Resource Real Estate Opportunity REIT (RSRL) 424B3 Prospectus supplement

FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-160463

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

SUPPLEMENT NO. 4 DATED NOVEMBER 16, 2012

TO THE PROSPECTUS DATED JULY 13, 2012

This document supplements, and should be read in conjunction with, the prospectus of Resource Real Estate Opportunity REIT, Inc. dated July 13, 2012, Supplement No. 1 dated July 13, 2012, Supplement No. 2 dated July 26, 2012, and Supplement No. 3 dated August 14, 2012. As used herein, the terms “we,” “our” and “us” refer to Resource Real Estate Opportunity REIT, Inc. and, as required by context, Resource Real Estate Opportunity OP, LP, which we refer to as our “Operating Partnership” and to their subsidiaries. Capitalized terms used in this supplement have the same meanings as set forth in the prospectus. The purpose of this supplement is to disclose:

• the status of our offering;

• information regarding stock and cash distributions recently declared;

• an update to the risks related to an investment in our shares;

• “Management’s Discussion and Analysis of Financial Condition and Results of Operations” similar to that filed in our Quarterly Report on Form 10-Q for the period ended September 30, 2012; and

• our unaudited financial statements and the notes thereto as of and for the three and nine months ended September 30, 2012.

Status of the Offering

We commenced this initial public offering of shares of our common stock on June 16, 2010. As of November 14, 2012, we had accepted aggregate gross offering proceeds of $173.6 million related to the sale of 17.4 million shares of stock, including shares sold pursuant to our distribution reinvestment plan. As of November 14, 2012, approximately 57.7 million shares of our common stock remain available for sale in our primary offering, and approximately 7.4 million shares of our common stock remain available for issuance under our distribution reinvestment plan.

Distributions Declared

On November 15, 2012, our board of directors authorized a stock distribution of 0.0075 shares of our common stock, $0.01 par value per share (“Common Stock”), or 0.75% of each outstanding share of Common Stock to the stockholders of record at the close of business on December 31, 2012. Such stock distribution is to be paid on January 15, 2013.

We believe that the stock distribution should be a tax-free transaction for U.S. federal income tax purposes under Section 305(a) of the Internal Revenue Code of 1986, as amended, and the adjusted tax basis of each share of “old” and “new” Common Stock should be computed by dividing the adjusted tax basis of the old Common Stock by the total number of shares, old and new. The holding period of the Common Stock received in such non-taxable distribution is expected to begin on the date the taxpayer acquired the Common Stock which is the date that the distribution was made. Stockholders should consult their own tax advisors regarding the tax consequences of this stock distribution.

Additionally, on November 15, 2012, our board of directors authorized a special cash distribution in the amount of $0.075 per share of Common Stock to stockholders of record as of the close of business on December 31, 2012. We expect to pay this distribution on January 15, 2013. The distribution will be paid in cash or, for investors enrolled in our distribution reinvestment plan, reinvested in additional shares of Common Stock.

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Risk Factors

The following risk factor supplements the risk factors included in our prospectus under the heading “Risk Factors – Risks Related to an Investment in Us.”

The SEC Staff has questioned whether historical financial statements were required for properties upon which we foreclosed. Should the SEC Staff conclude that such financial statements were required, the SEC Staff could take actions that could adversely affect us.

The SEC Staff issued a comment letter to us regarding our Annual Report on Form 10-K for the year ended December 31, 2011. The comment questions whether historical financial statements were required to be filed with respect to certain real estate properties on which we were forced to foreclose to protect our interest in the collateral after we were unsuccessful in pursuing other alternatives with the borrower in default on certain mortgage loans we acquired. As of the date hereof, the SEC Staff’s comment remains unresolved. Should the SEC Staff conclude that the financial statements at issue are required and we are not able to present them, the SEC could require such statements with respect to certain future foreclosure properties, this offering could be discontinued before its scheduled termination date of June 16, 2013, we could be subject to enforcement action by the SEC, or some combination of the foregoing could result. An early termination of this offering would result in a smaller portfolio, causing our results to vary more widely with the performance of one or more properties and causing our fixed operating expenses to be a greater percentage of our revenues, and if historical financial statements are required for certain future foreclosure properties, it could limit our ability to acquire mortgage loans, any of which could adversely affect our performance.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a Maryland corporation that has acquired, and intends to continue to acquire a diversified portfolio of discounted U.S. commercial real estate and real estate-related debt that has been significantly discounted due to the effects of recent economic events and high levels of leverage on U.S. commercial real estate, including properties that may benefit from extensive renovations that may increase their long-term values. Following years of unprecedented appreciation in commercial real estate values fueled by readily available and inexpensive credit, the commercial real estate market began a significant decline in late 2007 as a result of the massive contraction in the credit and securitization markets. We believe that this decline has produced an attractive environment to acquire commercial real estate and real estate-related debt at significantly discounted prices. We have a particular focus on operating multifamily assets and we intend to target this asset class while also purchasing interests in other types of commercial property assets consistent with our investment objectives. Our targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate owned by financial institutions, (iii) multifamily rental properties to which we can add value with a capital infusion (referred to as “value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities. However, we are not limited in the types of real estate assets in which we may invest and, accordingly, we may invest in other real estate assets either directly or together with a co-investor or joint venture partner. We currently anticipate holding approximately 55% of our total assets in categories (i) and (ii), 30% of our total assets in category (iii), and 15% of our total assets in category (iv). Also, 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 Real Estate Opportunity Advisor, LLC, or our Advisor, which is an indirect wholly owned subsidiary of Resource America, Inc., a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance sectors, presents us with investment opportunities that allow us to meet the requirements to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code, as amended, and to maintain our exclusion from regulation as an investment company pursuant to the Investment Company Act of 1940, as amended, our portfolio composition may vary from what we have initially disclosed.

We commenced this offering of our common stock on June 16, 2010 after having completed a private offering of our common stock on June 9, 2010, both of which have provided our initial capitalization. We describe these offerings further in “Liquidity and Capital Resources” below.

Results of Operations

We were formed on June 3, 2009. We commenced active real estate operations on September 7, 2010 when we raised the minimum offering amount in this offering. As of September 30, 2012, we have acquired three multifamily properties, eight non-performing promissory notes (four of which we have foreclosed on, and one of which negotiated a discounted payoff) and two performing promissory notes. Our management is not aware of any material trends or uncertainties, favorable, or

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unfavorable, other than national economic conditions affecting our targeted portfolio, the multifamily residential housing industry and real estate generally, 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 that we expect to acquire.

Three Months Ended September 30, 2012 compared to the Three Months Ended September 30, 2011

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

	Three Months Ended
	September 30,
	2012			2011
Revenues:
Rental income	$	5,612		$	1,184
Gains on foreclosures		92			—
Gain on payoff of loan held for investment		—			250
Interest income		32			41
Total revenues		5,736			1,475
Expenses:
Rental operating		3,990			1,417
Acquisition costs		(115	)		323
Management fees — related parties		626			199
General and administrative		774			867
Depreciation and amortization expense		2,590			502
Total expenses		7,865			3,308
Loss before other expenses		(2,129	)		(1,833	)
Interest expense		(255	)		—
Insurance proceeds in excess of cost basis		25			—
Net loss	$	(2,359	)	$	(1,833	)

Revenues. During the three months ended September 30, 2012, we recorded income primarily from rents from properties and, to a lesser extent, from interest from both performing promissory notes and interest-bearing bank accounts in which we deposited the proceeds of this offering. The increase in rental income is due to the increase in the number of operating properties we owned from four to nine. During the three months ended September 30, 2012, we also recorded adjustments to gains attributed to the foreclosure of non-performing mortgage loans in the previous quarters. During the three months ended September 30, 2011, we also recorded a gain from the discounted payoff of a mortgage loan held for investment.

Expenses. Our rental operating expenses increased for the three months ended September 30, 2012 primarily due to an increase in the number of operating properties we owned as compared to the three months ended September 30, 2011. Accordingly, we incurred increased management fees and depreciation and amortization expenses. The $93,000 decrease in general and administrative expenses consisted of a decrease in our company level expenses of $482,000 and an increase in property level expenses of $389,000. The decrease in company level expenses consisted primarily of a $124,000 decrease in payroll expense allocated to us by our Advisor and a decrease in travel expenses of $156,000. General and administrative expense for the five additional properties we acquired subsequent to September 30, 2011 was $394,000. Acquisition costs for the three months ended September 30, 2012, represent refunds of excess acquisitions fees paid to our advisor in connection with the acquisition of two properties in a prior quarter. Acquisition costs for September 30, 2011, represents one partial acquisition fee for a note purchased in a previous quarter. The $255,000 increase in interest expense is due to the draw downs on our line of credit.

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Nine Months Ended September 30, 2012 compared to the Nine Months Ended September 30, 2011

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

	Nine Months Ended
	September 30,
	2012			2011
Revenues:
Rental income	$	11,286		$	2,343
Gains on foreclosures		1,653			—
Gain on payoff of loan held for investment		—			250
Interest income		135			115
Total revenues		13,074			2,708
Expenses:
Rental operating		8,217			2,953
Acquisition costs		2,760			1,447
Management fees — related parties		1,319			462
General and administrative		2,538			2,231
Depreciation and amortization expense		4,248			1,072
Total expenses		19,082			8,165
Loss before other expenses		(6,008	)		(5,457	)
Interest expense		(398	)		(3	)
Insurance proceeds in excess of cost basis		176			—
Net loss	$	(6,230	)	$	(5,460	)

Revenues. During the nine months ended September 30, 2012, we recorded income primarily from rents from properties and, to a lesser extent, from interest from both performing promissory notes and interest-bearing bank accounts in which we deposited the proceeds of this offering. The increase in rental income is due to the increase in the number of operating properties we owned from three to nine. During the nine months ended September 30, 2012, we also recorded gains for both the excess of fair market value at two foreclosed properties over our cost basis, and a subsequent payment for a personal guarantee received from an affiliate of the borrower of a previously foreclosed note.

Expenses. Our rental operating expenses increased for the nine months ended September 30, 2012 primarily due to an increase in the number of properties we owned as compared to the nine months ended September 30, 2011. Accordingly, we incurred increased management fees, general and administrative expenses, and depreciation and amortization expenses. The $307,000 increase in general and administrative expenses consisted of a decrease in our company level expenses of $381,000 and an increase in property level general and administrative expenses of $688,000. The decrease in company level expenses consisted primarily of a $389,000 decrease in payroll expense allocated to us by our Advisor. General and administrative expense for the five additional properties we acquired subsequent to September 30, 2011 was $665,000. Acquisition costs for the nine months ended September 30, 2012, represent costs related to the acquisition of two properties and one loan for a total of $2.8 million as compared to the acquisition of two loans and a $3.0 million loan portfolio for the nine months ended September 30, 2011. Included in the acquisition costs for the nine months ended September 30, 2012, is $700,000 of real estate taxes related to the acquisition of one of the properties referenced above. The $395,000 increase in interest expense is due to the draw downs on our line of credit and our entry into a mortgage loan.

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Liquidity and Capital Resources

We derive the capital required to purchase real estate investments and conduct our operations from the proceeds of our private and public offerings, any future offerings we may conduct, and from secured or unsecured financings from banks.

We intend to allocate a portion of the funds we raise, as necessary, to preserve capital for our investors by supporting the maintenance and viability of the properties we have acquired and those properties that we may acquire in the future. If these allocated amounts 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 upon acceptable terms when we need them.

Ongoing Public Offering. Pursuant to this offering, we are offering up to 75.0 million shares of common stock, $0.01 par value per share, at $10.00 per share. We are also offering up to 7.5 million shares of common stock to be issued pursuant to our distribution reinvestment plan under which our stockholders may elect to have distributions reinvested in additional shares at $9.50 per share. As of September 30, 2012, a total of 16,216,383 shares of common stock had been issued in connection with this offering, plus 110,740 shares issued pursuant to our distribution reinvestment plan, resulting in approximately $163.0 million of gross offering proceeds. We have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds in this offering. If we are unable to raise substantial funds, this could increase our fixed operating expenses as a percentage of gross income, potentially reducing our net income and limiting our ability to make distributions to our stockholders.

Revolving Credit Facility. On December 2, 2011, through our operating partnership, we entered into a secured revolving credit facility, or the Credit Facility, with Bank of America, N.A., or Bank of America,. Under the Credit Facility, we may borrow up to $25.0 million, or the Facility Amount. The interest rate on borrowings is LIBOR plus 3.0%. Draws under the Credit Facility are secured by certain multifamily properties directly owned by our subsidiaries. The proceeds of the Credit Facility may be used for working capital, property improvements and other general corporate purposes. In addition, we incurred certain closing costs in connection with the Credit Facility, including a loan fee equal to 0.375% of the Facility Amount. As of September 30, 2012, we had drawn $15.0 million from the Credit Facility and had repaid $13.0 million of this amount.

We are required to make monthly interest-only payments on outstanding borrowings. We also may prepay the Credit Facility in whole or in part at any time without premium or penalty. The Credit Facility matures on December 2, 2014, which date may be extended to December 2, 2015 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed.

Our operating partnership’s obligations with respect to the Credit Facility are guaranteed by us, pursuant to the terms of a guaranty dated as of December 2, 2011, or the Guaranty. The Credit Facility and the Guaranty contain restrictive covenants for maintaining a certain tangible net worth and a certain level of liquid assets, and for restricting the securing of additional debt as follows:

• we must maintain a minimum tangible net worth equal to at least (i) 200% of the outstanding principal amount of the Credit Facility and (ii) $20.0 million;

• we must also maintain unencumbered liquid assets with a market value of not less than the greater of (i) $5.0 million or (ii) 20% of the outstanding principal amount of the Credit Facility; and

• we may not incur any additional secured or unsecured debt without Bank of America’s prior written consent and approval, which consent and approval is not to be unreasonably withheld.

We are currently in compliance with all such covenants. Although we expect to remain in compliance with these covenants for the duration of the term of the Credit Facility, depending upon our future operating performance, capital raising success, property and financing transactions and general economic conditions, we cannot assure you that we will continue to be in compliance.

Mortgage Debt. On April 3, 2012, we entered into a mortgage loan, or the Iroquois Mortgage Loan, with Berkadia Commercial Mortgage, LLC, as lender, to borrow approximately $9.2 million. The Iroquois Mortgage Loan matures on May 1, 2017 and bears interest at one-month LIBOR plus 2.61%.

The Iroquois Mortgage Loan requires monthly payments of principal and interest. The amount outstanding may be prepaid in full after the first year of its term with payment of a prepayment premium in the amount of 1% of the principal being repaid, and with no prepayment premium during the last three months of its term. The Iroquois Mortgage Loan is secured by a first mortgage lien on the assets of the Iroquois Apartments, including the land, fixtures, improvements, leases, rents and reserves.

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The Iroquois Mortgage contains customary affirmative, negative and financial covenants, representations, warranties and borrowing conditions, all as set forth in the Iroquois Mortgage Loan. We are currently in compliance with all such covenants.

Operating Properties. As of September 30, 2012, we own a multifamily property located at 107th Avenue in Omaha, Nebraska, two multifamily properties located in Houston, Texas known as Arcadia at Westheimer and The Redford, a multifamily property located in Birmingham, Alabama known as Town Park, a multifamily property located in Dayton, Ohio known as the Cannery, a multifamily property located in Philadelphia, Pennsylvania known as Iroquois Apartments, a multifamily property located in Inkster, Michigan known as Heatherwood Apartments, a student housing property located in Tampa, Florida known as Campus Club, a multifamily property located in Cincinnati, Ohio know as Williamsburg Apartments, and a nonperforming note secured by a multifamily property located in Duluth, Minnesota. We have also acquired a portfolio of small bank loans consisting of two performing notes secured by multifamily properties located in Michigan and Indiana, as well as one non-performing note secured by a multifamily property located in Ohio, which has been repaid in full.

Organization and Offering Costs. In addition, our Advisor has advanced funds to us for certain organization and offering costs. We reimburse the Advisor for all of the expenses paid or incurred by our Advisor or its affiliates on behalf of us or in connection with the services provided to us in relation to this offering. This includes all organization and offering costs of up to 2.5% of gross offering proceeds, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer-manager fee) to exceed 2.5% of gross offering proceeds as of the date of such reimbursement. For the three months ended September 30, 2012 and 2011, such organization and offering costs paid by our Advisor totaled approximately $0 and $178,000, respectively. For the nine months ended September 30, 2012 and 2011, such organization and offering costs paid by our Advisor totaled approximately $292,000 and $258,000, respectively. As of September 30, 2012 and December 31, 2011, a total of $138,000 and $1.9 million, respectively, of these advances from our Advisor for organization and offering costs were unpaid and due to our Advisor. As of September 30, 2012 and December 31, 2011, we directly paid for organization and offering costs directly totaling $3.7 million and $2.4 million, respectively.

Distributions

On April 17, 2012, our board of directors authorized a special, one-time cash distribution in the amount of $0.15 per share of common stock to stockholders of record as of the close of business on May 15, 2012. We paid this distribution of $1.9 million on May 31, 2012. The distribution was entirely funded by a portion of the proceeds from the Iroquois Mortgage Loan. The distribution was paid in cash or, for investors enrolled in our distribution reinvestment plan, reinvested in additional shares of common stock.

Because we intend to fund distributions from cash flow and strategic financings, at this time we do not expect our board of directors to declare distributions on a set monthly or quarterly basis. Rather, the board of directors will declare distributions from time to time based on cash flow from our investments and our investment and financing activities. As such, we can also give no assurances as to the timing, amount or notice with respect to any other future distribution declarations.

For the nine months ended September 30, 2012, we paid aggregate distributions of $1.9 million, including $0.8 million of distributions paid in cash and $1.1 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the nine months ended September 30, 2012 was $6.2 million and net cash used in operating activities was $1.7 million. Our cumulative distributions and net loss from inception through September 30, 2012 are $9.0 million and $15.5 million, respectively. We have funded our cumulative distributions, which includes net cash distributions and distributions reinvested by stockholders, with proceeds from debt financing. To the extent that we pay distributions from sources other than our cash flow from operating activities or gains from asset sales, 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.

We have also declared seven quarterly stock distributions of 0.015 shares for each share of our common stock or 1.5% of the outstanding shares of common stock, to our stockholders of record on February 28, May 31, August 31, and December 30, 2011 and March 31, June 30, and September 30, 2012.

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Funds from Operations and Modified Funds from Operations

Funds from operations, or FFO, is a non-GAAP performance financial 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. In addition, FFO will be affected by the types of investments in our targeted portfolio which will consist of, but are not limited to, commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first- and second-priority mortgage loans, mezzanine loans, B-Notes and other loans, (ii) real estate that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties to which we can add value with a capital infusion (referred to as “value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities.

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, 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) amortization of above- or below-market intangible lease assets and liabilities;

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

(5) impairment charges;

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

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

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

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

(11) 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. Although MFFO includes other adjustments, the exclusion of acquisition expenses is the most significant adjustment to us at the present time, as we are currently in our offering and acquisition stages. Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition activity.

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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. For example, we have not suffered any impairments. 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 analyses 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. Both of these acquisition costs have been and will continue to be funded from the proceeds of this offering and not from operations. 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 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 offering and acquisition stages are 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, investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering and acquisition stages are completed, as it excludes acquisition costs that 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.

FFO or MFFO should not be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to fund distributions. In particular, as

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we are currently in the acquisition phase of our life cycle, acquisition costs and other adjustments that are increases to MFFO are, and may continue to be, a significant use of cash. Accordingly, both FFO and MFFO should be reviewed in connection with other GAAP measurements. Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.

The following section presents our calculation of FFO and MFFO and provides additional information related to our operations (in thousands, except per share amounts). As a result of the timing of the commencement of this offering and our active real estate operations, FFO and MFFO are not relevant to a discussion comparing operations for the two periods presented. We expect revenues and expenses to increase in future periods as we raise additional offering proceeds and use them to acquire additional investments.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net loss — GAAP	$	(2,359	)	$	(1,833	)	$	(6,230	)	$	(5,460	)
Depreciation expense		1,163			274			2,099			551
FFO		(1,196	)		(1,559	)		(4,131	)		(4,909	)
Adjustments for straight-line rents		(43	)		(2	)		(24	)		(84	)
Amortization of intangible lease assets		1,243			228			1,964			521
Acquisition costs		(115	)		323			2,760			1,447
MFFO	$	(111	)	$	(1,010	)	$	569		$	(3,025	)
Basic and diluted loss per common share — GAAP	$	(0.15	)	$	(0.29	)	$	(0.48	)	$	(1.14	)
FFO per share	$	(0.08	)	$	(0.25	)	$	(0.32	)	$	(1.03	)
MFFO per share	$	(0.01	)	$	(0.16	)	$	0.04		$	(0.63	)

Critical Accounting Policies

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

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

Off-Balance Sheet Arrangements

As of September 30, 2012 and December 31, 2011, we did not have any off-balance sheet arrangements or obligations.

9

INDEX TO FINANCIAL STATEMENTS

Financial Statements
Consolidated Balance Sheets – September 30, 2012 (unaudited) and December 31, 2011	F-2
Consolidated Statements of Operations and Comprehensive Loss – Three and Nine Months Ended September 30, 2012 and 2011 (unaudited)	F-3
Consolidated Statement of Changes in Stockholders’ Equity – Nine Months Ended September  30, 2012 (unaudited)	F-4
Consolidated Statements of Cash Flows – Nine Months Ended September  30, 2012 and 2011 (unaudited)	F-5
Notes to Consolidated Financial Statements – September 30, 2012 (unaudited)	F-6

F-1

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Investments:
Rental properties, net	$	102,184		$	28,549
Loans held for investment, net		11,259			17,997
Identified intangible assets, net		1,840			276
		115,283			46,822
Cash		24,941			15,202
Restricted cash		112			—
Stock subscription receivable		2,389			1,686
Tenant receivables, net		177			60
Deposits		228			64
Prepaid expenses and other current assets		1,052			407
Deferred financing costs, net		611			222
Deferred offering costs		3,792			4,243
Total assets	$	148,585		$	68,706
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage note payable	$	9,091		$	—
Due to related parties, net		941			3,928
Revolving credit facility		1,760			—
Accounts payable and accrued expenses		5,270			1,445
Tenant prepayments		284			94
Security deposits		718			322
Total liabilities		18,064			5,789
Stockholders’ equity:
Preferred stock (par value $.01; 10,000,000 shares authorized, none issued and outstanding)		—			—
Common stock (par value $.01; 1,000,000,000 shares authorized, 17,603,067 and 8,454,169 shares issued and outstanding, respectively)		176			84
Convertible stock (“promote shares”; par value $.01; 50,000 shares authorized, issued and outstanding)		1			1
Additional paid-in capital		154,911			74,258
Accumulated deficit		(24,567	)		(11,426	)
Total stockholders’ equity		130,521			62,917
Total liabilities and stockholders’ equity	$	148,585		$	68,706

F-2

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

	Three Months  Ended September 30,						Nine Months  Ended September 30,
	2012			2011			2012			2011
Revenues:
Rental income	$	5,612		$	1,184		$	11,286		$	2,343
Gains on foreclosures		92			—			1,653			—
Gain on payoff of loan held for investment		—			250			—			250
Interest income		32			41			135			115
Total revenues		5,736			1,475			13,074			2,708
Expenses:
Rental operating		3,990			1,417			8,217			2,953
Acquisition costs		(115	)		323			2,760			1,447
Management fees — related parties		626			199			1,319			462
General and administrative		774			867			2,538			2,231
Depreciation and amortization expense		2,590			502			4,248			1,072
Total expenses		7,865			3,308			19,082			8,165
Loss before other expenses		(2,129	)		(1,833	)		(6,008	)		(5,457	)
Other income (expense):
Interest expense		(255	)		—			(398	)		(3	)
Insurance proceeds in excess of cost basis		25			—			176			—
Net loss	$	(2,359	)	$	(1,833	)	$	(6,230	)	$	(5,460	)
Comprehensive loss	$	(2,359	)	$	(1,833	)	$	(6,230	)	$	(5,460	)
Weighted average shares outstanding		15,924			6,315			12,918			4,786
Basic and diluted loss per share	$	(0.15	)	$	(0.29	)	$	(0.48	)	$	(1.14	)

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

F-3

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(in thousands)

(unaudited)

	Common Stock					Convertible Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount		Shares		Amount		Capital			Deficit			Equity
Balance at January 1, 2012		8,454		$	84		50	$	1	$	74,258		$	(11,426	)	$	62,917
Issuance of common stock		8,540			86		—		—		84,925			—			85,011
Proceeds from distribution reinvestment plan		111			1		—		—		1,051			—			1,052
Syndication costs		—			—		—		—		(10,306	)		—			(10,306	)
Distributions of common stock		501			5		—		—		5,013			(5,018	)		—
Cash distribution		—			—		—		—		—			(1,893	)		(1,893	)
Share redemptions		(3	)		—		—		—		(30	)		—			(30	)
Net loss and comprehensive loss		—			—		—		—		—			(6,230	)		(6,230	)
Balance at September 30, 2012		17,603		$	176		50	$	1	$	154,911		$	(24,567	)	$	130,521

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

F-4

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(6,230	)	$	(5,460	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gains on foreclosures		(642	)		—
Gain on payoff of loan held for investment		—			(250	)
Depreciation and amortization		4,248			1,072
Amortization of deferred financing costs		133			—
Insurance proceeds in excess of cost basis		(176	)		—
Accretion of discount and direct loan fees and costs		(10	)		(22	)
Changes in operating assets and liabilities, net of acquisitions:
Prepaid expenses and other current assets		(491	)		(222	)
Tenant receivables, net		(109	)		(26	)
Escrow reserves		359			—
Insurance proceeds received		275			—
Deposits		(196	)		(44	)
Due to related parties, net		(2,536	)		(229	)
Accounts payable and accrued expenses		3,483			588
Tenant prepayments		48			(79	)
Security deposits		110			257
Net cash used in operating activities		(1,734	)		(4,415	)
Cash flows from investing activities:
Proceeds received on loan held for investment		—			815
Property acquisitions		(52,401	)		—
Loan acquisitions		(10,300	)		(22,239	)
Capital expenditures		(9,849	)		(3,796	)
Principal payments received on loans		321			6
Cash received on foreclosure of loan held for investment		518			462
Net cash used in investing activities		(71,711	)		(24,752	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of redemption		84,192			39,297
Payment of deferred financing costs		(118	)		—
Borrowings under revolving credit facility		14,523			—
Borrowings under mortgage note payable		8,960			—
Paydown of revolving credit facility		(13,296	)		—
Principal payments on mortgage note payable		(16	)		—
Cash dividends paid		(841	)		—
Syndication costs		(10,220	)		(4,791	)
Net cash provided by financing activities		83,184			34,506
Net increase in cash		9,739			5,339
Cash at beginning of period		15,202			5,566
Cash at end of period	$	24,941		$	10,905

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

F-5

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS

Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009. On September 15, 2009, the Company commenced a private placement offering to accredited investors for the sale of up to 5.0 million shares of common stock at a price of $10 per share, net of discounts offered to certain categories of purchasers.

The private offering closed on June 9, 2010, at which time the Company had raised aggregate gross proceeds of $12.8 million, which resulted in the issuance of 1,283,727 common shares, including 20,000 shares purchased by Resource Real Estate Opportunity Advisor, LLC (the “Advisor”), which is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance sectors; and net proceeds of $11.3 million after payment of $1.5 million in syndication costs. Also, in conjunction with the private offering, the Company offered 5,000 shares of convertible stock at a price of $1 per share. Investors acquired 937 shares of the convertible stock; the Advisor purchased 4,063 shares. The Advisor has been engaged to manage the day-to-day operations of the Company. The Advisor contributed $200,000 to the Company in exchange for 20,000 shares of common stock on June 17, 2009, of which 4,500 shares were exchanged for 45,000 shares of convertible stock in June 2010. The Advisor purchased an additional 35,000 shares of common stock in 2011 for $315,000 and 102,800 shares during the nine months ended September 30, 2012 for $925,200. The Advisor has agreed to invest 1% of the first $250.0 million invested in the Company by non-affiliated investors, or up to $2.5 million.

On June 16, 2010, the Company’s registration statement on Form S-11 (File No. 333-160463), registering a primary public offering of up to 75.0 million shares of common stock and a public offering pursuant to the Company’s distribution reinvestment plan of up to an additional 7.5 million shares of common stock, was declared effective under the Securities Act of 1933, as amended, and the Company commenced its public offering. The Company is offering shares of common stock in its ongoing primary offering for $10 per share, with discounts available to certain categories of investors. The Company is also offering shares pursuant to its distribution reinvestment plan at a purchase price equal to $9.50 per share. As of September 30, 2012, the Company has raised aggregate gross offering proceeds of $175.2 million, which resulted in the issuance of 17,603,067 shares of common stock, including the 925,200 shares purchased by the Advisor.

From October 1 to November 5, 2012, the Company raised $9.1 million in offering proceeds through the issuance of 916,000 shares of common stock. As of November 5, 2012, 61.9 million shares remained available for sale to the public under the initial public offering, exclusive of shares available under the Company’s distribution reinvestment plan.

The Company’s objective is to purchase a diversified portfolio of discounted U.S. commercial real estate and real estate-related assets in order to generate gains to stockholders from the potential appreciation in the value of the assets and to generate current income for stockholders by distributing cash flow from the Company’s investments. The Company has acquired and intends to continue to acquire real estate-related debt and equity that has been significantly discounted due to the effects of recent economic events and high levels of leverage, as well as stabilized properties that may benefit from extensive renovations that may increase their long-term values. The Company has a particular focus on acquiring and operating multifamily assets, and it intends to target this asset class while also acquiring interests in other types of commercial property assets consistent with its investment objectives. The Company’s targeted portfolio will consist of commercial real estate assets, principally (i) non-performing or distressed loans, including but not limited to first and second priority mortgage loans, mezzanine loans, subordinate participations in first mortgage loans, or B-Notes, and other loans, (ii) real estate that was foreclosed upon and sold by financial institutions, (iii) multifamily rental properties to which the Company can add value with a capital infusion (“value add properties”), and (iv) discounted investment-grade commercial mortgage-backed securities. However, the Company is not limited in the types of real estate assets in which it may invest and, accordingly, it may invest in other real estate-related assets either directly or together with a co-investor or joint venture partner.

The Company elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended, for its taxable year ended December 31, 2011. The Company also operates its business in a manner that should permit it to maintain its exemption from registration under the Investment Company Act of 1940, as amended.

F-6

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of Consolidation

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

Subsidiaries	Apartment Complex	Number of Units	Location
RRE Opportunity Holdings, LLC	N/A	N/A	Wilmington, Delaware
Resource Real Estate Opportunity OP, LP	N/A	N/A	Wilmington, Delaware
RRE 107th Avenue Holdings, LLC (“107th Avenue”)	107th Avenue	5	Omaha, Nebraska
RRE Westhollow Holdings, LLC (“Westhollow”)	Arcadia	404	Houston, Texas
RRE Crestwood Holdings, LLC (“Crestwood”)	Town Park	270	Birmingham, Alabama
RRE Iroquois, LP (“Iroquois”)	Iroquois	133	Philadelphia, Pennsylvania
RRE Iroquois Holdings, LLC	N/A	N/A	Wilmington, Delaware
RRE Campus Club Holdings, LLC (“Campus Club”)	Campus Club	256	Tampa, Florida
RRE Heatherwood Holdings, LLC (“Heatherwood”)	Heatherwood	184	Inkster, Michigan
RRE Bristol Holdings, LLC (“Bristol”)	The Redford	856	Houston, Texas
RRE Cannery Holdings, LLC (“Cannery”)	Cannery Lofts	156	Dayton, Ohio
RRE Williamsburg Holdings, LLC (“Williamsburg”)	Williamsburg	976	Cincinnati, Ohio

All intercompany accounts and transactions have been eliminated in consolidation.

Recent Accounting Standards

Newly-Adopted Accounting Principles

The adoption of the following standards, issued by the Financial Accounting Standards Board (“FASB”), did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows:

Comprehensive Income (Loss). In June 2011, FASB issued an amendment to eliminate the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity. The amendment requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss). The Company has provided the disclosures as required by this amendment beginning with the year ended December 31, 2011.

Fair Value Measurements. In May 2011, FASB issued an amendment to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, FASB does not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify FASB’s intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability. This guidance became effective for the Company beginning January 1, 2012.

F-7

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Rental Properties

The Company records acquired rental properties at cost. The Company considers the period of future benefit of an asset to determine its appropriate useful life. The Company anticipates the estimated useful lives of its assets by class are as follows:

Buildings	27.5 years
Building improvements	3.0 to 27.5 years
Tenant improvements	Shorter of lease term or expected useful life

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 would 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 would be the adjustment to fair value less the 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. There was no indication of impairment as of September 30, 2012 or December 31, 2011.

Loans Held for Investment, Net

The Company records acquired performing loans held for investment at cost and reviews them for potential impairment at each balance sheet date. The Company considers a loan to be impaired if one of two conditions exists. The first condition is if, based on current information and events, management believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The second condition is if the loan is deemed to be a troubled-debt restructuring (“TDR”) where a concession has been given to a borrower in financial difficulty. These TDRs may not have an associated specific loan loss allowance if the principal and interest amount is considered recoverable based on current market conditions, expected collateral performance and/or guarantees made by the borrowers.

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, as a practical expedient, the fair value of the collateral. If a loan is deemed to be impaired, the Company records a reserve for loan losses through a charge to income for any shortfall.

Interest income from performing loans held for investment is recognized based on the contractual terms of the loan agreement. Fees related to any buy down of the interest rate are deferred as prepaid interest income and amortized over the term of the loan as an adjustment to interest income. The initial investment made in a purchased performing loan includes the amount paid to the seller plus fees. The initial investment frequently differs from the related loan’s principal amount at the date of the purchase. The difference is recognized as an adjustment of the yield over the life of the loan. Closing costs related to the purchase of a performing loan held for investment are amortized over the term of the loan and accreted as an adjustment to interest income.

F-8

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The Company may acquire real estate loans at a discount due to the credit quality of such loans and the respective borrowers under such loans. 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 held for investment. The EIR that is calculated when the loan held for investment is acquired remains constant and is the basis for subsequent impairment testing and income recognition. However, if the amount and timing of future cash collections are not reasonably estimable, the Company accounts for the real estate receivable on the cost recovery method. Under the cost recovery method of accounting, no income is recognized until the basis of the loan held for investment has been fully recovered.

Allocation of Purchase Price of Acquired and Foreclosed Assets

The cost of rental properties and foreclosed properties is allocated to net tangible and intangible assets based on relative fair values. Fair value estimates are 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.

In allocating purchase price, 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 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 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.

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 made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors to be considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.

The total amount of other intangible assets acquired is further allocated to 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 relationships 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 average remaining term of the respective leases. The value of customer relationship intangibles are 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 associated with that tenant 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 purchase price allocations, which could impact the amount of the Company’s reported net income. Initial purchase price allocations are subject to change until all information is finalized, which is generally within one year of the acquisition date.

F-9

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, 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 in which the related expenses are incurred.

The specific timing of a sale is measured against various criteria related to the terms of the transaction and any continuing involvement associated with the property. If the criteria for gain recognition under the full-accrual method are not met, the Company defers gain recognition and accounts for the continued operations of the property by applying the percentage-of-completion, reduced profit, deposit, installment or cost recovery methods, as appropriate, until the appropriate criteria are met.

The future minimum rental payments to be received from noncancelable operating leases are $9.5 million and $21,000 for the 12 months ending September 30, 2013 and 2014, respectively, and none thereafter.

Tenant Receivables

Tenant receivables are stated in the financial statements at amounts due from tenants net of an allowance for uncollectible receivables. Payment terms vary and receivables outstanding longer than the payment terms are considered past due. The 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, the condition of the general economy and the industry as a whole. The Company writes off receivables when they become uncollectible. At September 30, 2012 and December 31, 2011, there were allowances for uncollectible receivables of $20,000 and $4,000, respectively.

Deferred Offering Costs

Through September 30, 2012, the Advisor has advanced $3.8 million on behalf of the Company for the payment of public offering costs consisting of accounting, advertising, allocated payroll, due diligence, marketing, legal and similar costs. A portion of these costs is charged to equity upon the sale of each share of common stock sold under the public offering. Similarly, a portion of the proceeds received from such sales is paid to the Advisor to reimburse it for the amount incurred on behalf of the Company. Deferred offering costs represent the portion of the total costs incurred that have not been charged to equity to date and are the major component of Due to Related Parties as reflected on the consolidated balance sheets. As of September 30, 2012 and December 31, 2011, $3.7 million and $1.4 million, respectively, have been reimbursed to the Advisor. Upon completion of the public offering, any deferred offering costs in excess of reimbursements will be charged back to the Advisor.

Income Taxes

To maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its taxable net income (excluding net capital gains) to its stockholders as well as comply with other requirements, including certain asset, income and stock ownership tests. Accordingly, the Company generally will not be subject to corporate U.S. federal income taxes to the extent that it annually distributes at least 90% of its taxable net income to its stockholders. If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it is 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 fails 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. Generally, taxable income differs from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

F-10

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The Company may elect to treat certain of its subsidiaries as a taxable REIT subsidiary (“TRS”). In general, the Company’s TRSs 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. As of both September 30, 2012 and December 31, 2011, the Company had no TRSs.

The Company evaluates the benefits of tax positions taken or expected to be taken in its tax returns under a two-step recognition and measurement process. Only the largest amount of benefits from tax positions that will more likely than not be sustainable upon examination are recognized by the Company. The Company does not have any unrecognized tax benefits, nor interest and penalties, recorded in its consolidated financial statements and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next 12 months.

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.

Earnings Per Share

Basic earnings per share are calculated on the basis of the weighted-average number of common shares outstanding during the year. Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. 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. Due to reported losses for the periods presented, the convertible shares discussed in Note 9 are not included in the diluted earnings per share calculation. All common shares and per common share information in the financial statements have been adjusted retroactively for the effect of seven separate 1.5% stock distributions paid each consecutive quarter since March 15, 2011.

NOTE 3 – SUPPLEMENTAL CASH FLOW INFORMATION

The following table presents supplemental cash flow information (in thousands) (unaudited):

	Nine Months  Ended September 30,
	2012		2011
Non-cash activities:
Investor contributions held in escrow which converted to common stock	$	—	$	627
Property and intangibles received on foreclosure of loans held for investment		17,047		17,788
Stock distributions issued		5,018		2,107
Shares issued through distribution reinvestment plan		1,052		—
Deferred financing costs funded by mortgage loan and revolving credit facility		404		—
Cash paid during the period for:
Interest	$	227	$	3

F-11

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

NOTE 4 – RENTAL PROPERTIES, NET

The Company’s investments in rental properties consisted of the following (in thousands):

	September 30, 2012			December 31, 2011
Land	$	11,993		$	2,727
Building and improvements		86,570			25,453
Furniture, fixtures and equipment		4,621			1,312
Construction in progress		2,051			12
		105,235			29,504
Less: accumulated depreciation		(3,051	)		(955	)
	$	102,184		$	28,549

Depreciation expense for the nine months ended September 30, 2012 and 2011 was $2.1 million and $551,000, respectively.

NOTE 5 – LOANS HELD FOR INVESTMENT, NET

On March 15, 2011, the Company purchased, at a discount, two non-performing promissory notes and two performing promissory notes (the “Notes”), each of which was secured by a first priority mortgage on the respective associated multifamily rental apartment communities. The contract purchase price for the Notes was a total of $3.1 million, excluding closing costs. On August 2, 2011, the borrower of one of the non-performing promissory notes entered into a forbearance agreement with the Company and, on September 23, 2011, paid the Company a negotiated amount in satisfaction of the note in full. On August 18, 2011, the Company was the successful bidder at a foreclosure sale of the property collateralizing the second non-performing note. Possession was obtained in February 2012 (see Note 6 – Heatherwood). The face value of the performing notes as of both September 30, 2012 and December 31, 2011 totaled $1.3 million. The performing notes were purchased net of discounts; the unamortized accretable discounts totaled $306,000 and $344,000 at September 30, 2012 and December 31, 2011, respectively.

On March 21, 2012, the Company purchased, at a discount, a non-performing promissory note (the “Deerfield Note”), which is secured by a first priority mortgage on a multifamily rental community in Duluth, Minnesota. The contract purchase price for the Deerfield Note was $10.3 million, excluding closing costs. On July 19, 2012, the Company was the successful bidder at a foreclosure sale of the property securing the Deerfield Note; however, as of September 30, 2012, the Company had not yet taken title to the property, as the borrower’s redemption period will not terminate until January 2013.

The following table provides the aging of the Company’s loans held for investment (dollars in thousands):

	September 30,					December 31
	2012					2011
	Amount		Percent			Amount		Percent
Current	$	959		9	%	$	956		5	%
Delinquent:
30–89 days		—		—	%		8,300		46	%
90–180 days		—		—	%		—		—	%
Greater than 180 days		10,300		91	%		8,741		49	%
	$	11,259		100	%	$	17,997		100	%

F-12

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The following table provides information about the credit quality of the Company’s loans held for investment, net, (in thousands):

	September 30, 2012		December 31, 2011
Loans:
Performing	$	959	$	956
Nonperforming		10,300		17,041
Total	$	11,259	$	17,997

One of the Company’s two performing promissory notes matured on December 31, 2011 and the balance of $238,000 was not paid in full and is currently in default. The Company and the borrower under this note entered into a forbearance agreement in January 2012. This forbearance agreement is considered a troubled debt restructuring. The borrower has continued to pay the debt service payments as required by the forbearance agreement.

The Company has individually evaluated each loan for impairment and determined that there were no impairments as of September 30, 2012 , with the exception of the troubled debt restructuring which is impaired. Based on the evaluation performed on the troubled debt restructuring, although the loan is impaired, no impairment charge was recorded. There were no allowances for credit losses or charge-offs as of September 30, 2012.

NOTE 6 – ACQUISITIONS AND FORECLOSURES

The values of certain assets and liabilities acquired are based on preliminary valuations and are subject to adjustment as additional information is obtained. The Company will have 12 months from the date of foreclosure to finalize the valuation.

Campus Club Apartments – Tampa, Florida

On October 21, 2011, the Company purchased, at a discount, a non-performing promissory note (the “Campus Club Note”), which was secured by a first priority mortgage on a student housing community located in Tampa, Florida, known as the Campus Club Apartments. The contract purchase price for the Campus Club Note was $8.3 million, plus closing costs. The Company paid an acquisition fee of $176,000, or 2% of the purchase price and closings costs, to its Advisor. The Company foreclosed on the Campus Club Note on February 9, 2012 and received title to the property on February 20, 2012.

The following table presents the estimated fair value (in thousands) of the Campus Club Apartments and related acquired net assets and liabilities, which were acquired in exchange for the Campus Club Note:

Rental property:
Land	$	384
Buildings		6,725
		7,109
Acquired intangibles — in-place leases		738
Cash		518
Accounts receivable		9
Prepaid rents		(41	)
Security deposit liability		(33	)
Fair value assigned	$	8,300

Heatherwood Apartments – Inkster, Michigan

On March 15, 2011, the Company purchased, at a discount, a non-performing promissory note (the “Heatherwood Note”), which was secured by a first priority mortgage on a multifamily rental apartment community in Inkster, Michigan. The contract purchase price for the Heatherwood Note was $1.6 million, plus closing costs. The Company paid an acquisition fee of $34,000, or 2% of the purchase price and closing costs, to its Advisor. On August 18, 2011, the Company was the successful bidder (for $1.9 million) at the foreclosure sale of the property. The Company’s bid equaled an amount that the Company believed to be a reasonable approximation of the fair value of the Heatherwood Apartments based on an independent appraisal. The Company received title and took possession of the property on February 18, 2012 upon the termination of the borrower’s redemption period.

F-13

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The following table presents the estimated fair value (in thousands) of the Heatherwood Apartments and related acquired net assets, which were acquired in exchange for the Heatherwood Note:

Rental property:
Land	$	310
Buildings		1,412
		1,722
Acquired intangibles — in-place leases		178
Fair value assigned	$	1,900

2012 Activity

The Redford – Houston, Texas

On March 27, 2012, the Company purchased a multifamily residential rental apartment complex located in Houston, Texas, known as The Redford (formerly known as the Bristol Apartments) for $11.4 million, plus closing costs. The Company paid an acquisition fee of $234,000, or 2% of the purchase price and closing costs, to its Advisor. During the three months ended September 30, 2012, the Advisor refunded the Company $39,000 due to an overpayment of acquisition fees.

The following table presents the estimated fair value of assets acquired (in thousands):

Rental property:
Land	$	2,587
Buildings		8,321
		10,908
Acquired intangibles — in-place leases		492
Prepaid real estate insurance		106
Organization cost		3
Real estate taxes payable		(120	)
Prepaid rents		(13	)
Fair value assigned	$	11,376

Cannery Apartments – Dayton, Ohio

On May 13, 2011, the Company purchased, at a discount, a non-performing promissory note (the “Cannery Note”), which was secured by a first priority mortgage on a multifamily rental apartment community in Dayton, Ohio, known as the Cannery Apartments. The contract purchase price for the Cannery Note was $7.1 million plus closing costs. The Company paid an acquisition fee of $147,000, or 2% of the purchase price and closing costs, to its Advisor. On June 6, 2012, the Company was the successful bidder at the foreclosure sale of the property. The Company received title on June 6, 2012 and took possession of the property on June 19, 2012.

The following table presents the estimated fair value (in thousands) of the Cannery Apartments and related acquired net assets, which were acquired in exchange for the Cannery Note:

Rental property:
Land	$	2,763
Buildings		4,145
		6,908
Acquired intangibles — in-place leases		392
Fair value assigned	$	7,300

F-14

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Williamsburg Apartments – Cincinnati, Ohio

On June 20, 2012, the Company purchased a multifamily residential rental apartment complex located in Cincinnati, Ohio, known as the Williamsburg Apartments, for $41.3 million, plus closing costs. The Company paid an acquisition fee of $827,000, or 2% of the purchase price and closing costs, to its Advisor.

The Company estimated the fair value of certain assets and liabilities based on preliminary valuations at the date of purchase. An appraisal of the property was obtained on September 6, 2012. The Company revalued the assets and liabilities based on this additional information retroactive to the purchase date and recorded the adjustments in the third quarter of 2012. The following table presents the fair value of assets acquired (in thousands):

Rental property:
Land	$	3,223
Site Improvements		2,758
Buildings		32,353
Personal Property		1,007
		39,341
Acquired intangibles — in-place leases		1,909
Prepaid real estate insurance		49
Accrued expenses		(37	)
Security deposits		(208	)
Prepaid rents		(29	)
Fair value assigned	$	41,025

NOTE 7 – IDENTIFIED INTANGIBLE ASSETS, NET

Identified intangible assets, net, consisted of acquired in-place leases totaling $4.8 million and $1.1 million as of September 30, 2012 and December 31, 2011, respectively, net of accumulated amortization of $3.0 million and $807,000, respectively. The weighted-average remaining life of the rental leases is nine months and one month as of September 30, 2012 and December 31, 2011, respectively. Expected amortization for the antennae leases at the Iroquois Apartments, an apartment community owned by the Company and located in Philadelphia, Pennsylvania, is $16,000 annually through 2025. Expected amortization for the rental and antennae leases for the next five years ending September 30, and thereafter, are as follows (in thousands):

2013	$	1,625
2014		16
2015		16
2016		16
2017		16
Thereafter		151
	$	1,840

Amortization for the nine months ended September 30, 2012 and 2011 was $2.1 million and $521,000, respectively.

F-15

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

NOTE 8 – MORTGAGE NOTE PAYABLE

On April 3, 2012, the Company, through its operating partnership, entered into a mortgage loan (the “Iroquois Mortgage Loan”) for approximately $9.2 million. The Iroquois Mortgage Loan bears interest at one-month London Interbank Offered Rate (“LIBOR”) plus 2.61%. The Iroquois Mortgage Loan requires monthly payments of principal and interest. The amount outstanding under the Iroquois Mortgage Loan may be prepaid in full after the first year of its term at a 1.0% premium based on the principal being repaid and with no prepayment premium during the last quarter of its term. The Iroquois Mortgage Loan is secured by a first lien mortgage on the assets of the Iroquois Apartments.

The following is a summary of the mortgage note payable (in thousands, except percentages):

Collateral	Balance Outstanding at September 30, 2012		Maturity Date		Annual Interest Rate			Average Monthly Debt Service
Iroquois Apartments	$	9,091		5/1/2017		2.88	%(1)	$	38

(1) One-month LIBOR of 0.27% (as of September 30, 2012) plus 2.61% margin.

Annual principal payments on the mortgage note payable for each of the next five years ending September 30 are as follows (in thousands):

2013	$	194
2014		200
2015		206
2016		210
2017		8,281
	$	9,091

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

NOTE 9 – EQUITY

Preferred Stock

The Company’s charter authorizes the Company to issue 10.0 million shares of its $0.01 par value preferred stock. As of September 30, 2012 and December 31, 2011, no shares of preferred stock were issued and outstanding.

Common Stock

As of September 30, 2012, the Company had issued an aggregate of 1,283,727 shares of its $0.01 par value common stock in connection with its private offering, and 16,327,123 shares of its common stock (including stock dividends and shares issued under the distribution reinvestment plan—see below) in connection with its currently ongoing public offering. On June 15, 2010, the Advisor exchanged 4,500 common shares for 45,000 shares of the Company’s convertible stock. Additionally, 3,283 shares of common stock were redeemed by a stockholder for $33,000 on July 30, 2012, pursuant to our share redemption program. Therefore, 17,603,067 shares of common stock are outstanding as of September 30, 2012.

F-16

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Convertible Stock

As of September 30, 2012 and December 31, 2011, the Company had 50,000 shares of $0.01 par value convertible stock outstanding, respectively, of which the Advisor and affiliated persons own 49,063 shares and outside investors own 937 shares. The convertible stock will convert into shares of the Company’s common stock upon the occurrence of one of two events: first, if the Company has 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 10% cumulative, non-compounded annual return on the shares at that price; and secondly, if the Company lists its common stock on a national securities exchange and, on the 31st trading day after listing, the Company’s value based on the average trading price of its common stock since the listing, plus prior distributions, combine to meet the same 10% return threshold.

Redemption of Securities

During the quarter ended September 30, 2012, the Company redeemed shares of its common stock as follows:

Period	Total Number of  Shares Redeemed (1)		Average Price Paid  per Share		Total Number  of Shares Purchased as Part of a Publicly Announced Plan or Program (2)		Approximate  Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
July 2012		3,283	$	9.75		3,283		(3	)
August 2012		—		—		—		(3	)
September 2012		—		—		—		(3	)

(1) All purchases of equity securities by the Company in the three months ended September 30, 2012 were made pursuant to the Company’s share redemption program.

(2) The Company announced the commencement of the program on June 16, 2010, and it was subsequently amended on September 29, 2011.

(3) The Company currently limits the dollar value and number of shares that may yet be redeemed under the program.

Distribution Reinvestment Plan

As of September 30, 2012, a total of 110,740 shares have been purchased under the distribution reinvestment plan.

Distributions

On May 31, 2012, the Company paid a special, one-time cash distribution of $1.9 million ($0.15 per common share) to stockholders of record as of the close of business on May 15, 2012. The distribution was paid from a portion (approximately 20%) of the proceeds from the Iroquois Mortgage Loan. Approximately $1.1 million of these distributions was reinvested in shares of the Company’s common stock pursuant to the distribution reinvestment plan.

The Company has declared seven quarterly distributions of 0.015 shares per each share of its common stock outstanding. In connection with these stock distributions, the Company has increased its accumulated deficit by $13.0 million in total through September 30, 2012.

F-17

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

NOTE 10 – RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has ongoing relationships with several related parties. Amounts payable to such related parties are summarized in the following table (in thousands):

	September  30, 2012		December 31, 2011
Due to related parties:
Advisor and its affiliates	$	190	$	3,685
Resource Securities, Inc.		226		152
Resource Real Estate Opportunity Manager, LLC		524		85
Other		1		6
	$	941	$	3,928

Relationship with the Advisor

In September 2009, the Company entered into an advisory agreement with its Advisor (the “Advisory Agreement”) under which the Advisor provides the Company with investment management, administrative and related services. The Advisory Agreement was amended in January 2010 and further amended in January 2011. The Advisory Agreement has a one-year term and will renew for an unlimited number of successive one-year terms upon the approval of the conflicts committee of the Company’s board of directors. The Company renewed the advisory agreement for another year on September 15, 2012. Under the advisory agreement, the Advisor receives fees and is reimbursed for its expenses as set forth below:

The Company pays the Advisor 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 loans, including acquisition expenses and any debt attributable to such investments. For the three and nine months ended September 30, 2012, the Advisor earned, and the Company paid to the Advisor, $50,000 and $1.5 million, respectively, in acquisition fees. During the nine months ended September 30, 2012, the Advisor refunded $50,000 to the Company due to overpayment of previously paid acquisition fees. For the three and nine months ended September 30, 2011, the Advisor earned, and the Company paid to the Advisor, $0 and $459,000, respectively, in acquisition fees. As of September 30, 2012 and December 31, 2011, no acquisition fee amounts were unpaid.

The Company pays the Advisor a monthly asset management fee equal to one-twelfth of 1.0% of the higher of the cost or the independently appraised value of each asset, 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 or a majority of an asset and does not manage or control the asset. For the three and nine months ended September 30, 2012, the Advisor earned $309,000 and $659,000, respectively, in asset management fees. For the three and nine months ended September 30, 2011, the Advisor earned $106,000 and $213,000, respectively, in asset management fees. As of September 30, 2012 and December 31, 2011, a total of $0 and $22,000 of asset management fees due to the Advisor were unpaid.

The Company pays the Advisor a disposition fee in connection with of the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.75% of the contract sales price. There were no properties sold during the three and nine months ended September 30, 2012 and 2011 and, therefore, no disposition fees were paid.

The Company pays the Advisor a debt financing fee equal to 0.5% of the amount available under any debt financing obtained for which the Advisor provided substantial services. For the three and nine months ended September 30, 2012, the Advisor earned $0 and $119,000, respectively, in debt financing fees. There were no debt financing fees paid to the Advisor for the three and nine months ended September 30, 2011. As of September 30, 2012 and December 31, 2011, no debt financing fees were unpaid.

The Company pays the Advisor a debt servicing fee of 2.75% on payments received from loans held by the Company for investment. For the three and nine months ended September 30, 2012, the Advisor earned $1,000 and $3,000, respectively in debt servicing fees. There were no debt servicing fees earned during the three and nine months ended September 30, 2011. As of September 30, 2012 and December 31, 2011, no debt servicing fees were unpaid.

F-18

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The Company also pays directly or reimburses 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 ongoing public offering. This includes all organization and offering costs of up to 2.5% of gross offering proceeds, but only to the extent that such reimbursement will not cause organization and offering expenses (other than selling commissions and the dealer-manager fee) to exceed 2.5% of gross offering proceeds as of the date of such reimbursement. For the three and nine months ended September 30, 2012, such organization and offering costs paid by the Advisor totaled $0 and $292,000, respectively. For the three and nine months ended September 30, 2011, such organization and offering costs paid by the Advisor totaled $137,000 and $435,000, respectively. As of September 30, 2012 and December 31, 2011, a total of $137,000 and $1.9 million, respectively, of advances from the Advisor for organization and offering costs were unpaid and due to the Advisor.

This expense reimbursement also includes 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. For the three and nine months ended September 30, 2012, the Advisor charged the Company $89,000 and $477,000, respectively, for these operating expenses. For the three and nine months ended September 30, 2011, the Advisor charged the Company $162,000 and $654,000, respectively, for these operating expenses. As of September 30, 2012 and December 31, 2011, a total of $0 and $1.8 million, respectively, of these advances were unpaid and due to the Advisor.

Relationship with Resource Real Estate Opportunity Manager

The Company entered into a management agreement with Resource Real Estate Opportunity Manager, LLC (the “Manager”), an affiliate of the Advisor, pursuant to which 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, the Manager is entitled to specified fees upon the provision of certain services, including payment of a construction management fee and property management/debt servicing fees. For the three and nine months ended September 30, 2012, the Manager earned $300,000 and $617,000, respectively, in property management fees. For the three and nine months ended September 30, 2011, the Manager earned $54,000 and $194,000, respectively, in property management fees. As of September 30, 2012 and December 31, 2011, a total of $200,000 and $40,000, respectively, of those fees were unpaid and due to the Manager.

During the ordinary course of business, the Manager or other affiliates of RAI may pay certain shared operating expenses on behalf of the Company. Reimbursable expenses payable to the Manager or its affiliates as of September 30, 2012 and December 31, 2011 totaled $378,000 and $73,000, respectively. These reimbursable amounts are non-interest bearing and are due on demand.

Relationship with Resource Securities

The Company executed a dealer-manager agreement with Resource Securities, Inc. (“Resource Securities,” formerly known as Chadwick Securities, Inc.), an affiliate of the Advisor, pursuant to which Resource Securities has been engaged to serve as the Company’s dealer-manager. Resource Securities is responsible for marketing the Company’s shares in its public offering. Pursuant to the terms of the dealer-manager agreement, the Company pays Resource Securities a selling commission of up to 7% of gross public offering proceeds and a dealer-manager fee of up to 3% of gross offering proceeds.

Resource Securities reallows all selling commissions earned and up to 1.0% of the dealer-manager fee as a marketing fee to participating broker-dealers. No selling commissions or dealer-manager fees are 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.

For the three and nine months ended September 30, 2012, Resource Securities earned selling commissions and dealer-manager fees of $3.1 million and $8.1 million, respectively. For the three and nine months ended September 30, 2011, Resource Securities earned selling commissions and dealer-manager fees of $1.3 million and $3.8 million, respectively. There were no due diligence expense reimbursements during the three and nine months ended September 30, 2012 and 2011. As of September 30, 2012 and December 31, 2011, a total of $233,000 and $152,000, respectively, of these fees were unpaid and due to Resource Securities. The unpaid balance as of September 30, 2012 has been offset by $7,000 of certain expenses paid by the Company on behalf of Resource Securities.

F-19

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Relationship with Other Related Parties

The Company has also made payment for legal services to the law firm of Ledgewood P.C. (“Ledgewood”). Until 1996, the Chairman of RAI was of counsel to Ledgewood. In connection with the termination of his affiliation with Ledgewood and its redemption of his interest, the Chairman continues to receive certain payments from Ledgewood. Until March 2006, a current executive of RAI was the managing member of Ledgewood. This executive remained of counsel to Ledgewood through June 2007, at which time he became an Executive Vice President of RAI. In connection with his separation, this executive is entitled to receive payments from Ledgewood through 2013. For the three and nine months ended September 30, 2012, the Company paid legal fees to Ledgewood totaling $18,000 and $43,000, respectively. For the three and nine months ended September 30, 2011, the Company paid legal fees to Ledgewood totaling $0 and $31,000, respectively.

The Company utilizes the services of a printing company, Graphic Images, LLC (“Graphic Images”), whose principal owner is the father of RAI’s Chief Financial Officer. The Company paid to Graphic Images $139,000 and $464,000 for printing service during the three and nine months ended September 30, 2012, respectively, and $83,000 and $111,500 during the three and nine months ended September 30, 2011, respectively.

NOTE 11 – FAIR VALUE MEASURES AND DISCLOSURES

In analyzing the fair value of its 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 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.

Rental properties obtained through a foreclosed note are measured at fair value on a non-recurring basis. 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.

F-20

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

The following table presents information about the Company’s rental properties measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Level 1		Level 2		Level 3		Total
For the period ended September 30, 2012:
Assets:
Cannery	$	—	$	—	$	7,300	$	7,300
Heatherwood		—		—		1,900		1,900
Campus Club		—		—		8,300		8,300
Rental properties, net	$	—	$	—	$	17,500	$	17,500
For the period ended December 31, 2011:
Assets:
Town Park	$	—	$	—	$	6,250	$	6,250
Iroquois		—		—		12,000		12,000
Rental properties, net	$	—	$	—	$	18,250	$	18,250

The carrying and fair values of the Company’s loans held for investment, net, mortgage note payable and revolving credit facility were as follows (in thousands):

	September 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Total loans held for investment, net	$	11,259	$	11,259	$	17,997	$	17,997
Mortgage note payable	$	9,091	$	9,067	$	—	$	—
Revolving credit facility	$	1,760	$	1,760	$	—	$	—

The fair value of the loans held for investment, net, was estimated by comparing the recorded amount of the loan to the fair value of the collateral.

The fair value of the mortgage note payable was estimated using rates available to the Company for debt with similar terms and remaining maturities.

The fair value of the revolving credit facility equals the carrying amount because the credit facility interest rate is variable.

NOTE 12 – REVOLVING CREDIT FACILITY

On December 2, 2011, Resource Real Estate Opportunity OP, LP (“Resource OP”), the Company’s operating partnership entered into a secured revolving credit facility (the “Credit Facility”) with Bank of America, N.A. (“Bank of America”), as lender. Under the Credit Facility, the Company may borrow up to $25.0 million (the “Facility Amount”). Draws under the Credit Facility will be secured by certain of the multifamily properties directly owned by the Company. The proceeds of the Credit Facility may be used by the Company for working capital, property improvements and other general corporate purposes. In addition, the Company has incurred certain closing costs in connection with the Credit Facility, including a loan fee equal to 0.375% of the Facility Amount, which was paid to Bank of America.

The Credit Facility matures on December 2, 2014, and may be extended to December 2, 2015 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Credit Facility. The Company may borrow under the Credit Facility at a rate equal to LIBOR plus 3.0%. The Company is required to make monthly interest-only payments. The Company also may prepay the Credit Facility in whole or in part at any time without premium or penalty.

F-21

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

Resource OP’s obligations with respect to the Credit Facility are guaranteed by the Company, pursuant to the terms of a guaranty dated as of December 2, 2011 (the “Guaranty”). The Credit Facility and the Guaranty contain, among others, the following restrictive covenants which require the Company to:

• maintain a minimum tangible net worth equal to at least (i) 200% of the outstanding principal amount of the Credit Facility and (ii) $20 million;

• maintain unencumbered liquid assets with a market value of not less than the greater of (i) $5 million or (ii) 20% of the outstanding principal amount of the Credit Facility; and

• not incur any additional secured or unsecured debt without Bank of America’s prior written consent and approval.

The Company is currently in compliance with all such covenants. As of September 30, 2012, the Company has outstanding borrowings of $1.8 million under the Credit Facility, and the Credit Facility is secured by certain of the Company’s properties with an aggregate value of $33.8 million. The Company paid interest of $227,000 on the credit facility during the nine months ended September 30, 2012.

NOTE 13 – DEFERRED FINANCING COSTS

Deferred financing costs incurred to obtain financing are amortized over the term of the related debt. Accumulated amortization as of September 30, 2012 and December 31, 2011 was approximately $140,000 and $6,000, respectively. Estimated amortization of the existing deferred financing costs for the years ending September 30 are as follows (in thousands):

2013	$	235
2014		235
2015		74
2016		41
2017		26
	$	611

NOTE 14 – OPERATING EXPENSE LIMITATION WAIVER

Under its charter, the Company must limit its total operating expenses to the lesser 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 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, 2012 exceeded 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.

F-22

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

SEPTEMBER 30, 2012

(unaudited)

NOTE 15 – GAIN ON INSURANCE CLAIM

On January 3, 2012, a fire damaged five units at the Town Park Apartments, an apartment community owned by the Company and located in Birmingham, Alabama. The Company was insured for both the fire loss and the loss of rental income. The Company reduced the net carrying value of the building and improvements by $98,000 and established a receivable for the expected net insurance proceeds of $275,000, net of the $25,000 deductible. During the nine months ended September 30, 2012, insurance proceeds of $275,000 were received. Additional non-capitalizable expenses incurred in conjunction with this claim totaled $1,000. Accordingly, these expenses and the excess of proceeds were recorded as insurance proceeds in excess of cost basis. An additional receivable of $13,000 for the loss of rental income was recorded and is included in rental income.

NOTE 16 – GAINS ON FORECLOSURES

The Company recorded the following gains related to foreclosures that occurred during the nine months ended September 30, 2012:

• Crestwood Notes. On March 14, 2012, the Company received $346,000 from the guarantor of the Crestwood Notes in full satisfaction of certain guarantees entered into by an affiliate of the borrower with the original lender.

• Heatherwood Note. On the day of foreclosure, the fair value of the property exceeded the Company’s carrying value of the Heatherwood Note by $248,000. Pursuant to a settlement agreement with the borrower, dated May 25, 2012, the Company received $625,000 related to insurance proceeds from a loss at the Heatherwood Apartments prior to foreclosure. In May 2012, the Company also recorded adjustments to security deposits totaling $14,000.

• Cannery Note. On the day of foreclosure, the Company’s fair value of the property exceeded the carrying value of the Cannery Note by $394,000. An additional payment of $156,000 was received by the Company in satisfaction of a settlement agreement with the borrower under the Cannery Note. The Company also recorded adjustments to security deposits totaling $99,000 and incurred additional foreclosure expenses totaling $4,000, which reduced the gain.

• Campus Club Note. On June 28, 2012, the Company incurred $24,000 of legal expenses relating to the foreclosure of Campus Club Note, which was offset against the gain.

NOTE 17 – SUBSEQUENT EVENTS

From October 1, to November 6, 2012, the Company raised approximately $15.0 million in offering proceeds through the issuance of approximately 1.5 million shares of common stock under its initial public offering. As of November 6, 2012, approximately 57.9 million shares remained available for sale to the public under the initial public offering, exclusive of shares available under the Company’s distribution reinvestment plan.

On November 7, 2012, the Company entered into an agreement to purchase the Park Forest Apartments, a multifamily residential apartment community located in Oklahoma City, Oklahoma, for $2.1 million.

The Company has evaluated subsequent events and determined that no events have occurred, other than those disclosed above, which would require an adjustment to the consolidated financial statements.

F-23