| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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: Subsidiary Apartment Complex Number of Units Property Location RRE Opportunity Holdings, LLC N/A N/A N/A Resource Real Estate Opportunity OP, LP N/A N/A N/A RRE Charlemagne Holdings, LLC N/A N/A N/A RRE 107th Avenue Holdings, LLC (“107th Avenue”) (c) N/A N/A RRE Westhollow Holdings, LLC (“Westhollow”) (b) N/A N/A RRE Crestwood Holdings, LLC (“Crestwood”) (a)(b) N/A N/A RRE Iroquois, LP (“Vista”) Vista Apartment Homes 133 Philadelphia, PA RRE Iroquois Holdings, LLC N/A N/A N/A RRE Campus Club Holdings, LLC (“Campus Club”) (b) N/A N/A RRE Bristol Holdings, LLC (“Bristol”) (c) N/A N/A RRE Cannery Holdings, LLC (“Cannery”) Cannery Lofts 156 Dayton, OH RRE Williamsburg Holdings, LLC (“Williamsburg”) Williamsburg 976 Cincinnati, OH WPL Holdings, LLC N/A (d) N/A Cincinnati, OH RRE Skyview Holdings, LLC ("Skyview") (c) N/A N/A RRE Park Forest Holdings, LLC ("Park Forest") Mosaic 216 Oklahoma City, OK RRE Foxwood Holdings, LLC ("Foxwood") (c) N/A N/A RRE Flagstone Holdings, LLC ("Flagstone") (c) N/A N/A RRE Deerfield Holdings, LLC ("Deerfield") Deerfield 166 Hermantown, MN RRE Kenwick Canterbury Holdings, LLC ("Kenwick & Canterbury") (c) N/A N/A RRE Armand Place Holdings, LLC ("Armand") Ivy at Clear Creek 244 Houston, TX RRE Autumn Wood Holdings, LLC ("Autumn Wood") Retreat at Rocky Ridge 206 Hoover, AL RRE Village Square Holdings, LLC ("Village Square") Trailpoint at the Woodlands 271 Houston, TX RRE Nob Hill Holdings, LLC ("Nob Hill") Affinity at Winter Park 192 Winter Park, FL RRE Brentdale Holdings, LLC ("Brentdale") The Westside Apartments 412 Plano, TX RRE Jefferson Point Holdings, LLC ("Jefferson Point") Tech Center Square 208 Newport News, VA RRE Centennial Holdings, LLC ("Centennial") Verona Apartment Homes 276 Littleton, CO RRE Pinnacle Holdings, LLC ("Pinnacle") Skyview Apartment Homes 224 Westminster, CO RRE Jasmine Holdings, LLC ("Jasmine") The Nesbit Palisades 437 Alpharetta, GA RRE River Oaks Holdings, LLC ("River Oaks") Maxwell Townhomes 314 San Antonio, TX RRE Nicollet Ridge Holdings, LLC ("Nicollet Ridge") Meridian Pointe 339 Burnsville, MN RRE Addison Place, LLC ("Addison Place") The Estates at Johns Creek 403 Alpharetta, GA PRIP Coursey, LLC ("Evergreen at Coursey Place") Evergreen at Coursey Place (e) 352 Baton Rouge, LA PRIP 3700, LLC ("Champion Farms") N/A (e) N/A N/A PRIP 10637, LLC ("Fieldstone") N/A (e) N/A N/A PRIP 500, LLC ("Pinehurst") Pinehurst (e) 146 Kansas City, MO PRIP 1102, LLC ("Pheasant Run") Pheasant Run (e) 160 Lee's Summit, MO PRIP 11128, LLC ("Retreat at Shawnee") Retreat at Shawnee (e) 342 Shawnee, KS PRIP 6700, LLC ("Hilltop Village") (b)(e) N/A N/A PRIP 3383, LLC ("Conifer Place") N/A (e) N/A N/A PRIP Stone Ridge, LLC ("Stone Ridge") N/A (e) N/A N/A PRIP Pines, LLC ("Pines of York") Pines of York (e) 248 Yorktown, VA PRIP 5060/6310, LLC ("Governor Park") (b)(e) N/A N/A RRE Chisholm Place Holdings LLC ("Chisholm Place") Chisholm Place 142 Plano, TX RRE Berkeley Run Holdings, LLC ("Berkley Run") Perimeter Circle 194 Atlanta, GA RRE Berkeley Trace Holdings LLC ("Berkley Trace") Perimeter 5550 165 Atlanta, GA RRE Merrywood LLC ("Merrywood") Aston at Cinco Ranch 228 Katy, TX RRE Sunset Ridge Holdings, LLC ("Sunset Ridge") Sunset Ridge 324 San Antonio, TX RRE Parkridge Place Holdings, LLC ("Parkridge Place") Calloway at Las Colinas 536 Irving, TX RRE Spring Hill Holdings, LLC ("Spring Hill") N/A N/A N/A RRE Woodmoor Holdings, LLC ("Woodmoor") South Lamar Village 208 Austin, TX RRE Gilbert Holdings, LLC ("Springs at Gilbert") Springs at Gilbert Meadows 459 Gilbert, AZ RRE Bonita Glen Holdings, LLC ("Bonita") Villages at Bonita Glen 295 Chula Vista, CA RRE Yorba Linda Holdings, LLC ("Yorba Linda") Yorba Linda 400 Yorba Linda, CA N/A - Not Applicable (a) - Discontinued operations (b) - Sold prior to 2015 (c) - Sold in 2015 (d) - Subsidiary holds a portion of the Williamsburg parking lot (e) - Wholly-owned subsidiary of RRE Charlemagne Holdings, LLC All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect the Company's accounts and the accounts of the Company's majority-owned and/or controlled subsidiaries. The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” and accordingly consolidates entities that are variable interest entities (“VIEs”) where it has determined that it is the primary beneficiary of such entities. Once it has been determined that the Company holds a variable interest in a VIE, management performs a qualitative analysis to determine (i) if the Company has the power to direct the matters that most significantly impact the VIE's financial performance; and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If the Company's interest possesses both of these characteristics, the Company is deemed to be the primary beneficiary and would be required to consolidate the VIE. The Company will continually assess its involvement with VIEs and re-evaluate the requirement to consolidate them. Noncontrolling interests are presented and disclosed as a separate component of stockholders' equity (not as a liability or other item outside of stockholders' equity). Consolidated net loss includes the noncontrolling interests’ share of (loss) income. All changes in the Company’s ownership interest in a subsidiary are accounted for as stockholders' equity transactions if the Company retains its controlling financial interest in the subsidiary. The portions of these entities that the Company does not own are presented as noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements. The consolidated financial statements include the accounts of the Company's majority-owned and/or controlled subsidiaries as follows: Subsidiary Ownership % Apartment Complex Number Property Location Springhurst Housing Partners, LLC 70.0% Champion Farms 264 Louisville, KY Glenwood Housing Partners I, LLC 83.0% Fieldstone 266 Woodlawn, OH FPA/PRIP Conifer, LLC 42.5% Conifer Place 420 Norcross, GA DT Stone Ridge, LLC 77.7% Stone Ridge 188 Columbia, SC Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets Held for Sale The Company presents the assets and liabilities of any rental properties which have been sold subsequent to the balance sheet date, or otherwise qualify as held for sale, separately in the Consolidated Balance Sheets. Real estate assets held for sale are measured at the lower of carrying amount or fair value less cost to sell. Both the real estate and the corresponding liabilities are presented separately in the consolidated balance sheets. Subsequent to classification of an asset as held for sale, no further depreciation is recorded. At December 31, 2014 , the Company had three rental properties included in assets held for sale. At September 30, 2015 , there were no rental properties included in assets held for sale. Rental Properties The Company records acquired rental properties at fair value. The Company considers the period of future benefit of an asset to determine its appropriate useful life and depreciates using the straight line method. The Company anticipates the estimated useful lives of its assets by class as follows: Buildings 27.5 years Building improvements 3.0 to 27.5 years Tenant improvements Shorter of lease term or expected useful life Concentration of Risk At September 30, 2015 , the Company's real estate investments in California, Texas and Georgia represented 17% , 25% and 18% of the net book value of the Company's rental properties, respectively. As a result, the geographic concentration of the Company's portfolio makes it particularly susceptible to adverse economic developments in the California, Texas and Georgia real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for multifamily rental properties resulting from the local business climate, could adversely affect the Company's operating results and its ability to make distributions to stockholders. Impairment of Long Lived Assets When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for permanent 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. An impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of a property 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. There were no impairment charges during the three and nine months ended September 30, 2015 and 2014 . 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. A TDR 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. 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. At September 30, 2015 and December 31, 2014 , there are no loans held on the cost recovery method. Preferred Equity Investment The Company records preferred equity investments at cost and evaluates the collectibility of both interest and principal at each balance sheet date. A preferred equity investment is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due according to existing contractual terms. When an investment is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the investment to its estimated fair value. Fees paid, net of expenses, are deferred and recognized as an adjustment to interest and dividend income earned over the term of the agreement. Dividend income is recognized based on the contractual terms of the preferred equity agreement. Allocation of the Purchase Price of Acquired and Foreclosed Assets The cost of rental properties acquired directly as fee interests and through foreclosing on a loan are allocated to net tangible and intangible assets based on their relative fair values . The Company allocates the purchase price of properties to acquired tangible assets, consisting of land, buildings, fixtures and improvements, and to 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. 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. In addition, the Company may obtain independent appraisal reports. The information in the appraisal reports along with the aforementioned information available to the Company's management is used in allocating the purchase price. The independent appraisers have no involvement in management's allocation decisions other than providing market information. In allocating the 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 period. 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 it were 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 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. Goodwill The Company records the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired (including identified intangible assets) and liabilities assumed as goodwill. Goodwill is not amortized but is tested for impairment at a level of reporting referred to as a reporting unit during the fourth quarter of each calendar year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. 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 future minimum rental payments to be received from noncancelable operating leases (excluding commercial and antenna rentals) are $60.4 million and $314,000 for the 12 month periods ending September 30, 2016 and 2017, respectively, and none thereafter. The future minimum rental payments to be received from noncancelable operating leases for commercial rental properties and antenna rentals are $325,000 , $290,000 , $160,000 , $104,000 , $79,000 , and zero for the 12 month periods ending September 30, 2016, 2017, 2018, 2019, 2020, and thereafter, respectively. Tenant Receivables Tenant receivables are stated in the financial statements as amounts due from tenants net of an allowance for uncollectible receivables. Payment terms vary and receivables outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history, the tenants’ current ability to pay their obligations to the Company, the condition of the general economy and the industry as a whole. The Company writes off receivables when they become uncollectible. At September 30, 2015 and December 31, 2014 , there were allowances for uncollectible receivables of $35,881 and $57,300 , respectively. 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. As a REIT, the Company is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year. 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. The Company may elect to treat certain of its subsidiaries as taxable REIT subsidiaries (“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 September 30, 2015 and December 31, 2014 , the Company had no TRSs. The Company evaluates the benefits from tax positions taken or expected to be taken in its tax return. 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 computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. None of the 50,000 shares of convertible stock (discussed in Note 15) are included in the diluted earnings per share calculations, as the actual number of shares of common stock that will be issuable upon conversion of the convertible stock, if any, is indeterminable at September 30, 2015 and would be anti-dilutive for the three and nine months ended September 30, 2015 and 2014 due to the net loss for the periods. For the purposes of calculating earnings per share, all common shares and per common share information in the financial statements have been adjusted retroactively for the effect of seven 1.5% stock distributions, two 0.75% stock distributions, one 0.585% stock distribution and two 0.5% stock distributions issued to stockholders. Common stock shares issued on the Consolidated Balance Sheets have also been adjusted retroactively for the effect of these 12 distributions. Reclassifications Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. The impact of the reclassifications made to prior period financial statements are not material and did not effect net income (loss). Adoption of New Accounting Standards Accounting Standards Issued But Not Yet Effective In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”)("ASU No. 2014-09"), “Revenue from Contracts with Customers”, which will replace most existing revenue recognition guidance in GAAP. The core principle of ASU No. 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU No. 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU No. 2014-09 will be effective for the Company beginning January 1, 2018, including interim periods in 2018, and allows for both retrospective and prospective methods of adoption. The Company is in the process of determining the method of adoption and assessing the impact of this guidance on the Company’s consolidated financial position, results of operations and cash flows. In August 2014, FASB issued ASU No. 2014-15, "Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." Under the new guidance, an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of the new requirements is not expected to have a material impact on the Company's consolidated financial statements. In January 2015, FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items" (“ASU No. 2015-01”). The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items. Although the amendment will eliminate the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect the adoption of ASU No. 2015-01 to have a significant impact on its consolidated financial statements. In February 2015, FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective for the Company beginning January 1, 2016. The Company is continuing to evaluate this guidance; however, it does not expect the adoption of ASU 2015-02 to have a significant impact on its consolidated financial statements. In April 2015, FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. Upon adoption, the Company will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period presented to reflect the period-specific effects of applying the new guidance. This guidance is effective for the Company beginning January 1, 2016. The Company is continuing to evaluate this guidance; however, it does not expect the adoption of ASU 2015-03 to have a significant impact on its consolidated financial statements. In September 2015, FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"), which eliminates the requirement to retroactively revise comparative financial information for prior periods presented in financial statements due to changes in provisional amounts recorded for acquisitions in subsequent periods. Upon adoption, disclosure of the amounts recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized at the acquisition date are required. ASU 2015-16 is effective for the Company beginning January 1, 2016. The Company is continuing to evaluate this guidance; however, it does not expect the adoption of ASU 2015-16 to have a significant impact on its consolidated financial statements. |
