proceeds from our public offering, proceeds from debt financing and proceeds from ~~debt financing.~~property dispositions. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have fewer funds available for investment in commercial real estate and real estate-related debt, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

~~Stock Dividends~~

On April 25, 2017, the Company's board of directors authorized a stock dividend, in the amount of 0.01 shares of common stock, on each outstanding share of common stock to all common stockholders of record as of the close of business on July 1,

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~~2017. The stock dividend was issued in the same class of shares as the shares for which such stockholder received the stock dividend. The Company issued this stock dividend on July 14, 2017.~~

Funds from Operations and Modified Funds from Operations

Funds from operations, or FFO, is a non-GAAP financial performance measure that is widely recognized as a measure of REIT operating performance. We use FFO as defined by the National Association of Real Estate Investment Trusts to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property (including deemed sales and settlements of pre-existing relationships), plus depreciation and amortization on real estate assets, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries and noncontrolling interests. We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful for our investors in understanding our performance. Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, lower yields on cash held in accounts, income from portfolio properties and other portfolio assets, interest rates on acquisition financing and operating expenses.

Since FFO was promulgated, GAAP has adopted several new accounting pronouncements, such that management and many investors and analysts have considered the presentation of FFO alone to be insufficient. Accordingly, in addition to FFO,

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we use modified funds from operations, or MFFO, as defined by the Investment Program Association, or IPA. MFFO excludes from FFO the following items:


(1)	~~acquisition fees and expenses;~~


~~(2)~~	straight-line rent amounts, both income and expense;


~~(3)~~ (2)	amortization of above- or below-market intangible lease assets and liabilities;


~~(4)~~ (3)	amortization of discounts and premiums on debt investments;


~~(5)~~ (4)	impairment charges;


~~(6)~~ (5)	gains or losses from the early extinguishment of debt;


~~(7)~~ (6)	gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;


~~(8)~~ (7)	gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;


~~(9)~~ (8)	gains or losses related to consolidation from, or deconsolidation to, equity accounting;


~~(10)~~ (9)	gains or losses related to contingent purchase price adjustments; and


~~(11)~~ (10)	adjustments related to the above items for unconsolidated entities in the application of equity accounting.

We believe that MFFO is helpful in assisting management assess the sustainability of operating performance in future periods and, in particular, after our offering and acquisition stages are complete, primarily because it excludes acquisition expenses that affect property operations only in the period in which the property is acquired. Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.

As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following economic considerations. Many of the adjustments in arriving at MFFO are not applicable to us. Nevertheless, we explain below the reasons for each of the adjustments made in arriving at our MFFO definition:

~~Acquisition expenses.~~ ~~In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analysis~~

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differentiate costs to acquire the investment from the operations derived from the investment. Prior to 2009, acquisition costs for both of these types of investments were capitalized under GAAP; however, beginning in 2009, acquisition costs related to business combinations are expensed. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition expenses include those paid to our Advisor or third parties.

Adjustments for straight-line rents and amortization of discounts and premiums on debt investments. In the proper application of GAAP, rental receipts and discounts and premiums on debt investments are allocated to periods using various systematic methodologies. This application will result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance.

Adjustments for amortization of above or below market intangible lease assets.Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes predictably over time and that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the performance of the real estate.

Impairment charges, gains or losses related to fair-value adjustments for derivatives not qualifying for hedge accounting and gains or losses related to contingent purchase price adjustments.Each of these items relates to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding which may not be directly attributable to current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated gains or losses. In particular, because GAAP impairment charges are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe MFFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rate, occupancy and other core operating fundamentals.

Adjustment for gains or losses related to early extinguishment of hedges, debt, consolidation or deconsolidation and contingent purchase price. Similar to extraordinary items excluded from FFO, these adjustments are not related to continuing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators.

By providing MFFO, we believe we are presenting useful information that also assists investors and analysts in the assessment of the sustainability of our operating performance after our ~~offering and~~ acquisition ~~stages are~~stage is completed. We also believe that MFFO is a recognized measure of sustainable operating performance by the real estate industry. MFFO is useful in comparing the sustainability of our operating performance after our acquisition stage is completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities or as affected by other MFFO adjustments. ~~However,~~

A core element of our investment strategy and operations is the acquisition of distressed and value-add properties and the rehabilitation and renovation of such properties in an effort to create additional value in such properties. As part of our

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operations, we intend to realize gains from such value-add efforts through the strategic disposition of such properties after we have added value through the execution of our business plan. As we do not intend to hold any of our properties for a specific amount of time, we intend to take advantage of opportunities to realize gains from our value-add efforts on a regular basis during the course of our operations as such opportunities become available, in all events subject to the rules regarding "prohibited transactions" of real estate investment trusts of the Internal Revenue Code. Therefore, we also use adjusted funds from operations attributable to common stockholders, or AFFO, in addition to FFO and MFFO when evaluating our operations. We calculate AFFO by adding/subtracting gains/losses realized on sales of our properties from MFFO. We believe that AFFO presents useful information that assists investors ~~are cautioned that MFFO should only be used to assess~~and analysts in the ~~sustainability~~assessment of our operating performance ~~after our offering and acquisition stages are completed,~~ as it ~~excludes acquisition costs~~is reflective of the impact that regular, strategic property dispositions have ~~a negative effect~~ on our ~~operating performance and the reported book value of our common stock and stockholders’ equity during the periods in which properties are acquired.~~

continuing operations.

Neither FFO, MFFO nor ~~MFFO~~AFFO should be considered as an alternative to net ~~income~~loss attributable to common stockholders, nor is an indication of our liquidity, nor are any of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions. In particular, as we intend to continue to acquire properties as part of our ongoing operations, acquisition costs and other adjustments that are increases to MFFO are, and may continue to be, a significant use of cash. Accordingly, FFO, MFFO and ~~MFFO~~AFFO should be reviewed in connection with other GAAP measurements. Our FFO, MFFO and ~~MFFO~~AFFO as presented may not be comparable to amounts calculated by other REITs.

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Further, during the current period of uncertainty and business disruptions as a result of the outbreak of COVID-19, FFO, MFFO and AFFO are much more limited measures of assessing our operating performance. See “—Management’s Discussion and Analysis of Financial Condition and Results of Operations -- COVID-19 Pandemic and Portfolio Outlook” for a discussion of the impact of the outbreak of COVID-19 on our business.

The following section presents our calculation of FFO, ~~and~~ MFFO and ~~provides~~AFFO, in addition to providing additional information related to our ~~operations:~~operations (in thousands):

	Three Months Ended March 31,
	2020			2019
Net loss - GAAP	$	(1,670	)	$	(2,785	)
Net gain on disposition of property		(530	)		—
Depreciation expense		2,187			1,598
FFO attributable to common stockholders		(13	)		(1,187	)
Adjustments for straight-line rents		4			(3	)
Amortization of intangible lease assets		173			639
MFFO attributable to common stockholders		164			(551	)
Net gain on disposition of property		530			—
AFFO attributable to common stockholders	$	694		$	(551	)

Basic and diluted net loss per common share - GAAP	$	(0.14	)	$	(0.28	)
FFO per share	$	—		$	(0.12	)
MFFO per share	$	0.01		$	(0.05	)
AFFO per share	$	0.06		$	(0.05	)
Weighted average shares outstanding ⁽¹⁾		12,102			10,066

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net loss attributable to common stockholders - GAAP $ (1,602,783 ) $ (431,091 ) $ (2,251,780 ) $ (457,549 )
Depreciation expense 184,618
3,288
205,446
3,288
FFO attributable to common stockholders (1,418,165 ) (427,803 ) (2,046,334 ) (454,261 )
Adjustments for straight-line rents (58 ) —
1,885
—
Amortization of intangible lease assets 160,734
7,088
188,604
7,088
Acquisition costs 823,411
112,711
906,644
112,711
MFFO attributable to common stockholders $ (434,078 ) $ (308,004 ) $ (949,201 ) $ (334,462 )

(1)None of the shares of convertible stock are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of both March 31, 2020 and 2019.

Critical Accounting Policies

For a discussion of our critical accounting policies and estimates, see the discussion in our Annual Report on Form ~~10-~~

K10-K for the year ended December 31, ~~2016~~2019 under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies."

Subsequent Events

We have evaluated subsequent events and determined that no events have occurred, which would require an adjustment to or additional disclosure in the consolidated financial statements, except for the following:

~~On October 30, 2017,~~

Renewal of Advisory Agreement

Effective April 28, 2020, we renewed the Advisory Agreement with our ~~board~~Advisor through April 27, 2021. The terms of ~~directors declared cash distributions~~the agreement are identical to those of the Advisory Agreement in effect through April 27, 2020.

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COVID-19 Pandemic

We are closely monitoring the impact of the COVID-19 pandemic on ~~the outstanding shares of~~ all ~~classes~~aspects of our ~~common stock based~~business, including how the pandemic will impact our tenants. While we did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, in the month of April 2020, a small percent of tenants have requested rent deferral as a result of the pandemic. We are evaluating each tenant rent relief request on daily record dates from October 31, 2017 through December 28, 2017, which distributions we expect to pay on November 30, 2017 and December 29, 2017, respectively. Distributions for this period have been or will be calculated based on stockholders of record each day during these periods atan individual basis, considering a ~~rate of (i) $0.001434521 per share per day less (ii) the applicable daily distribution and shareholder servicing fees accrued for and allocable to any class of common stock, divided by the~~ number of ~~shares of common stock of such class outstanding as~~factors. Not all tenant requests will ultimately result in modified agreements, nor are we forgoing our contractual rights under our lease agreements.

On April 10, 2020, FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the ~~close~~COVID-19 pandemic. Consequently, for concessions related to the effects of ~~business~~the COVID-19 pandemic, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance to those leases. Entities may make the elections for any lessor-provided concessions related to the effects of ~~each respective record date.~~

the COVID-19 pandemic (e.g., deferrals of lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

We are unable to predict the impact that the pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk have been omitted as permitted under rules applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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 principal executive officer and our principal 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 our principal executive officer and principal financial officer, 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

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evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as of ~~September 30, 2017.~~

March 31, 2020.

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 ~~September 30, 2017~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become party to legal proceedings, which arise in the ordinary course of our business. We

are not currently involved in any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by governmental authorities.

ITEM 1A. RISK FACTORS

Please see the risks discussed below and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.

The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease could have material and adverse effects on our business, financial condition, results of operations and cash flows and the markets and communities in which we operate and our multifamily residents work and reside.

Since initially being reported in December 2019, COVID-19 has spread around the world, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. Many experts predict that the COVID-19 pandemic will trigger a period of global economic slowdown or recession. The rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of COVID-19.

The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we operate and our multifamily tenants work and reside could have material and adverse effects on our business, financial condition, results of operations and cash flows due to, among other factors:

reduced economic activity, general economic decline or recession, which may result in job loss or bankruptcy for residents at our properties and may cause our residents to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations;

~~Risk factors~~

health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease;

disruption in supply and delivery chains;

a general decline in business activity and demand for real estate;

federal, state and/or local laws or regulations or lender requirements implemented in response to COVID-19 that may prohibit us from evicting tenants at our properties;

difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and

the potential negative impact on the health of our advisor’s personnel, particularly if a significant number of our advisor’s employees are impacted, which would result in a deterioration in our ability to ensure business continuity and maintain our properties during a disruption.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts on our business and operations, our residents’ financial situation or the global economy as a whole. Nevertheless, it appears reasonably likely in the near term that many of our tenants may suffer reductions in income and, depending upon the duration of quarantines and the corresponding economic slowdown, some of our tenants will seek rent deferrals or become unable to pay their rent. In the last month, we have ~~been omitted~~received a small percent of requests for such deferrals. If tenants default on their rent and vacate, the ability to re-lease this space is likely to be more difficult if the economic slowdown continues and any long term impact of this situation, even after an economic rebound, remains unclear. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak or any other widespread epidemics will not occur, or that the global economy will recover, either of which could materially harm our business.

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The current offering price of shares under our distribution reinvestment plan is equal to 100% of our current estimated value per share which was derived from the estimated value of our investments as ~~permitted~~of December 31, 2019 and approved by our board of directors on March 19, 2020. It does not take into account developments in our portfolio or the markets since December 31, 2019, including the current business disruptions as a result of the COVID-19 pandemic. As a result of these developments, a reinvestment of distributions in our common stock bears increased risk.

Pursuant to our distribution reinvestment plan, participants in the distribution reinvestment plan acquire shares of our common stock under ~~rules applicable~~the plan at a price equal to ~~smaller reporting companies.~~

100% of the estimated value per share of our common stock. As such, participants currently acquire shares of the Company’s common stock under the plan at a price equal to $9.01 per share. The value of our shares will fluctuate over time in response to developments related to the performance of individual assets in the portfolio and the management of those assets, the real estate and finance markets and due to other factors. As such, the estimated value per share does not take into account developments in our portfolio since December 31, 2019. In particular, the outbreak of the COVID-19 pandemic, together with the resulting restrictions on travel and quarantines imposed, has had a negative impact on the economy and business activity globally as discussed in the risk factor above. These risks are not priced into our most recent estimated value per share and given the uncertainty, no assurances can be given that the purchase price of shares of our common stock reflect the underlying value of our assets. As a result, a reinvestment of distribution in our common stock bears increased risk.

For a full description of the methodologies and assumptions used to value our assets and liabilities in connection with the calculation of our most estimated value per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Market Information” of the Company’s annual report on Form 10-K for the year ended December 31, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

~~During~~

All securities sold by us during the ~~period covered by this report, we did not sell any unregistered securities.~~

~~Use of Proceeds~~

~~On April 28, 2016, our Registration Statement on Form S-11 (File No. 333-207740), covering our initial public~~three months ended March 31, 2020 were sold in an offering ~~of up to $1.1 billion in shares of common stock, was declared effective~~registered under the Securities Act of 1933. ~~We retained Resource Securities LLC (our "Dealer Manager") as the dealer manager for our offering.~~

We are offering up to $1.1 billion of shares of our common stock, consisting of up to $1.0 billion of shares in our primary offering and up to $100.0 million of shares pursuant to our DRIP. Through June 30, 2017, we offered shares of Class A and Class T common stock in our primary offering at prices of $10.00 per share and $9.47 per share, respectively. As of July 3, 2017, we ceased offering shares of Class A and Class T common stock in our primary offering and commenced offering shares of Class R and Class I common stock in our primary offering at prices of $9.52 per share and $9.13 per share, respectively. The initial offering price for shares offered pursuant to the DRIP is $9.60 per share for Class A common stock, $9.09 per share for Class T common stock, $9.14 per share for Class R common stock and $8.90 per share for Class I common stock. As of September 30, 2017, our Advisor has incurred costs on our behalf of approximately $5.4 million.

At September 30, 2017, a total of 601,207 Class A shares, including shares purchased by both our Advisor and RAI, 1,049,996 Class T shares, 616,508 Class R shares and 28,557 Class I shares of common stock have been issued in connection with our public offering resulting in gross offering proceeds of approximately $21.9 million. From the commencement of our public offering through September 30, 2017, we incurred selling commissions, dealer manager fees, other underwriting compensation and other organization and offering costs in the amounts set forth below. We generally paid selling commissions and dealer manager fees to our Dealer Manager for the sale of shares in our primary offering and our Dealer Manager reallowed all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse our Advisor and Dealer Manager for certain organizational and offering costs.

Type of Expense Amount
Selling commissions $ 556,667
Dealer manager fees 592,077
Distribution and shareholder servicing fee ⁽¹⁾
673,248
Other organization and offering costs ⁽²⁾
501,303
Total expenses $ 2,323,295

~~(1)~~

Outstanding Class T and R shares issued in our primary offering are subject to a 1% annual distribution and shareholder servicing fee from the date on which each share is issued. Such fees are not paid from offering proceeds and do not reduce the amount of net offering proceeds to us. At September 30, 2017, $632,044 of these fees are unpaid and included in due to related parties on our consolidated balance sheets.


~~(2)~~	~~At September 30, 2017, this amount is included in due to related parties on the consolidated balance sheets.~~

From the commencement of our initial public offering through September 30, 2017, the net offering proceeds to us, after deducting the total expenses incurred as described above, excluding the distribution and shareholder servicing fee as such fees do not reduce the net offering proceeds to us, were approximately $20.2 million. As of September 30, 2017, we have used the net proceeds from our ongoing initial public offering and debt financing to acquire approximately $30.8 million in real estate

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investments. Of the amount used for the purchase of these investments, approximately $665,000 was paid to our Advisor as acquisition fees and approximately $43,000 was paid to other affiliates for acquisition expense reimbursements.

Share Redemption Program

Our common stock is currently not listed on a national securities exchange and we will not seek to list our common stock unless and until such time as our ~~board of directors~~Board determines that the listing of our common stock would be in the best interests of our stockholders. In order to provide stockholders with the benefit of some interim liquidity, our ~~board of directors~~Board has adopted a share repurchase program that enables our stockholders to sell their shares back to us after they have held them for at least one year, subject to significant conditions and limitations. The terms of our share repurchase program are more flexible in cases involving the death or disability of a stockholder.

We may reject any request for repurchase of shares. Repurchases of shares of our common stock, when requested, generally will be made quarterly. We ~~will~~ limit the number of shares repurchased during any calendar year to 5.0% of the weighted-average number of shares of ~~our~~ common stock outstanding ~~on December 31~~during the 12-month period immediately prior to the effective date of ~~the previous calendar year.~~redemption. In addition, we are only authorized to repurchase shares using proceeds from our DRIP plus 1.0% of the operating cash flow from the previous fiscal year (to the extent positive) ~~and any additional operating funds, if any, as our Board in its sole discretion may reserve for this purpose.~~. Due to these limitations, we cannot guarantee that we will be able to accommodate all repurchase requests.

Unless the shares of our common stock are being repurchased in connection with a stockholder’s death or qualifying disability, the purchase price for shares repurchased under our share repurchase program will be as set forth below until June 30, 2018 (the "NAV Pricing Date"). Prior to the NAV Pricing Date, and unless the shares are being repurchased in connection with a stockholder’s death or qualifying disability, we will repurchase shares at a price equal to, or at a discount from, the purchase price paid for the shares being repurchased as follows:



~~Share Purchase Anniversary~~		~~Redemption Price as a Percentage of Purchase Price~~
~~Less than 1 year~~		~~No Repurchase Allowed~~
~~1 year~~		~~92.5%~~
~~2 years~~		~~95.0%~~

Notwithstanding the foregoing, until the NAV Pricing Date, shares received as a stock dividend will be redeemed at a purchase price of $0.00. In addition, the purchase price per share will be adjusted for any stock combinations, splits, recapitalizations and the like with respect to the shares of common stock and reduced by the aggregate amount of net sale or refinance proceeds per share, if any, distributed to the stockholder prior to the repurchase date. Shares repurchased in connection with a stockholder’s death or qualifying disability will be repurchased at a price per share equal to 100% of the amount the stockholder paid for each share, or, once we have established an estimated NAV per share, 100% of such amount, as determined by our board of directors, subject to any special distributions previously made to our stockholders. Shares repurchased in connection with a stockholder’s other exigent circumstances, such as bankruptcy, within one year from the purchase date, will be repurchased at a price per share equal to the price per share we would pay had the stockholder held the shares for one year from the purchase date, and at all other times in accordance with the terms described above.

A stockholder must have beneficially held the shares for at least one year prior to offering them for sale to us through our share repurchase program, unless the shares are being repurchased in connection with a stockholder’s death, qualifying disability, or certain other involuntary exigent ~~circumstances. Our~~circumstances, in which our Board ~~of Directors~~ reserves the right, in its sole discretion, at any time and from time to time, to waive the one-year holding period ~~requirement~~requirement.

Shares repurchased in ~~the event of the~~connection with a stockholder’s death or qualifying disability are repurchased at a price per share equal to 100% of the current NAV.

Shares repurchased in connection with a ~~stockholder,~~stockholder’s other involuntary exigent circumstances, such as bankruptcy or a mandatory distribution requirement under a stockholder’s ~~IRA.~~

~~During~~IRA, within one year from the ~~period covered by this report, we did not repurchase any of our securities as no securities were eligible for repurchase.~~

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~


a.	~~Not applicable~~


b.	~~Not applicable~~

~~ITEM 5. OTHER INFORMATION~~

Unaudited pro forma consolidated financial information of the Company for the nine months ended September 30, 2017 is filed as Exhibit 99.3 to this quarterly report on Form 10-Q. The unaudited pro forma consolidated statement of operations for

purchase date, will be repurchased at

(Back to Index)

a price per share equal to the ~~nine~~price per share we would pay had the stockholder held the shares for one year from the purchase date, and at all other times in accordance with the terms described below.

Shares received as a stock dividend are redeemed at the redemption price applicable to that stockholder’s initial share purchase anniversary.

Unless the shares of our common stock were repurchased in connection with a stockholder’s death or qualifying disability, the purchase price for shares repurchased under our share repurchase program were as set forth below as of March 31, 2020:

Share Purchase Anniversary	Redemption Price
Less than 1 year	No repurchase allowed
1 year	$	8.44
2 years	$	8.66
3 years	$	8.89
4 years	$	9.12

During the three months ended ~~September 30, 2017 is derived from~~March 31, 2020, we redeemed shares of our Class A, Class T and Class I common stock as follows:

	Class A				Class T				Class I
Period	Total Number of Shares Redeemed		Average Price Paid per Share		Total Number of Shares Redeemed		Average Price Paid per Share		Total Number of Shares Redeemed		Average Price Paid per Share
January 2020		—		—		—		—		—		—
February 2020		—		—		—		—		—		—
March 2020		5,484	$	8.89		3,587	$	8.89		2,416	$	8.44
		5,484				3,587				2,416

All redemption requests submitted in good order were honored for the ~~historical consolidated financial statements~~three months ended March 31, 2020.

On March 27, 2020, our board of directors approved the partial suspension of the ~~Company and has been adjusted~~share redemption program, effective as of April 29, 2020. As a result, our board of directors will not consider any redemption requests submitted for the second quarter of 2020 except for redemptions sought in connection with a stockholder’s death, qualifying disability or confinement to ~~give effect~~long-term care, which are not impacted by this suspension.

(Back to the Bay Club acquisition, as if it had occurred on January 1, 2016. Information regarding this transaction is set forth in Part I. Financial Information, Item 1. Financial Statements –Note 5. Acquisitions.

Index)

(Back to Index)

ITEM 6. EXHIBITS

Exhibit No.		Description

~~Exhibit No.~~ 3.1		~~Description~~
~~3.1~~		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed April 11, 2016)
~~3.2~~
3.2		Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed November 2, 2015)
~~3.3~~
3.3		Articles of Amendment (incorporated by reference to Exhibit 3.3 to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed June 28, 2017)
~~3.4~~
3.4		Articles Supplementary for the Class R shares of common stock (incorporated by reference to Exhibit 3.4 to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed June 28, 2017)
~~3.5~~
3.5		Articles Supplementary for the Class I shares of common stock (incorporated by reference to Exhibit 3.5 to Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 5 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed June 28, 2017)
~~4.1~~		Form of Subscription Agreement (incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed September 28, 2017)
~~4.2~~ 4.1		Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed November 2, 2015)
~~4.3~~
4.2		Second Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit ~~4.1 to Post-Effective Amendment No. 6~~99.1 to the ~~Company’s Registration Statement~~Company's Current Report on Form ~~S-11 (No. 333-207740)~~8-K filed ~~September 28, 2017)~~June 29, 2018)
~~4.4~~
10.1		~~Escrow~~Form of Indemnification Agreement ~~among~~between the Company ~~Resource Securities, Inc.~~ and ~~UMB Bank, N.A., dated April 28, 2016~~each independent director of the Company (incorporated by reference to Exhibit ~~4.4 to the Company’s Quarterly Report on Form 10-Q filed November 14, 2016)~~
10.1		~~Amended and Restated Dealer Manager Agreement, by and among Resource Apartment REIT III, Inc. and Resource Securities, Inc.(incorporated by reference to Exhibit 1.1~~ to the Company’s Current Report on Form 8-K filed ~~July 5, 2017)~~March 16, 2020)
~~10.2~~
10.2		~~Amendment to Selected Dealer~~Advisory Agreement ~~dated July 11, 2017,~~ by and ~~among~~between the Resource Apartment REIT III, Inc.~~, Ameriprise Financial Services, Inc., Resource Securities, Inc., Resource~~ and REIT Advisor, LLC, ~~and Resource Real Estate, Inc.~~dated April 28, 2020 (incorporated by reference to Exhibit ~~1.4 to Post-Effective Amendment No. 6~~10.1 to the Company's ~~Registration Statement~~Current Report on Form ~~S-11 (No.333-207740)~~8-K filed ~~September~~April 28, ~~2017)~~2020)
~~10.3~~		Multifamily Loan and Security Agreement by and between RRE Bay Club Holdings, LLC and CBRE Capital Markets, Inc., dated July 31, 2017 (incorporated by reference to Exhibit 10.8 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed September 28, 2017)
~~10.4~~ 31.1		Multifamily Note by RRE Bay Club Holdings, LLC in favor of CBRE Capital Markets, Inc., dated July 31, 2017 (incorporated by reference to Exhibit 10.9 to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed September 28, 2017)
~~31.1~~		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2~~
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~32.1~~
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~~
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
~~99.1~~		~~Share Redemption Program (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-11 (No. 333-207740) filed November 2, 2015)~~
~~99.2~~ 99.1		Second Amended and Restated Share Redemption Program (incorporated by reference to Exhibit 99.1 to the ~~Company’s~~Company's Current Report on Form 8-K filed July ~~5, 2017)~~24, 2018)
~~99.3~~		~~Unaudited Pro Forma Consolidated Financial Information for the Nine Months Ended September 30, 2017~~
101.1		Interactive Data Files

(Back to Index)

~~SIGNATURES~~

SIGNATURES

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



	RESOURCE APARTMENT REIT III, INC.

~~November 13, 2017~~ May 11, 2020		By: ~~/s/~~	/s/ Alan F. Feldman
			Alan F. Feldman
			Chief Executive Officer
			(Principal Executive Officer)

~~November 13, 2017~~ May 11, 2020		By: ~~/s/~~	/s/ Steven R. Saltzman
			Steven R. Saltzman
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

(Back to Index)



Maryland		47-4608249
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1845 Walnut Street, 18th Floor, Philadelphia, PA, 19103
(Address of principal executive offices) (Zip code)

(215) 231-7050
(Registrant's telephone number, including area code)



Large accelerated filero	☐	Accelerated ~~filer~~ o filer.	☐
Non-accelerated filero	~~(Do not check if a smaller reporting company)~~ ☑	Smaller reporting companyþ	☑
		Emerging growth companyþ	☑

		PAGE
PART I	FINANCIAL INFORMATION
		~~PAGE~~
~~PART I~~ ITEM 1.	~~FINANCIAL INFORMATION~~ Financial Statements

~~ITEM 1.~~	~~Financial Statements~~

	Consolidated Balance Sheets ~~- September 30, 2017~~– March 31, 2020 (unaudited) and December 31, ~~2016~~201 9	4

	Consolidated Statements of Operations and Comprehensive Loss - For the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (unaudited)	5

	Consolidated ~~Statement~~Statements of Changes in Stockholders' Equity ~~- Nine~~– Three Months Ended ~~September 30, 2017~~March 31, 2020 and 2019 (unaudited)	7

	Consolidated ~~Statement~~Statements of Cash Flows - For the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (unaudited)	8

	Notes to Consolidated Financial Statements ~~- September 30, 2017~~– March 31, 2020 (unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31 32

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	39 44

ITEM 4.	Controls and Procedures	39 44

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	41 45

ITEM 1A.	Risk Factors	41 45

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41 46

ITEM 3.6.	~~Defaults Upon Senior Securities~~Exhibits	42 48

~~ITEM 6.~~		~~Exhibits~~	43

SIGNATURES		44 49


☑
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934


☐
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
n/a		n/a		n/a



	September 30, 2017				December 31, 2016
	(unaudited)
ASSETS
Investments:
Rental properties, net	$	29,654,938			$	2,445,835
Identified intangible assets, net	562,568				27,870
Total investments	30,217,506				2,473,705

Cash	10,914,545				3,351,536
Restricted cash	427,116				7,733
Tenant receivables, net	721				788
Due from related parties	4,553				2,352
Subscriptions receivable	676,851				210,000
Prepaid expenses and other assets	147,562				100,485
Deferred offering costs	4,933,424				2,848,199
Total assets	$	47,322,278			$	8,994,798

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable, net of unamortized deferred financing costs of $353,061 and $34,166	$	22,769,848			$	1,590,834
Accounts payable and accrued expenses	253,350				214,284
Accrued real estate taxes	236,986				—
Due to related parties	7,594,906				3,616,713
Tenant prepayments	19,644				—
Security deposits	64,066				3,300
Distributions payable	91,561				25,174
Total liabilities	$	31,030,361			$	5,450,305

Stockholders’ equity:
Preferred stock, par value $0.01: 10,000,000 shares authorized, none issued and outstanding	—				—
Convertible stock, par value $0.01: 50,000 shares authorized, 50,000 and 50,000 issued and outstanding, respectively	500				500
Class A common stock, par value $0.01: 25,000,000 and 250,000,000 shares authorized, respectively, 618,569 and 384,195 issued and outstanding, respectively	6,186				3,842
Class T common stock, par value $0.01: 25,000,000 and 750,000,000 shares authorized, respectively, 1,073,229 and 114,037 issued and outstanding, respectively	10,732				1,140
Class R common stock, par value $0.01: 750,000,000 and 0 shares authorized, respectively, 617,186 and 0 issued and outstanding, respectively	6,172				—
Class I common stock, par value $0.01: 75,000,000 and 0 shares authorized, respectively, 28,602 and 0 issued and outstanding, respectively	286				—
Additional paid-in capital	19,922,440			��	4,380,126
Accumulated other comprehensive loss	(9,396		)		—
Accumulated deficit	(3,645,003		)		(841,115		)
Total stockholders’ equity	$	16,291,917			$	3,544,493
Total liabilities and stockholders’ equity	$	47,322,278			$	8,994,798



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Rental income	$	544,431		$	25,178		$	645,585		$	25,178
Total revenues	544,431			25,178			645,585			25,178

Expenses:
Rental operating	236,562			3,249			277,163			3,249
Acquisition costs	823,411			112,711			906,644			112,711
Property management fees	2,776			1,501			7,538			1,501
Management fees - related parties	82,938			3,110			96,395			3,110
General and administrative	342,956			322,765			883,360			349,223
Loss on disposal of assets	185,114			—			185,114			—
Depreciation and amortization expense	345,352			10,376			394,050			10,376
Total expenses	2,019,109			453,712			2,750,264			480,170
Loss before other income (expense)	(1,474,678		)	(428,534		)	(2,104,679		)	(454,992		)

Other income (expense):
Other income	—			—			1,500			—
Interest income	3,902			432			9,386			432
Interest expense	(132,007		)	(2,989		)	(157,987		)	(2,989		)
Net loss	$	(1,602,783	)	$	(431,091	)	$	(2,251,780	)	$	(457,549	)

Other comprehensive loss:
Designated derivatives, fair value adjustments	(9,396		)	—			(9,396		)	—
Total other comprehensive loss	(9,396		)	—			(9,396		)	—
Comprehensive loss	$	(1,612,179	)	$	(431,091	)	$	(2,261,176	)	$	(457,549	)



	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(2,251,780	)	$	(457,549	)
Adjustment to reconcile net loss to net cash (used in) provided by operating activities:
Loss on disposal of assets	185,114			—
Depreciation and amortization	394,050			10,376
Amortization of deferred financing costs	5,390			651
Changes in operating assets and liabilities:
Restricted cash	(38,443		)	—
Tenant receivable, net	67			(3,800		)
Due from related parties	4,971			(1,489		)
Prepaid expenses and other assets	285,774			(241,402		)
Due to related parties	982,779			494,154
Accounts payable and accrued expenses	13,040			204,886
Tenant prepayments	16,912			—
Security deposits	7,222			—
Net cash (used in) provided by operating activities	(394,904		)	5,827

Cash flows from investing activities:
Property acquisitions	(7,591,828		)	(2,493,672		)
Capital expenditures	(22,965		)	(1,979		)
Restricted cash	(6,056		)	—
Net cash used in investing activities	(7,620,849		)	(2,495,651		)

Cash flows from financing activities:
Net proceeds from issuance of common stock	15,719,233			2,254,961
Proceeds from borrowings	—			555,000
Payments on borrowings	(22,091		)	(250,000		)
Distributions paid on common stock	(118,380		)	—
Net cash provided by financing activities	15,578,762			2,559,961

Net increase in cash	7,563,009			70,137
Cash at beginning of period	3,351,536			200,000
Cash at end of period	$	10,914,545		$	270,137



	September 30, 2017		December 31, 2016
Real Estate Taxes	$	226,529	$	7,733
Insurance	67,031		—
Capital Improvements	133,556		—
Total	$	427,116	$	7,733



					Fair Value Assigned
Multifamily Community Name	City and State	Date of Acquisition	Contractual Purchase Price⁽¹⁾		Land		Building and Improvements		Furniture, Fixtures and Equipment		Intangible Assets		Other Liabilities
Bay Club	Jacksonville, Florida	7/31/2017	$	28,300,000	$	3,321,081	$	23,879,553	$	376,064	$	723,302	$	(232,980	)



	Three months ended September 30, 2017			Nine Months Ended September 30, 2017
Total Revenues	$	489,521		$	489,521
Net Loss	(707,429		)	(707,429		)
Acquisition Costs	211,080			294,313
Acquisition Fee	612,331			612,331



Collateral	Maturity Date	Annual Interest Rate		Average Monthly Debt Service		Average Monthly Escrow
Payne Place	1/1/2047	3.11%	₍₁₎₍₄₎	$	6,948	$	1,933
Bay Club	8/1/2024	3.10%	₍₂₎₍₃₎	56,479		40,667



2018	$	34,006
2019	70,044
2020	474,335
2021	491,320
2022	506,982
Thereafter	21,546,222
	$	23,122,909



2018	$	49,998
2019	49,956
2020	49,517
2021	48,346
2022	47,271
Thereafter	107,973
	$	353,061



	Class A Share	Class T Share		Class R Share		Class I Share
Initial Offering Price	$10.00	$9.47		$9.52		$9.13
Selling Commissions Paid by Company (per shares)	7.0%	2.0%		3.0%	⁽¹⁾	None
Dealer Manager Fee (per share)	3.0%	3.0%		3.5%	⁽¹⁾	1.5%
Annual Distributions and Shareholder Servicing Fee	None	1.0%	⁽²⁾	1.0%	⁽³⁾	None
Initial Offering Price Under the DRIP	$9.60	$9.09		$9.14		$8.90



	September 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage notes payable - outstanding borrowings	$	23,122,909	$	21,335,161	$	1,625,000	$	1,625,000



Interest Rate Derivative	Number of Instruments	Notional Amount		Maturity Dates
Interest rate cap	1	$	21,520,000	August 1, 2020



	Three Months Ended September 30,							Nine Months Ended September 30,
	2017			2016				2017			2016
Revenues:
Rental income	$	544,431		$	25,178			$	645,585		$	25,178
Total revenues	544,431			25,178				645,585			25,178

Expenses:
Rental operating	236,562			3,249				277,163			3,249
Acquisition costs	823,411			112,711				906,644			112,711
Property management fees	2,776			1,501				7,538			1,501
Management fees - related parties	82,938			3,110				96,395			3,110
General and administrative	342,956			322,765				883,360			349,223
Loss on disposal of assets	185,114			—			—	185,114			—
Depreciation and amortization expense	345,352			10,376				394,050			10,376
Total expenses	2,019,109			453,712				2,750,264			480,170
Loss before other income (expense)	(1,474,678		)	(428,534		)		(2,104,679		)	(454,992		)

Other income (expense):
Other income	—			—				1,500			—
Interest income	3,902			432				9,386			432
Interest expense	(132,007		)	(2,989		)		(157,987		)	(2,989		)
Net loss	$	(1,602,783	)	$	(431,091	)		$	(2,251,780	)	$	(457,549	)



	Distributions Paid									Distributions Declared			Sources of Distributions Paid
2017	Cash		Distributions Reinvested (DRIP)		Total		Cash Used in Operating Activities			Total		Per Share⁽¹⁾	Operating Activities	Offering Proceeds			Debt Financing
2017	Cash		Distributions Reinvested (DRIP)		Total		Cash Used in Operating Activities			Total		Per Share⁽¹⁾	Amount Paid / Percent of Total	Amount Paid / Percent of Total			Amount Paid / Percent of Total
First quarter	$	16,429	$	11,092	$	27,521	$	(4,598	)	$	11,083	$0.015	- / -	$	27,521	/100%	- / -
Second quarter	$	22,227	$	21,214	$	43,441	$	(64,700	)	$	53,567	$0.051	- / -	$	43,441	/100%	- / -
Third quarter	$	79,724	$	83,468	$	163,192	$	(325,606	)	$	235,891	$0.132	- / -	- / -			$	163,192	/100%
Total	$	118,380	$	115,774	$	234,154	$	(394,904	)	$	300,541



Fiscal Period Paid	Per Share ⁽¹⁾	Distributions Reinvested in Shares of Common Stock		Net Cash Distributions		Total Aggregate Distributions
12 months ended December 31, 2016	$.000547945 per day	$	4,380	$	11,524	$	15,904
Seven months ended July 31, 2017	$.000547945 per day	41,012		47,682		88,694
Two months ended September 30, 2017	$.001434521 per day	74,762		70,698		145,460
		$	120,154	$	129,904	$	250,058



Type of Expense	Amount
Selling commissions	$	556,667
Dealer manager fees	592,077
Distribution and shareholder servicing fee ⁽¹⁾	673,248
Other organization and offering costs ⁽²⁾	501,303
Total expenses	$	2,323,295