UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

or

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

For the transition period from __________ to __________

Commission File Number 000-54369

Resource Real Estate Opportunity REIT, Inc.

(Exact name of registrant as specified in its charter)

Maryland	27-0331816
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
1845 Walnut Street, 18th Floor, Philadelphia, PA 19103
(Address of principal executive offices) (Zip code)
(215) 231-7050
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of May 13, 2014, there were 67,738,650 outstanding shares of common stock of Resource Real Estate Opportunity REIT, Inc.

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

INDEX TO ANNUAL REPORT

ON FORM 10-Q

		PAGE
PART 1	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets - March 31, 2014 (unaudited) and December 31, 2013	3
	Consolidated Statements of Operations and Comprehensive Loss - Three Months Ended March 31, 2014 and 2013 (unaudited)	4
	Consolidated Statement of Changes in Stockholders' Equity - Three Months Ended March 31, 2014 (unaudited)	5
	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013 (unaudited)	6
	Notes to Consolidated Financial Statements - March 31, 2014 (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
PART II
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	45
Item 6.	Exhibits	45
SIGNATURES		47

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements.  Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.  Actual results may differ materially from those contemplated by such forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.

PART 1.     FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Investments:
Rental properties, net	$	650,306		$	390,373
Loans held for investment, net	1,746			1,724
Identified intangible assets, net	6,951			5,182
Assets of discontinued operations	—			88
	659,003			397,367
Cash	137,984			270,323
Restricted cash	3,432			4,456
Due from related parties	54			530
Tenant receivables, net	475			573
Deposits	241			141
Accounts receivable - other	39			—
Prepaid expenses and other assets	1,433			1,567
Deferred financing costs, net	4,606			3,602
Goodwill	7,031			—
Total assets	$	814,298		$	678,559
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable	$	249,342		$	111,811
Revolving credit facilities	37,041			37,041
Accounts payable	1,909			1,417
Accrued expenses and other liabilities	4,949			2,745
Accrued real estate taxes	2,776			2,117
Due to related parties, net	1,826			1,718
Tenant prepayments	796			615
Security deposits	2,446			1,826
Distribution payable	2,248			2,222
Total liabilities	303,333			161,512
Stockholders’ equity:
Preferred stock (par value $.01; 10,000,000 shares authorized, none issued)	—			—
Common stock (par value $.01; 1,000,000,000 shares authorized; 67,554,712 and 66,725,241 shares issued, respectively; and 67,450,482 and 66,667,136 shares outstanding, respectively)	675			668
Convertible stock (“promote shares”; par value $.01; 50,000 shares authorized, issued and outstanding)	1			1
Additional paid-in capital	598,236			590,591
Accumulated other comprehensive (loss) income	(38		)	20
Accumulated deficit	(99,038		)	(74,233		)
Total stockholders’ equity	499,836			517,047
Noncontrolling interest	11,129			—
Total equity	510,965			517,047
Total liabilities and stockholders’ equity	$	814,298		$	678,559

3

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

	Three Months Ended
	March 31,
	2014			2013
Revenues:				(Remeasured)
Rental income	$	20,669		$	6,796
Gain on foreclosures	—			3,460
Interest income	515			54
Total revenues	21,184			10,310
Expenses:
Rental operating	12,027			4,608
Acquisition costs	2,500			686
Foreclosure costs	—			39
Management fees - related parties	2,109			777
General and administrative	2,294			912
Loss on disposal of assets	1,627			37
Depreciation and amortization expense	11,079			2,769
Total expenses	31,636			9,828
(Loss) income before other expenses	(10,452		)	482
Other (expense) income:
Gain on forfeiture/redemption of stock	—			21
Interest expense	(2,739		)	(125		)
(Loss) income from continuing operations	(13,191		)	378
Discontinued operations:
Income (loss) from discontinued operations	2			(578		)
Net loss	(13,189		)	(200		)
Net income attributable to noncontrolling interest	(804		)	—
Net loss attributable to stockholders	$	(13,993	)	$	(200	)
Other comprehensive loss:
Net loss	$	(13,189	)	$	(200	)
Designated derivatives, fair value adjustment	(58		)	—
Comprehensive loss	$	(13,247	)	$	(200	)
Weighted average common shares outstanding	67,364			22,612
Basic and diluted (loss) income per common share:
Continuing operations	$	(0.20	)	$	0.02
Discontinued operations	—			(0.03		)
Net loss	$	(0.20	)	$	(0.01	)

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

4

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(in thousands)

(unaudited)

	Common Stock				Convertible Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling interests			Total Equity
	Shares		Amount		Shares	Amount
Balance at January 1, 2014	66,667		$	668	50	$	1	$	590,591		$	20		$	(74,233	)	$	517,047		$	—		$	517,047
Common stock issued through distribution reinvestment plan	496		4		—	—		4,708			—			—			4,712			—			4,712
Syndication costs	—		—		—	—		3			—			—			3			—			3
Distributions of common stock	333		3		—	—		3,330			—			(3,333		)	—			—			—
Distributions declared	—		—		—	—		—			—			(6,729		)	(6,729		)	—			(6,729		)
Share redemptions	(46	)	—		—	—		(396		)	—			54			(342		)	—			(342		)
Designated derivatives, fair value adjustment	—		—		—	—		—			(58		)	—			(58		)	—			(58		)
Acquisition of noncontrolling interests	—		—		—	—		—			—			—			—			17,237			17,237
Deconsolidation of noncontrolling interest	—		—		—	—		—			—			—			—			(6,912		)	(6,912		)
Net loss	—		—		—	—		—			—			(13,993		)	(13,993		)	804			(13,189		)
Net income attributable to noncontrolling interests	—		—		—	—		—			—			(804		)	(804		)	—			(804		)
Balance at March 31, 2014	67,450		$	675	50	$	1	$	598,236		$	(38	)	$	(99,038	)	$	499,836		$	11,129		$	510,965

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

5

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Three Months Ended
	March 31,
	2014			2013
				(Remeasured)
Cash flows from operating activities:
Net loss	$	(13,189	)	$	(200	)
Adjustments to reconcile net loss to net cash used in operating activities:
(Income) loss from discontinued operations	(2		)	578
Gain on foreclosures	—			(3,460		)
Loss on disposal of assets	1,627			37
Loss on property impairment	—			539
Depreciation and amortization	11,079			3,140
Amortization of deferred financing costs	188			59
Deferred offering costs	—			(500		)
Accretion of discount and direct loan fees and costs	—			(9		)
Changes in operating assets and liabilities, net of acquisitions:
Restricted cash	1,024			100
Tenant receivables, net	98			(38		)
Deposits	(100		)	38
Prepaid expenses and other assets	569			362
Due to related parties, net	108			862
Accounts payable and accrued expenses	3,328			1,818
Tenant prepayments	135			3
Security deposits	414			7
Net cash provided by operating activities of continuing operations	5,279			3,336
Cash flows from investing activities:
Property acquisitions	(70,164		)	(18,386		)
Ownership acquisitions	(58,493		)	—
Capital expenditures	(4,712		)	(6,393		)
Principal payments received on loans	(22		)	9
Net cash used in investing activities of continuing operations	(133,391		)	(24,770		)
Cash flows from financing activities:
Proceeds from issuance of common stock	—			54,541
Redemptions	(342		)	—
Payment of deferred financing costs	(1,192		)	—
Deferred offering costs	—			1,334
Principal payments on borrowings	(797		)	(49		)
Distributions paid on common stock	(1,989		)	(1,062		)
Syndication costs	3			(6,408		)
Net cash (used in) provided by financing activities of continuing operations	(4,317		)	48,356
Net cash (used in) provided by continuing operations	(132,429		)	26,922

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

6

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (in thousands) (unaudited)
	Three Months Ended
	March 31,
	2014			2013
Cash flows from discontinued operations:
Net cash provided by (used in) operating activities	90			(1,433		)
Net cash provided by (used in) investing activities	—			—
Net cash provided by (used in) financing activities	—			—
Net cash provided by (used in) discontinued operations	90			(1,433		)
Net (decrease) increase in cash	(132,339		)	25,489
Cash at beginning of period	270,323			29,336
Cash at end of period	$	137,984		$	54,825

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

7

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(unaudited)

NOTE 1 – NATURE OF BUSINESS AND OPERATIONS

Resource Real Estate Opportunity REIT, Inc. (the “Company”) was organized in Maryland on June 3, 2009 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. Resource Real Estate Opportunity Advisor, LLC (the “Advisor”), 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, has been engaged to manage the day-to-day operations of the Company. 

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, with discounts available to certain categories of purchasers. The private offering which closed on June 9, 2010, raised aggregate gross proceeds of $12.8 million, or $11.3 million, net of $1.5 million in syndication costs, from the issuance of 1,283,727 common shares, including 20,000 shares purchased by the Advisor.  In conjunction with the private offering, the Company also offered 5,000 shares of convertible stock at a price of $1 per share.  Investors acquired 937 shares of the convertible stock and the Advisor purchased 4,063 shares.  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 (see Note 15).  

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 also offering shares pursuant to its distribution reinvestment plan at a purchase price equal to $9.50 per share.  The primary portion of the initial public offering closed on December 13, 2013. On December 26, 2013, the unsold primary offering shares were deregistered and, on December 30, 2013, the registration of the shares issuable pursuant to the distribution reinvestment plan was continued pursuant to a Registration Statement on Form S-3. The Advisor agreed to invest 1% of the first $250.0 million invested in the Company by non-affiliated investors, or up to $2.5 million. The Advisor purchased 35,000 shares of common stock in 2011 for $315,000; 141,500 shares in 2012 for $1.3 million; and 84,056 shares in 2013 for $756,504. As of March 31, 2014, the Advisor had purchased 276,056 shares of common stock for an aggregate purchase price of $2.5 million.

As of December 13, 2013, the Company had raised aggregate gross offering proceeds of $645.8 million through its private and public offerings, which resulted in the issuance of 64,926,311 shares of common stock, including the 276,056 shares purchased by the Advisor. The Company issued 496,135 shares for $4.7 million pursuant to the distribution reinvestment plan since December 31, 2013.

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 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 has targeted, and intends to continue 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 consists 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 is organized and conducts its operations in a manner intended to allow it to qualify 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.  The Company also operates its business in a manner intended to maintain its exemption from registration under the Investment Company Act of 1940, as amended.

8

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(unaudited)

The consolidated financial statements and the information and tables contained in the notes thereto as of March 31, 2014 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the three months ended March 31, 2014 may not necessarily be indicative of the results of operations for the full year ending December 31, 2013.

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”)	107th Avenue	5	Omaha, NE
RRE Westhollow Holdings, LLC (“Westhollow”)	Arcadia	404	Houston, TX
RRE Crestwood Holdings, LLC (“Crestwood”)	Town Park (a)	N/A	Birmingham, AL
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”)	Campus Club	64	Tampa, FL
RRE Bristol Holdings, LLC (“Bristol”)	The Redford	856	Houston, TX
RRE Cannery Holdings, LLC (“Cannery”)	Cannery Lofts	156	Dayton, OH
RRE Williamsburg Holdings, LLC (“Williamsburg”)	Williamsburg	976	Cincinnati, OH
WPL Holdings, LLC	Williamsburg Parking Lot	N/A	Cincinnati, OH
RRE Skyview Holdings, LLC ("Skyview")	Cityside Crossing	360	Houston, TX
RRE Park Forest Holdings, LLC ("Park Forest")	Mosaic	216	Oklahoma City, OK
RRE Foxwood Holdings, LLC ("Foxwood")	The Reserve at Mt. Moriah	220	Memphis, TN
RRE Flagstone Holdings, LLC ("Flagstone")	The Alcove	292	Houston, TX
RRE Deerfield Holdings, LLC ("Deerfield")	Deerfield	166	Hermantown, MN
RRE Kenwick Canterbury Holdings, LLC ("Kenwick & Canterbury")	One Hundred Chevy Chase Apartments	244	Lexington, KY
RRE Armand Place Holdings, LLC ("Armand")	Ivy at Clear Creek	244	Houston, TX
RRE Autumn Wood Holdings, LLC ("Autumn Wood")	Retreat at Rocky Ridge	196	Hoover, AL
RRE Village Square Holdings, LLC ("Village Square")	Trailpoint at the Woodlands	271	Houston, TX
RRE Nob Hill Holdings, LLC ("Nob Hill")	Nob Hill	192	Winter Park, FL
RRE Brentdale Holdings, LLC ("Brentdale")	Brentdale	412	Plano, TX
RRE Jefferson Point Holdings, LLC ("Jefferson Point")	Jefferson Point	208	Newport News, VA
RRE Centennial Holdings, LLC ("Centennial")	Centennial	276	Littleton, CO
RRE Pinnacle Holdings, LLC ("Pinnacle")	Pinnacle	224	Westminster, CO
RRE Jasmine Holdings, LLC ("Jasmine")	Jasmine at Holcomb Bridge	437	Alpharetta, GA
RRE River Oaks Holdings, LLC ("River Oaks")	Terrace at River Oaks	314	San Antonio, TX
RRE Nicollet Ridge Holdings, LLC ("Nicollet Ridge")	Nicollet Ridge	339	Burnsville, MN
RRE Addison Place, LLC ("Addison Place")	Addison Place	403	Alpharetta, GA

N/A - Not Applicable

(a) - Discontinued operations

9

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

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. 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 also include the accounts of the Company and its majority-owned and/or controlled subsidiaries as follows:

Subsidiary	Ownership %	Apartment Complex	Number of Units	Property Location
PRIP 3700, LLC ("Champion Farms")	70.0%	Champion Farms	264	Louisville, KY
PRIP 10637, LLC ("Fieldstone")	83.0%	Fieldstone	266	Woodlawn, OH
PRIP 500, LLC ("Pinehurst")	97.5%	Pinehurst	146	Kansas City, MO
PRIP 1102, LLC ("Pheasant Run")	97.5%	Pheasant Run	160	Lee's Summit, MO
PRIP 11128, LLC ("Retreat at Shawnee")	97.5%	Retreat at Shawnee	342	Shawnee, KS
PRIP 6700, LLC ("Hilltop Village")	49.0%	Hilltop Village	124	Kansas City, MO
PRIP 3383, LLC ("Conifer Place")	42.5%	Conifer Place	420	Norcross, GA
PRIP Stone Ridge, LLC ("Stone Ridge")	68.5%	Stone Ridge	191	Columbia, SC
PRIP Coursey, LLC ("Evergreen at Coursey Place")	51.7%	Evergreen at Coursey Place	352	Baton Rouge, LA
PRIP Pines, LLC ("Pines of York")	90.0%	Pines of York	248	Yorktown, VA

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 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

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.

10

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

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.  For the three months ended March 31, 2013, the Company recorded a $539,000 impairment charge for one of its loans held for investment (Heatherwood Note). The Heatherwood Note impairment charge of $539,000 is reflected in income from discontinued operations, as the Company sold the Heatherwood Apartments in April 2013.

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.

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.

11

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

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 on an annual basis, during the fourth quarter of each calendar year, or more frequently, if events or changes in circumstances indicate that the asset might be impaired.

Noncontrolling Interests

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 income (loss) includes the noncontrolling interests’ share of income (loss). 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.

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.

12

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

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 $40.3 million and $2 million for the 12 months periods ending March 31, 2015 and 2016, 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 March 31, 2014 and December 31, 2013 , there were allowances for uncollectible receivables of $19,000 and $86,000, respectively.

Deferred Offering Costs

Through March 31, 2014, the Advisor has advanced $4.6 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 was 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 the sales of shares in the Company's public offering was 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. As of March 31, 2014 and December 31, 2013, $4.6 million and $4.2 million, respectively, have been reimbursed 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.

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 March 31, 2014 and December 31, 2013, 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.

13

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

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, $50,000 of the convertible shares (discussed in Note 15) are not included in the diluted earnings per share calculations.  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 seven1.5% stock distributions, two0.75% stock distributions, one0.585% stock distribution and two0.5% 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 year financial statements have been reclassified to conform to the current-year presentation. The impact of the reclassifications made to prior year amounts are not material and did not affect net income (loss).

Adoption of New Accounting Standard

The Company early adopted the following accounting standard during 2014 which had a material impact on its consolidated financial position, results of operations and cash flows:

Accounting Standards Issued But Not Yet Effective

In April 2014, the Financial Accounting Standards Board, or FASB, issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as a discontinued operation is required. The Company has early adopted this guidance and such guidance became effective for the Company during the three months ended March 31, 2014.

NOTE 3 – SUPPLEMENTAL CASH FLOW INFORMATION

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

	March 31, 2014		December 31, 2013
Non-cash activities:
Property and intangibles received on foreclosure of loans held for investment	$	—	$	10,150
Financing provided for disposed property	—		800
Stock issued from distribution reinvestment plan	4,712		9,984
Stock distributions issued	3,333		8,221
Cash distributions on common stock declared but not yet paid	2,248		2,222
Deferred financing costs and escrow deposits funded directly by mortgage note and revolving credit facility	—		2,880
Debt assumed	138,327		—
Cash paid during the period for:
Interest	$	1,778	$	537

14

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 4 – RENTAL PROPERTIES, NET

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

	March 31, 2014			December 31, 2013
Land	$	125,072		$	62,859
Building and improvements	529,467			325,412
Furniture, fixtures and equipment	16,218			17,051
Construction in progress	1,679			827
	672,436			406,149
Less: accumulated depreciation	(22,130		)	(15,776		)
	$	650,306		$	390,373

Depreciation expense for the three months ended March 31, 2014 and 2013 was $5.9 million and $1.8 million, 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 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, the Heatherwood Note.  Possession of the Heatherwood Apartments was obtained in February 2012 and the property was subsequently sold in April 2013 (see Note 8).   The face value of the performing notes as of both March 31, 2014 and December 31, 2013 was $1.9 million. The performing notes were purchased net of discounts and the unamortized accretable discounts totaled $287,000 and $292,000 at March 31, 2014 and December 31, 2013, respectively.

On April 18, 2013, in connection with the sale of the Heatherwood Apartments, the Company originated an $800,000 mortgage loan to the purchaser of the Heatherwood Apartments on the same date.

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

	March 31, 2014			December 31, 2013
	Amount		Percent	Amount		Percent
Current	$	1,551	89%	$	1,529	89%
Delinquent:
30−89 days	—		—%	195		11%
90−180 days	195		11%	—		—%
Greater than 180 days	—		—%	—		—%
	$	1,746	100%	$	1,724	100%

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

	March 31, 2014		December 31, 2013
Loans:
Performing	$	1,551	$	1,529
Nonperforming	195		195
Total	$	1,746	$	1,724

15

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

The following table provides information about the terms of the Company's loans held for investment (dollars in thousands):

	Peterson Note			Trail Ridge Note			Heatherwood Note
Face value	$	242		$	1,058		$	800
Maturity date	12/31/2013			10/28/2021			5/17/2016
Interest rate	7.4		%	7.5		%	4.0		%
Average monthly payment	$	3		$	8		$	11

The Peterson Note matured on December 31, 2011 with an unpaid balance of $238,000.  Accordingly, the Company and the borrower under this note entered into a forbearance agreement in January 2012 which expired on December 31, 2013.  The borrower did not pay the outstanding balance at the expiration of the forbearance period, which caused the borrower under the Peterson Note to be in default of such agreement. This forbearance agreement is considered a troubled debt restructuring.  On February 27, 2014, the Company was the successful bidder at a foreclosure sale of the property collateralizing the Peterson Note. On April 6, 2014, the Company sold its interest in the sheriff's deed for the Peterson Apartments for $195,000 to an unaffiliated third party.

The Company has individually evaluated each loan for impairment and determined that, as of March 31, 2014, two loans were not impaired and the Peterson Note was impaired.  As of March 31, 2014, the Company recorded an impairment charge of approximately $24,000 on the Peterson Note.

There was a $24,000 allowance for credit losses as of March 31, 2014. There were no charge-offs for the three months ended March 31, 2014.

NOTE 6 – ACQUISITIONS, GOODWILL AND FORECLOSURES

Real Estate Investments

As of March 31, 2014, the Company owned interests in 35 properties, including 10 multifamily properties purchased on January 28, 2014 as part of the Paladin acquisition, discussed below. The Company estimated the fair values of certain of the acquired assets and liabilities based on preliminary valuations at the date of purchase. The Company is in the process of obtaining appraisals in order to finalize the estimated valuations for the more recent acquisitions.

16

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

The table below summarizes the Company's wholly-owned acquisitions and the respective fair values assigned (dollars in thousands):

Multifamily Community Name	City and State	Date of Acquisition	Purchase Price (2)			Land		Building and Improvements		Furniture, Fixture and Equipment		Intangible Assets		Other Assets		Other Liabilities			Fair Valued Assigned
Addison Place	Alpharetta, GA	3/28/2014	$	70,500	(3)	$	18,137	$	51,843	$	—	$	521	$	55	$	(392	)	$	70,164
Nicollet Ridge	Burnsville, MN	12/20/2013	33,149			4,134		26,992		1,016		1,008		36		(107		)	33,079
Terrace at River Oaks	San Antonio, TX	12/16/2013	22,500			3,830		17,510		491		669		48		(63		)	22,485
Jasmine at Holcomb Bridge	Alpharetta, GA	10/25/2013	25,050			7,582		16,023		587		859		37		(161		)	24,927
Centennial	Littleton, CO	9/30/2013	30,600			5,702		23,609		198		1,090		24		(190		)	30,433
Pinnacle	Westminster, CO	9/30/2013	24,250			2,923		20,301		97		928		20		(147		)	24,122
Jefferson Point	Newport News, VA	9/9/2013	18,250			3,951		13,048		584		667		23		(59		)	18,214
Brentdale	Plano, TX	7/25/2013	32,200			5,785		24,418		798		1,199		52		(317		)	31,935
Nob Hill	Winter Park, FL	6/27/2013	10,100			2,512		6,459		523		606		50		(61		)	10,089
Trailpoint at the Woodlands	Spring, TX	6/24/2013	27,200			3,785		22,014		697		704		40		(170		)	27,070
Retreat at Rocky Ridge	Hoover, AL	4/18/2013	8,500			1,616		6,418		30		436		2		(89		)	8,413
Ivy at Clear Creek	Houston, TX	3/28/2013	11,750			1,877		9,175		28		670		8		(127		)	11,631
One Hundred Chevy Chase Apartments	Lexington, KY	3/13/2013	6,850			1,323		4,981		41		505		7		(101		)	6,756
Deerfield	Hermantown MN	3/21/2012	10,300		(4) (1)	1,660		11,110		500		423		1		(4		)	13,690
The Alcove	Houston, TX	12/21/2012	5,500			1,202		3,865		20		413		54		(13		)	5,541
Cityside Crossing	Houston, TX	12/19/2012	14,425			1,949		11,676		37		763		49		(68		)	14,406
The Reserve at Mount Moriah	Memphis, TN	12/7/2012	2,275			775		1,124		39		337		16		(90		)	2,201
Mosaic	Oklahoma City, OK	12/6/2012	2,050			1,000		2,609		30		123		14		(14		)	3,762
Williamsburg Apartments	Cincinnati, OH	6/20/2012	41,250			3,223		35,111		1,007		1,909		49		(274		)	41,025
Cannery Lofts	Dayton, OH	5/13/2011	7,100		(5) (1)	160		7,913		200		609		35		—			8,917
The Redford	Houston, TX	3/27/2012	11,400			4,073		5,235		262		1,558		272		—			11,400
Campus Club Apartments	Tampa, FL	10/21/2012	8,300		(6) (1)	1,650		6,250		200		435		—		—			8,535
Vista Apartment Homes	Philadelphia, PA	6/17/2011	12,000		(7) (1)	1,163		9,913		—		535		530		(141		)	12,000
Arcadia at Westheimer	Houston, TX	9/3/2010	7,800		(8) (1)	943		6,599		—		258		—		—			7,800
107th Avenue	Omaha, NE	8/18/2010	225			25		196		—		4		—		—			225

(1) The date of acquisition reflects the date the Company acquired the note secured by the property listed.

(2) Purchase price excludes closing costs and acquisition expenses. For properties acquired through foreclosure, the purchase price reflects the contract purchase price of the note.

(3) Asset valuations are based on preliminary valuations at the date of purchase. The Company is in the process of obtaining an appraisal to finalize the valuation. The Company has up to 12 months from the date of acquisition to finalize the valuation.

17

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

(4) Deerfield originally served as the collateral for a non-performing note that the Company purchased on March 21, 2012. On July 19, 2012, the Company was the successful bidder at a foreclosure sale and formally received title to the property on January 22, 2013.

(5) Cannery Lofts originally served as the collateral for a non-performing note that the Company purchased on May 13, 2011. On December 21, 2011, the Company entered into a settlement agreement with the borrower and, subsequently, the Company foreclosed and formally received title to the property on June 6, 2012.

(6) Campus Club Apartments originally served as collateral for a non-performing note that the Company purchased on October 21, 2011. On February 9, 2012, the Company was the successful bidder at a foreclosure sale and took title to the property on February 21, 2012.

(7) Vista Apartment Homes, formerly known as Iroquois Apartments, originally served as the collateral for a non-performing promissory note that the Company purchased on June 17, 2011. On August 2, 2011, the Company was the successful bidder at a sheriff's sale and formally received title to the property.

(8) Arcadia at Westheimer originally served as the collateral for a non-performing promissory note that the Company purchased on September 3, 2010. The Company commenced foreclosure proceedings and, on October 5, 2010, formally received title to the property.

Acquisitions

The Company acquired interests in 12 properties during the three months ended March 31, 2014. As of March 31, 2014, asset valuations are based on preliminary valuations at the date of purchase. In order to finalize the fair values of the acquired assets and liabilities, the Company is in the process of obtaining third-party appraisals for all of the properties acquired. The Company has up to 12 months from the date of acquisition to finalize the valuation for each property. The preliminary valuation of Addison Place is included in the table above.

Paladin Acquisition

On July 18, 2013, Resource Real Estate Opportunity OP, LP (the “Operating Partnership”), the operating partnership of the Company, entered into an Agreement and Plan of Merger with RRE Charlemagne Holdings, LLC, a wholly owned subsidiary of the Operating Partnership (“Merger Sub”), Paladin Realty Income Properties, Inc. (“Paladin”), and Paladin Realty Income Properties, L.P. (“Paladin OP”), whose sole general partner is Paladin, pursuant to which Paladin OP was to merge with and into Merger Sub (the “Merger”), with Merger Sub surviving as a wholly owned subsidiary of the Operating Partnership.

    On January 28, 2014, the parties completed the Merger resulting in the acquisition by the Operating Partnership of interests in 11 joint ventures that owned a total of 10 multifamily communities with more than 2,500 rentable units and two office properties that contain more than 75,000 rentable square feet. The Operating Partnership also acquired, as part of the Merger, a promissory note in the principal amount of $3.5 million issued by a consolidated joint venture which is eliminated in consolidation. This promissory note is secured by the co-venturer’s interests in such joint venture. The consideration for the Merger was $51.2 million, exclusive of transaction costs.    

On March 6, 2014, the Company, through a wholly-owned subsidiary, sold its entire 47.65% membership interest in FPA/PRIP Governor Park, LLC ("Governor Park") to FPA Governor Park Associates, LLC for $456,000 pursuant to that certain assignment and assumption of membership interests agreement of even date. Governor Park owns two small office buildings in San Diego, California. The sale price approximated the fair value, therefore no gain or loss has been recognized.

18

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

The estimated allocation of the purchase price for the interests in the other 10 joint ventures, which is expected to be completed by June 30, 2014, is included below:

Multifamily Community Name	City and State	Ownership %		Land		Building and Improvements		Intangible Assets		Fair Value of Property		Other Net Assets (Liabilities)			Non-controlling interest			Total Company Equity			Goodwill		Allocation of Purchase Price
Champion Farms	Louisville, KY	70.0	%	$	3,146	$	21,838	$	646	$	25,630	$	(17,419	)	$	(2,463	)	$	5,748		$	366	6,114
Fieldstone	Woodlawn, OH	83.0	%	3,089		18,980		854		22,923		(16,201		)	(1,143		)	5,579			328		5,907
Pinehurst	Kansas City, MO	97.5	%	1,627		7,193		153		8,973		(4,510		)	(112		)	4,351			—		4,351
Pheasant Run	Lee's Summit, MO	97.5	%	1,486		9,321		306		11,113		(6,711		)	(110		)	4,292			—		4,292
Retreat at Shawnee	Shawnee, KS	97.5	%	2,363		16,126		659		19,148		(14,543		)	(115		)	4,490			—		4,490
Hilltop Village	Kansas City, MO	49.0	%	715		3,241		264		4,220		(4,729		)	260			(249		)	60		(189		)
Conifer Place	Norcross, GA	42.5	%	10,798		24,176		1,139		36,113		(29,596		)	(3,745		)	2,772			3,986		6,758
Stone Ridge	Columbia, SC	68.5	%	2,825		3,840		335		7,000		506			(2,364		)	5,142			1,052		6,194
Evergreen at Coursey Place	Baton Rouge, LA	51.7	%	9,470		33,209		705		43,384		(29,063		)	(6,912		)	7,409			620		8,029
Pines of York	Yorktown, VA	90.0	%	8,773		11,231		800		20,804		(15,473		)	(533		)	4,798			—		4,798
				$	44,292	$	149,155	$	5,861	$	199,308	$	(137,739	)	$	(17,237	)	$	44,332		$	6,412	$	50,744
Governor Park (sold March 6, 2014)		47.7	%																				456
Total purchase price																							$	51,200

On March 31, 2014, the Company purchased the remaining 48.3% ownership interest of its joint venture partner in ERES Coursey, LLC ("Coursey Place") for $7.5 million, bringing the Company's ownership percentage of Evergreen at Coursey Place to 100% from 51.7%. A summary of the transaction is below:

Purchase price excluding closing costs	$	7,500
Noncontrolling interest assumed	6,912
Prepaid insurance	7
Goodwill	619
Transaction expenses	45
	$	7,583

Total goodwill for the Company is as follows:

Goodwill at date of acquisition	$	6,412
Buyout of Coursey Place joint venture interest	619
Total goodwill	$	7,031

19

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 7 - MEASUREMENT PERIOD ADJUSTMENTS

On January 22, 2013, the Company took title to Deerfield after foreclosing on the Deerfield Note, which was originally acquired by the Company for $10.3 million.      

The measurement period for the above acquisition was finalized during the three months ended December 31, 2013. In completing the accounting for the acquisition of Deerfield, the Company determined that the fair value of the net assets acquired exceeded the fair value of the consideration paid for this acquisition. Accordingly, the Company retrospectively adjusted the provisional amounts with respect to the Deerfield acquisition that was recognized at the acquisition date to reflect new information from the completed third party appraisal report that, if known at the acquisition date, would have affected the measurement of the amounts recognized as of that date.  The final purchase price adjustment recorded during the measurement period resulted in a gain on foreclosure of $3.4 million on the Deerfield acquisition.  Those changes are reflected in the table below:

Deerfield

	January 22, 2013 (As initially reported)		Measurement period adjustment			January 22, 2013 (As adjusted)
Land	$	1,028	$	632		$	1,660
Building	8,592		2,518			11,110
Personal property	—		500			500
Intangible assets	680		(257		)	423
Identifiable net assets	10,300		3,393			13,693
Gain on foreclosure	—		(3,393		)	—
Total net identifiable net assets	$	10,300	$	—		$	13,693

NOTE 8 – DISPOSITION OF PROPERTIES AND DISCONTINUED OPERATIONS

The Company reported its property dispositions as discontinued operations under prior accounting guidance. Assuming no significant continuing involvement by the Company after the sale, the sale of property is considered a discontinued operation.  Included in discontinued operations for the three months ended March 31, 2014 and 2013 are the operating results of the two properties discussed below.

      The Company sold the Heatherwood Apartments, which was originally obtained through foreclosure in February 2012, to an unaffiliated purchaser for $1.0 million on April 18, 2013 and recognized a loss on disposition of $31,000. The Company provided the purchaser with financing for $800,000 and the purchaser paid cash of $200,000 in connection with the disposition.

The Company sold the Town Park Apartments to an unaffiliated purchaser on April 30, 2013 for $10.3 million and recognized a gain of approximately $3.2 million on disposition.    

20

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

The results of discontinued operations are summarized for the three months ended March 31, 2014 and 2013 as follows (in thousands): 

	Three Months Ended
	March 31,
	2014		2013
Revenues:
Rental income	$	3	$	806
Total revenues	3		806
Expenses:
Rental operating	1		646
General and administrative	—		58
Loss on property impairment	—		539
Depreciation and amortization expense	—		141
Total expenses	1		1,384
Income (loss) from discontinued operations	2		(578		)
Weighted average common shares outstanding	67,364		22,612
Basic and diluted loss per common share	$	—	$	(0.03	)

NOTE 9 – IDENTIFIED INTANGIBLE ASSETS, NET

Identified intangible assets, net, consist of rental and antennae leases and leasing commissions. The value of the acquired in-place leases totaled $23.0 million and $16.7 million as of March 31, 2014 and December 31, 2013, respectively, net of accumulated amortization of $16.1 million and $11.5 million, respectively.  The weighted-average remaining life of the rental leases is 10.0 months and 11.6 months as of March 31, 2014 and December 31, 2013, respectively.  Expected amortization for the antennae leases at the Vista Apartment Homes is $16,000 annually through 2025.  Amortization of the rental and antennae leases for the three months ended March 31, 2014 was $4.6 million.

Expected amortization for the rental and antennae leases for the next five years ending March 31, and thereafter, is as follows (in thousands): 

2015	$	6,761
2016	19
2017	17
2018	16
2019	16
Thereafter	122
	$	6,951

21

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 10 – MORTGAGE NOTES PAYABLE

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

	Balance Outstanding at March 31,		Maturity Date	Annual Interest Rate			Average Monthly Debt Service		Interest Expense
									Three Months Ended   March 31,
Collateral	2014								2014		2013
Vista Apartment Homes	$	8,794	5/1/2017	2.76	%	(1)	$	38	$	61	$	64
Cannery Lofts	8,190		9/1/2020	3.45	%	(1)	24		71		N/A
Deerfield	10,530		11/1/2020	4.66	%	(2)	41		123		N/A
Village Square	19,362		11/1/2023	5.02	%	(1)	81		124		N/A
Ivy at Clear Creek	8,586		11/1/2023	5.02	%	(1)	36		55		N/A
Centennial	23,161		1/1/2019	3.60	%	(2)	101		209		N/A
Pinnacle	18,702		1/1/2019	3.60	%	(2)	82		169		N/A
Terrace at River Oaks	14,259		1/1/2022	4.32	%	(2)	69		154		N/A
Champion Farms	17,403		7/1/2016	6.14	%	(2)	85		173		N/A
Fieldstone	15,979		7/1/2014	6.05	%	(2)	137		167		N/A
Pinehurst	4,428		1/1/2016	5.58	%	(2)	39		41		N/A
Pheasant Run	6,759		10/1/2017	5.95	%	(2)	31		64		N/A
Retreat of Shawnee	14,333		2/1/2018	5.58	%	(2)	99		129		N/A
Hilltop Village	4,505		12/1/2017	5.81	%	(2)	33		42		N/A
Conifer Crossing	29,380		9/1/2015	5.96	%	(2)	203		286		N/A
Coursey Place	29,313		8/1/2021	5.07	%	(2)	154		247		N/A
Pines of York	15,658		12/1/2021	4.46	%	(2)	80		121		N/A
	$	249,342

(1) Variable rate based on one-month LIBOR of 0.15175% (as of March 31, 2014).

(2) Fixed rate.

Annual principal payments on the mortgage notes payable for each of the next five years ending March 31, and thereafter, are as follows (in thousands):

2015	$	21,300
2016	5,871
2017	50,273
2018	26,886
2019	30,026
Thereafter	$	114,986
	$	249,342

The mortgage notes payable are recourse only with respect to the properties that secure the notes, subject to certain limited standard exceptions, as defined in each mortgage note. The Company has guaranteed the mortgage notes by executing a guarantee with respect to the properties.  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.

22

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 11 – REVOLVING CREDIT FACILITIES

On December 2, 2011, the Company, through its operating partnership, entered into a secured revolving credit facility (the “Bank of America Credit Facility”) with Bank of America, N.A. (“Bank of America”).  On May 23, 2013 the Company amended the Bank of America Credit Facility to increase the amount it may borrow under the Bank of America Credit Facility from $25 million to $50 million (the “Facility Amount”). Draws under the Bank of America Credit Facility are secured by certain of the Company's properties with an aggregate value of $102.0 million and are guaranteed by the Company.  The amount currently available to be borrowed is $45.5 million. The Company paid certain closing costs in connection with the Bank of America Credit Facility, including loan fees totaling $413,305. As of both March 31, 2014 and December 31, 2013, the Company had outstanding borrowings of $1.5 million under the Bank of America Credit Facility.

      The Bank of America Credit Facility, as amended, matures on May 23, 2017, and may be extended to May 23, 2019 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Bank of America Credit Facility. Interest on outstanding borrowings is incurred at a rate of LIBOR plus 3.0% (3.15% at March 31, 2014).  The Company is required to make monthly interest-only payments.  The Company also may prepay the Bank of America Credit Facility in whole or in part at any time without premium or penalty. The Company recorded interest expense of $8,000 for the three months ended March 31, 2014 in connection with its borrowings under the Bank of America Credit Facility.

The operating partnership's obligations with respect to the Bank of America Credit Facility are guaranteed by the Company, pursuant to the terms of a guaranty dated as of December 2, 2011, or the Guaranty.  The Bank of America 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:

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

• the Company 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 Bank of America Credit Facility; and

• the Company 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 unreasonable withheld.

The Company was in compliance with all such covenants at March 31, 2014.  

On December 20, 2013, the Company, through a wholly-owned subsidiary, entered into a secured revolving credit facility, ("Jefferson Point Credit Facility") with PNC Bank, National Association for $15 million.  Draws under the Jefferson Point Credit Facility are secured by the assets of Jefferson Point Apartments. The Company provided a repayment guarantee of all interest and scheduled monthly principal payments (excluding the final payment at maturity for the outstanding balance.) The Jefferson Point Credit Facility matures on December 20, 2018. As of March 31, 2014 and December 31, 2013, the Company had outstanding borrowings of $12.5 million. Interest on outstanding borrowings is incurred at a rate of LIBOR plus 2.00% (2.15% at March 31, 2014). The Company paid certain closing costs in connection with the Jefferson Point Credit Facility, including loan fees totaling $75,000. The Company recorded interest expense of $68,000 for the three months ended March 31, 2014 in connection with its borrowings under the Jefferson Point Credit Facility.         

On December 27, 2013, the Company, through a wholly-owned subsidiary, entered into a secured revolving credit facility ("Brentdale Credit Facility") with U.S. Bank National Association for $29.7 million.  Draws under the Brentdale Credit Facility are secured by the assets of Brentdale Apartments. The Company provided a $6.5 million repayment guarantee. The Brentdale Credit Facility matures on December 27, 2017, and may be extended to December 27, 2019 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Brentdale Credit Facility. As of March 31, 2014 and December 31, 2013, the Company had outstanding borrowings of $23.0 million. Interest on outstanding borrowings is incurred at a rate of LIBOR plus 1.95% (2.10% at March 31, 2014). The Company paid certain closing costs in connection with the Brentdale Credit Facility, including loan fees totaling $222,000. The Company recorded interest expense of $7,000 for the three months ended March 31, 2014 in connection with its borrowings under the Brentdale Credit Facility.

23

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 12 – DEFERRED FINANCING COSTS

Deferred financing costs incurred to obtain financing are amortized over the term of the related debt.  Accumulated amortization as of March 31, 2014 and December 31, 2013 was approximately $550,000 and $419,000, respectively.  Estimated amortization of the existing deferred financing costs for the next five years ending March 31, and thereafter, are as follows (in thousands):

2015	$	943
2016	930
2017	924
2018	560
2019	276
Thereafter	973
	$	4,606

NOTE 13 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in each component of accumulated other comprehensive income for the three months ended March 31, 2014 (dollars in thousands):

	Net unrealized gain (loss) on derivatives
January 1, 2014	$	20
Unrealized loss on designated derivative	(58		)
March 31, 2014	$	(38	)

24

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 14 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has ongoing relationships with several related parties. 

Relationship with RAI

The Company's properties participate in an insurance pool with other properties directly and indirectly managed by RAI. RAI holds the escrow funds related to the insurance pool on its books. The insurance pool covers losses up to $3.0 million. Catastrophic insurance would cover losses in excess of the insurance pool up to $85.0 million. Therefore, unforeseen or catastrophic losses in excess of the Company's insured limits could have a material adverse effect on the Company's financial condition and operating results.

Relationship with the Advisor

In September 2009, the Company entered into an advisory agreement (the “Advisory Agreement”) pursuant to 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 renews 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, 2013. Under the Advisory Agreement, the Advisor receives fees and is reimbursed for its expenses as set forth below:

Acquisition fees. 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. 

Asset management fees. 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.  

Disposition fees. The Advisor earns a disposition fee in connection with the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.75% of the contract sales price. No properties were sold during the three months ended March 31, 2014 and 2013 and, therefore, no disposition fees were earned in either period.

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

Expense reimbursements. 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 public offering, including its ongoing distribution reinvestment plan offering.  This includes all organization and offering costs of up to 2.5% of gross offering proceeds.

Reimbursements also include expenses the Advisor incurs in connection with providing services to the Company, including the Company’s allocable share of costs for Advisor personnel and overhead, out of pocket expenses incurred in connection with the selection and acquisition of properties or other real estate related debt investments, whether or not the Company ultimately acquires the investment.  However, the Company will not reimburse the Advisor or its affiliates for employee costs in connection with services for which the Advisor earns acquisition or disposition fees.

Relationship with Resource Real Estate Opportunity Manager

Resource Real Estate Opportunity Manager, LLC (the “Manager”), an affiliate of the Advisor, manages the Company's real estate properties and real estate-related debt investments and coordinates the leasing of, and manages construction activities related to, some of the Company’s real estate properties pursuant to the terms of the management agreement with the Manager.

Property management fees. The Manager is entitled to specified fees upon the provision of certain services, including construction management fee and property management/debt servicing fees.  

25

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

Construction management fees. The Manager earns a construction management fee of 5.0% of actual aggregate costs to construct improvements, or to repair, rehab or reconstruct a property.

Debt servicing fees. The Manager earns a debt servicing fee of 2.75% on payments received from loans held by the Company for investment.  

Expense reimbursement. During the ordinary course of business, the Manager or other affiliates of RAI may pay certain shared operating expenses on behalf of the Company. 

Relationship with Resource Securities

Resource Securities, Inc. (“Resource Securities”), an affiliate of the Advisor, served as the Company’s dealer-manager and was responsible for marketing the Company’s shares in the primary portion of its public offering.  Pursuant to the terms of the dealer-manager agreement with Resource Securities, the Company paid Resource Securities a selling commission of up to 7% of gross primary offering proceeds and a dealer-manager fee of up to 3% of gross primary offering proceeds.

Resource Securities reallowed all selling commissions earned and up to 1% 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 could reimburse Resource Securities for bona fide due diligence expenses.

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. 

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 fees earned / expenses paid and the amounts payable to such related parties are summarized in the following tables (in thousands):

	March 31, 2014		December 31, 2013
Receivables from related parties:
RAI and affiliates	$	54	$	530
Payables to related parties:
Advisor:
Acquisition fees	$	952	$	—
Expense reimbursements	228		775
Resource Real Estate Opportunity Manager, LLC:
Property management fees	269		266
Operating expense reimbursements	362		500
Resource Securities, Inc.
Selling commissions and dealer manager fees	—		174
Other	15		3
	$	1,826	$	1,718

26

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

	Three Months Ended March 31,
	2014		2013
Fees earned / expenses paid to related parties:
Advisor:
Acquisition fees	$	2,723	$	555
Asset management fees	$	1,250	$	406
Organization and offering costs	$	—	$	103
Overhead allocation	$	351	$	101
Resource Real Estate Opportunity Manager LLC:
Property management fees	$	696	$	413
Construction management fees	$	229	$	—
Debt servicing fees	$	—	$	1
Resource Securities, Inc.:
Selling commissions and dealer manager fees	$	—	$	5,100
Other:
Ledgewood	$	30	$	31
Graphic Images	$	33	$	133

NOTE 15 – 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 March 31, 2014 and December 31, 2013, no shares of preferred stock were issued and outstanding.

Common Stock

As of March 31, 2014, the Company had issued an aggregate of 67,554,712 shares, net of redemptions, of its $0.01 par value common stock as follows (dollars in thousands):

	Shares Issued	Gross Proceeds
Shares issued through private offering	1,263,727	$	12,500
Shares issued through primary public offering	62,485,461	622,000
Shares issued through stock distributions	2,132,266	—
Shares issued through distribution reinvestment plan	1,657,758	16,000
Shares issued in conjunction with the Advisor's initial investment, net of 4,500 share conversion	15,500	200
Total	67,554,712	$	650,700

Convertible Stock

As of March 31, 2014 and December 31, 2013, the Company had 50,000 shares of $0.01 par value convertible stock outstanding 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 (a) the Company having paid distributions to common stockholders that in the aggregate equal 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 10% cumulative, non-compounded annual return on the shares at that price; or (b) if the Company lists its common stock on a national securities exchange 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.

27

Redemption of Securities

During the three months ended March 31, 2014, the Company redeemed its shares as follows:

Period	Total Number of Shares Redeemed (1)	Average Price Paid per Share	Cumulative 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
January 2014	—	—	—	(2)
February 2014	—	—	—	(2)
March 2014	46,237	$8.66	46,237	(2)

(1) All redemptions of equity securities by the Company in the three months ended March 31, 2014 were made pursuant to the Company's share redemption program.

(2) The Company currently limits the dollar value and number of shares that may be redeemed under the program as described below.

All redemption requests tendered were honored during the three months ended March 31, 2014.

The Company will not redeem in excess of 5% of the weighted-average number of shares outstanding during the 12-month period immediately prior to the effective date of redemption. The Company's board of directors will determine at least quarterly whether it has sufficient excess cash to repurchase shares. Generally, the cash available for redemptions will be limited to proceeds from the Company's distribution reinvestment plan plus, if the Company has positive operating cash flow from the previous fiscal year, 1% of all operating cash flow from the previous year.

The Company's Board of Directors, in its sole discretion, may suspend, terminate or amend the Company's share redemption program without stockholder approval upon 30 days' notice if it determines that such suspension, termination or amendment is in the Company's best interest. The Company's board may also reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund the Company's share redemption program are needed for other purposes. These limitations apply to all redemptions, including redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility.

Distributions

For the three months ended March 31, 2014, the Company paid aggregate distributions of $6.7 million, including $2.0 million of distributions paid in cash and $4.7 million of distributions reinvested in shares of common stock through the Company's distribution reinvestment plan, as follows (in thousands):

Record Date	Per Common Share		Distribution Date	Distribution invested in shares of Common Stock		Aggregate Cash Distribution		Total Aggregate Distribution
December 31, 2013	$	0.033	January 2, 2014	$	1,566	$	656	$	2,222
January 31, 2014	0.033		February 3, 2014	1,575		663		2,238
February 28, 2014	0.033		March 2, 2014	1,571		670		2,241
				$	4,712	$	1,989	$	6,701

On February 4, 2014, the Company's Board of Directors declared cash distributions of $2.2 million ($0.3333 per common share) to stockholders of record as of the close of business on March 31, 2014, which distributions were paid on April 1, 2014.

Since its formation, the Company has declared a total of seven quarterly stock distributions of 0.015 shares each, two quarterly stock distributions of 0.0075 shares each, one quarterly stock distribution of 0.00585 shares each, and two quarterly stock distributions of 0.005 shares each of its common stock outstanding. In connection with these stock distributions, the Company increased its accumulated deficit by $21.0 million as of March 31, 2014.

28

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 16 – 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 fair value of cash, tenant receivables and accounts payable, approximate their carrying value due to their short nature.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

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

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.

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

	March 31, 2014						December 31, 2013
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Loans held for investment, net	$	1,746		$	1,746		$	1,724		$	1,724
Mortgage notes payable	$	(249,342	)	$	(248,393	)	$	(111,811	)	$	(110,413	)
Revolving credit facilities	$	(37,041	)	$	(37,041	)	$	(37,041	)	$	(37,041	)

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. On February 27, 2014, the Company foreclosed on the property securing the Peterson Note. On March 3, 2014, an offer to purchase the property was presented to the Company for $24,000 less than the carrying amount of the note. Accordingly, the Company has adjusted the carrying amount of the note at December 31, 2013 for such impairment.

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

The fair values of the revolving credit facilities equal the carrying amounts because the interest rate of each of the credit facilities is variable.

29

RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 17 – DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

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

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company entered into two interest rate caps that were designated as cash flow hedges during 2013. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year end December 31, 2013 such derivatives were used to hedge the variable cash flows, indexed to USD-LIBOR, associated with existing variable-rate loan agreements. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2014, the Company did not record any hedge ineffectiveness in earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

As of March 31, 2014, the Company had the following outstanding interest rate derivatives,which mature on November 1, 2018, that were designated as cash flow hedges of interest rate risk (dollars in thousands):

Interest Rate Derivative	Number of Instruments	Notional Amount
Interest Rate Caps	2	$	27,948

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of March 31, 2014 and December 31, 2013 (in thousands):

Asset Derivatives						Liability Derivatives
March 31, 2014			December 31, 2013			March 31, 2014			December 31, 2013
Balance Sheet	Fair Value		Balance Sheet	Fair Value		Balance Sheet	Fair Value		Balance Sheet	Fair Value
Interest rate cap	$	232	Interest rate cap	$	290	—	$	—	—	$	—

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RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

MARCH 31, 2014

(unaudited)

NOTE 18 – OPERATING EXPENSE LIMITATION

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 quarters ended March 31, 2014 were in compliance with the charter imposed limitation.

NOTE 19 – GAIN ON FORECLOSURE

On January 22, 2013, the Company completed the foreclosure of Deerfield. The Company's fair value of the property exceeded the carrying value of the Deerfield Note by $3.4 million. After making adjustments to security deposits totaling $81,000, the Company recorded a net gain on foreclosure of $3.5 million during the three months ended March 31, 2013.

NOTE 20 – SUBSEQUENT EVENTS

On February 27, 2014, the Company was the successful bidder at a foreclosure sale of the property collateralizing the Peterson Note. On April 6, 2014, the Company sold its interest in the sheriff's deed for the Peterson Apartment for $195,000 to an unaffiliated purchaser.

On May 5, 2014, the Company purchased a 142-unit multifamily community located in Plano, Texas from an unaffiliated seller for $15.0 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.

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

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Resource Real Estate Opportunity REIT, Inc. and the notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations provided in our Annual Report on Form 10-K for the year ended December 31, 2013. As used herein, the terms “we,” “our” and “us” refer to Resource Real Estate Opportunity REIT, Inc., a Maryland corporation, and, as required by context, Resource Real Estate Opportunity OP, LP, a Delaware limited partnership, and to their subsidiaries.

Overview

We have sought 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 and real estate-related 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 45% of our total assets in categories (i) and (ii), and 55% of our total assets in category (iii). 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 our Advisor 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 of 1986, as amended (the "Internal Revenue code") and to maintain our exclusion from regulation as an investment company pursuant to the Investment Company Act, our portfolio composition may vary from what we have initially disclosed.

We commenced the public 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. The primary portion of our initial public offering closed on December 13, 2013. We continue to offer shares to our existing stockholders pursuant to our distribution reinvestment plan. 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 our initial public offering.  As of March 31, 2014, we owned interests in a total of 35 multifamily properties. In the three months ended March 31, 2014, we acquired interests in 12 multifamily properties. Our management is not aware of any material trends or uncertainties, favorable, or unfavorable, other than national economic conditions affecting our targeted portfolio, 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.

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Three Months EndedMarch 31, 2014 Compared to the Three Months EndedMarch 31, 2013

The following table sets forth the results of our operations (in thousands):

	Three Months Ended
	March 31,
	2014			2013
				(Remeasured)
Revenues:
Rental income	$	20,669		$	6,796
Gain on foreclosures	—			3,460
Interest income	515			54
Total revenues	21,184			10,310
Expenses:
Rental operating	12,027			4,608
Acquisition costs	2,500			686
Foreclosure costs	—			39
Management fees - related parties	2,109			777
General and administrative	2,294			912
Loss on disposal of assets	1,627			37
Depreciation and amortization expense	11,079			2,769
Total expenses	31,636			9,828
(Loss) income before other expenses	(10,452		)	482
Other (expense) income:
Gain on forfeiture/redemption of stock	—			21
Interest expense	(2,739		)	(125		)
(Loss) income from continuing operations	(13,191		)	378
Discontinued operations:
Income (loss) from discontinued operations	2			(578		)
Net loss	(13,193		)	(200		)
Net income attributable to noncontrolling interest	(804		)	—
Net loss attributable to stockholders	$	(13,993	)	$	(200	)

Revenues: During the three months ended March 31, 2014 and 2013, our income was primarily from rents from our multifamily properties. The increase in rental income is due to the increased number of operating properties we owned interests from 16 to 35 as compared to the three months ended March 31, 2013. During the three months ended March 31, 2013, we recorded a gain on foreclosure of $3.5 million for the excess of market value over carrying value at one foreclosed property.

Expenses.  Our rental operating expenses increased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to an increase in the number of operating properties we owned. Accordingly, we incurred increased management fees, general and administrative expenses, and depreciation and amortization expenses.  

◦ General and administrative expenses increased from $912,000 for the three months ended March 31, 2013 to $2.3 million for the three months ended March 31, 2014 primarily related to the following:

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◦ General and administrative expenses increased at the property level from $533,000 for the three months ended March 31, 2013 to $1.2 million for the three months ended March 31, 2014 due to the operation of 19 additional properties in which we acquired interests directly or through foreclosure subsequent to March 31, 2013, offset in part by the decrease in general and administrative expenses related to the disposition of two properties in 2013.

◦ Other company level general and administrative expenses increased, primarily related to a $228,000 increase in payroll expense allocated to us by our Advisor.

◦ Acquisition costs for the three months ended March 31, 2014 were $2.5 million (primarily related to the acquisition of interests in 12 properties with an aggregate purchase price of $121.7 million) as compared to acquisition costs of $686,000 for the three months ended March 31, 2013 (related to the acquisition of one loan and two properties with an aggregate purchase price of $18.6 million).  

◦ The $2.6 million increase in interest expense is due to draw downs on our line of credit as well as the borrowings under seven additional mortgage loans into which we entered subsequent to March 31, 2013.

◦ The asset carrying value for one property, which was sold in April 2013, was determined to exceed its estimated fair value and, therefore, we recorded a $539,000 loss on impairment during the three months ended March 31, 2013, which is included in income (loss) from discontinued operations.

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 and any future offerings we may conduct, secured or unsecured financings from banks, proceeds from the sale of real estate, and cash flow generated by our real estate and real estate-related investments.

We have allocated a portion of the funds we raised in our initial public offering 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.

Capital Expenditures.

We deployed a total of $4.7 million during the three months ended March 31, 2014 for capital expenditures primarily related to unit rehabilitations, which included the following:

	Capital deployed during the three months ended
Property	March 31, 2014		Remaining capital budgeted
Jefferson Point	$	1,070	$	2,782
Nob Hill	783		$	1,948
Village Square	481		$	2,723
The Redford	441		$	207
Ivy at Clear Creek	324		$	798
All other properties	1,613
	$	4,712

An estimated additional $13.3 million in capital is budgeted to be deployed over the next two years for improvements to the properties purchased during the three months ended March 31, 2014.

Initial Public Offering. 

The primary portion of our initial public offering closed on December 13, 2013, at which time we had raised aggregate gross offering proceeds of $633.1 million, which resulted in the issuance of 63,647,084 shares of our common stock, including 1,161,623 shares sold pursuant to our distribution reinvestment plan.  On December 26, 2013, the unsold primary offering shares were deregistered and, on December 30, 2013, the registration of the shares issuable pursuant to the distribution reinvestment plan was continued pursuant to a Registration Statement on Form S-3.

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We continue to offer up to 7.5 million shares of common stock pursuant to our distribution reinvestment plan under which our stockholders may elect to have distributions reinvested in additional shares at $9.50 per share. 

Gross offering proceeds.

As of March 31, 2014,an aggregate of 67,554,712 shares of our $0.01 par value common stock have been issued as follows (dollars in thousands):

	Shares Issued	Gross Proceeds
Shares issued through private offering	1,263,727	$	12,500
Shares issued through primary public offering	62,485,461	622,000
Shares issued through stock distributions	2,132,266	—
Shares issued through distribution reinvestment plan	1,657,758	16,000
Shares issued in conjunction with the Advisor's initial investment, net of 4,500 share conversion	15,500	200
Total	67,554,712	$	650,700

Revolving Credit Facilities

On December 2, 2011, through our operating partnership, we entered into a secured revolving credit facility, or the Bank of America Credit Facility, with Bank of America, N.A., or Bank of America.  On May 23, 2013, we amended the Bank of America Credit Facility to increase the amount we may borrow under the Credit Facility from $25.0 million to $50.0 million, the Facility Amount. Draws under the Bank of America Credit Facility are secured by certain of our properties with an aggregate value of $102.0 million and are guaranteed by us.  The amount currently available to be borrowed is $45.5 million. We paid certain closing costs in connection with the Bank of America Credit Facility, including loan fees totaling $413,000. As of March 31, 2014, we had outstanding borrowings of $1.5 million under the Credit Facility.

      The Bank of America Credit Facility, as amended, matures on May 23, 2017, and may be extended to May 23, 2019 subject to satisfaction of certain conditions and payment of an extension fee equal to 0.25% of the amount committed under the Bank of America Credit Facility. Interest on outstanding borrowings is incurred at a rate of London Interbank Offered Rate ("LIBOR") plus 3.0% (3.15% at March 31, 2014).  We are required to make monthly interest-only payments.  We also may prepay the Bank of America Credit Facility in whole or in part at any time without premium or penalty. We recorded interest expense of $8,000 for the three months ended March 31, 2014 in connection with our borrowings under the Bank of America Credit Facility.

Our operating partnership’s obligations with respect to the Bank of America Credit Facility are guaranteed by us, pursuant to the terms of a guaranty dated as of December 2, 2011, or the Guaranty.  The Bank of America 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 Bank of America 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 Bank of America 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 unreasonable 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 Bank of America Credit Facility, depending upon our future operating performance, property and financing transactions and general economic conditions, we cannot assure you that we will continue to be in compliance.

On December 20, 2013, through a wholly-owned subsidiary, entered into a secured revolving credit facility, or the Jefferson Point Credit Facility, with PNC Bank, National Association for $15.0 million.  Draws under the Jefferson Point Credit Facility are secured by the assets of Jefferson Point Apartments. We provided a repayment guarantee of all interest and scheduled monthly principal payments (excluding the final payment at maturity for the outstanding balance.) The Jefferson Point Credit Facility matures on December 20, 2018. As of March 31, 2014, we had outstanding borrowings of $12.5 million. Interest on outstanding borrowings is incurred at a rate of LIBOR plus 2.00% (2.15% at March 31, 2014). We paid certain closing costs in connection with the Jefferson Point Credit Facility, including loan fees totaling $75,000. We recorded interest expense of $68,000 for the three months ended March 31, 2014 in connection with borrowings under the Jefferson Point Credit Facility.

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On December 27, 2013, through a wholly-owned subsidiary, we entered into a secured revolving credit facility, the Brentdale Credit Facility, with U.S. Bank National Association, or US Bank, for $29.7 million.  Draws under the Brentdale Credit Facility are secured by the assets of Brentdale Apartments. We provided a $6.5 million repayment guarantee. As of March 31, 2014, we had outstanding borrowings of $23.0 million under the Brentdale Credit Facility. Interest on outstanding borrowings is incurred at a rate of LIBOR plus 1.95% (2.10% at March 31, 2014). We paid certain closing costs in connection with the Brentdale Credit Facility, including loan fees totaling $222,000. We recorded interest expense of $7,000 for the three months ended March 31, 2014 in connection with our borrowings under the Brentdale Credit Facility.

Mortgage Debt

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

	Balance Outstanding at March 31,		Maturity Date	Annual Interest Rate			Average Monthly Debt Service		Interest Expense
									Three Months Ended   March 31,
Collateral	2014								2014		2013
Vista Apartment Homes	$	8,794	5/1/2017	2.76	%	(1)	$	38	$	61	$	64
Cannery Lofts	8,190		9/1/2020	3.45	%	(1)	24		71		N/A
Deerfield	10,530		11/1/2020	4.66	%	(2)	41		123		N/A
Village Square	19,362		11/1/2023	5.02	%	(1)	81		124		N/A
Ivy at Clear Creek	8,586		11/1/2023	5.02	%	(1)	36		55		N/A
Centennial	23,161		1/1/2019	3.60	%	(2)	101		209		N/A
Pinnacle	18,702		1/1/2019	3.60	%	(2)	82		169		N/A
Terrace at River Oaks	14,259		1/1/2022	4.32	%	(2)	69		154		N/A
Champion Farms	17,403		7/1/2016	6.14	%	(2)	85		173		N/A
Fieldstone	15,979		7/1/2014	6.05	%	(2)	137		167		N/A
Pinehurst	4,428		1/1/2016	5.58	%	(2)	39		41		N/A
Pheasant Run	6,759		10/1/2017	5.95	%	(2)	31		64		N/A
Retreat of Shawnee	14,333		2/1/2018	5.58	%	(2)	99		129		N/A
Hilltop Village	4,505		12/1/2017	5.81	%	(2)	33		42		N/A
Conifer Crossing	29,380		9/1/2015	5.96	%	(2)	203		286		N/A
Coursey Place	29,313		8/1/2021	5.07	%	(2)	154		247		N/A
Pines of York	15,658		12/1/2021	4.46	%	(2)	80		121		N/A
	$	249,342

(1) Variable rate based on one-month LIBOR of 0.15175% (as of March 31, 2014).

(2) Fixed rate.

At March 31, 2014, the weighted average interest rate of all our outstanding indebtedness was 4.58% .

Once we have fully invested the proceeds of our public offering, based on current lending market conditions, we expect that the debt financing we incur, on a total portfolio basis, will not exceed 35% of the cost of our real estate investments if unstabilized and 65% to 70% if stabilized (before deducting depreciation or other non-cash reserves) plus the value of our other assets. We may also increase the amount of debt financing we use with respect to an investment over the amount originally incurred if the value of the investment increases subsequent to our acquisition and if credit market conditions permit us to do so. Our charter limits us from incurring debt such that our total liabilities may not exceed 75% of the cost (before deducting depreciation or other non-cash reserves) of our tangible assets, although we may exceed this limit under certain circumstances. We expect that our primary liquidity source for acquisitions and long-term funding will include the net proceeds from our offerings and, to the extent we co-invest with other entities, capital from any future joint venture partners. We may also pursue a number of potential other funding sources, including mortgage loans, portfolio level credit lines and government financing.

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Operating Properties

As of March 31, 2014, wholly-owned interests in multifamily properties are as follows:

Property	Apartment Complex	Number of Units	Location
RRE 107th Avenue Holdings, LLC (“107th Avenue”)	107th Avenue	5	Omaha, NE
RRE Westhollow Holdings, LLC (“Westhollow”)	Arcadia	404	Houston, TX
RRE Iroquois, LP (“Vista”)	Vista Apartment Homes	133	Philadelphia, PA
RRE Campus Club Holdings, LLC (“Campus Club”)	Campus Club	64	Tampa, FL
RRE Bristol Holdings, LLC (“Bristol”)	The Redford	856	Houston, TX
RRE Cannery Holdings, LLC (“Cannery”)	Cannery Lofts	156	Dayton, OH
RRE Williamsburg Holdings, LLC (“Williamsburg”)	Williamsburg	976	Cincinnati, OH
RRE Skyview Holdings, LLC ("Skyview")	Cityside Crossing	360	Houston, TX
RRE Park Forest Holdings, LLC ("Park Forest")	Mosaic	216	Oklahoma City, OK
RRE Foxwood Holdings, LLC ("Foxwood")	The Reserve at Mt. Moriah	220	Memphis, TN
RRE Flagstone Holdings, LLC ("Flagstone")	The Alcove	292	Houston, TX
RRE Deerfield Holdings, LLC ("Deerfield")	Deerfield	166	Hermantown, MN
RRE Kenwick Canterbury Holdings, LLC ("Kenwick & Canterbury")	One Hundred Chevy Chase Apartments	244	Lexington, KY
RRE Armand Place Holdings, LLC ("Armand")	Ivy at Clear Creek	244	Houston, TX
RRE Autumn Wood Holdings, LLC ("Autumn Wood")	Retreat at Rocky Ridge	196	Hoover, AL
RRE Village Square Holdings, LLC ("Village Square")	Trailpoint at the Woodlands	271	Houston, TX
RRE Nob Hill Holdings, LLC ("Nob Hill")	Nob Hill	192	Winter Park, FL
RRE Brentdale Holdings, LLC ("Brentdale")	Brentdale	412	Plano, TX
RRE Jefferson Point Holdings, LLC ("Jefferson Point")	Jefferson Point	208	Newport News, VA
RRE Centennial Holdings, LLC ("Centennial")	Centennial	276	Littleton, CO
RRE Pinnacle Holdings, LLC ("Pinnacle")	Pinnacle	224	Westminster, CO
RRE Jasmine Holdings, LLC ("Jasmine")	Jasmine at Holcomb Bridge	437	Alpharetta, GA
RRE River Oaks Holdings, LLC ("River Oaks")	Terrace at River Oaks	314	San Antonio, TX
RRE Nicollet Ridge Holdings, LLC ("Nicollet Ridge")	Nicollet Ridge	339	Burnsville, MN
RRE Addison Place, LLC ("Addison Place")	Addison Place	403	Alpharetta, GA
		7,608

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The consolidated financial statements also include our majority-owned and/or controlled joint venture interests as follows:

Property	Ownership %		Apartment Complex	Number of Units	Property Location
PRIP 3700, LLC ("Champion Farms")	70.0	%	Champion Farms	264	Louisville, KY
PRIP 10637, LLC ("Fieldstone")	83.0	%	Fieldstone	266	Woodlawn, OH
PRIP 500, LLC ("Pinehurst")	97.5	%	Pinehurst	146	Kansas City, MO
PRIP 1102, LLC ("Pheasant Run")	97.5	%	Pheasant Run	160	Lee's Summit, MO
PRIP 11128, LLC ("Retreat at Shawnee")	97.5	%	Retreat at Shawnee	342	Shawnee, KS
PRIP 6700, LLC ("Hilltop Village")	49.0	%	Hilltop Village	124	Kansas City, MO
PRIP 3383, LLC ("Conifer Place")	42.5	%	Conifer Place	420	Norcross, GA
PRIP Stone Ridge, LLC ("Stone Ridge")	68.5	%	Stone Ridge	191	Columbia, SC
PRIP Coursey, LLC ("Evergreen at Coursey Place")	51.7	%	Evergreen at Coursey Place	352	Baton Rouge, LA
PRIP Pines, LLC ("Pines of York")	90.0	%	Pines of York	248	Yorktown, VA
				2,513

Organization and Offering Costs

Our Advisor has advanced funds to us for certain organization and offering costs.  We reimbursed 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 our initial 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 did 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.  The primary portion of our initial public offering closed on December 13, 2013. As of December 31, 2013, we are no longer incurring organizational and offering costs. As of March 31, 2013, a total of $420,000 of these advances from our Advisor for organization and offering costs were unpaid and due to our Advisor.  We subsequently reimbursed our Advisor for these costs. As of March 31, 2014, we had directly paid for organization and offering costs totaling $6.7 million.

Operating Costs

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make payments to our Advisor. During our acquisition and development stage, we expect to make payments to our Advisor in connection with the acquisition of real estate investments. In addition, we expect to continue to make payments to our Advisor for the management of our assets and costs incurred by our Advisor in providing services to us. We describe these payments in more detail in Note 14 of the notes to our consolidated financial statements.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee of our board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursements for the four fiscal quarters ended March 31, 2014 did not exceed the charter imposed limitation.

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Distributions

For the three months ended March 31, 2014, we paid aggregate distributions of $6.7 million, including $2.0 million of distributions paid in cash and $4.7 million of distributions reinvested in shares of common stock through our distribution reinvestment plan, as follows: (in thousands, except per share data)

Record Date	Per Common Share		Distribution Date	Distribution invested in shares of Common Stock		Net Cash Distribution		Total Aggregate Distribution
December 31, 2013	$	0.033	January 2, 2014	$	1,566	$	656	$	2,222
January 31, 2014	0.033		February 3, 2014	1,575		663		2,238
February 28, 2014	0.033		March 2, 2014	1,571		670		2,241
				$	4,712	$	1,989	$	6,701

On February 4, 2014, our Board of Directors declared cash distributions of $2.2 million ($0.33 per common share) to stockholders of record as of the close of business on March 31, 2014, which distributions were paid on April 1, 2014.

Since its formation, we have declared a total of seven quarterly stock distributions of 0.015 shares each, two quarterly stock distributions of 0.0075 shares each, one quarterly stock distribution of 0.00585 shares each, and two quarterly stock distributions of 0.005 shares each of its common stock outstanding. In connection with these stock distributions, our accumulated deficit increased by $21.0 million as of March 31, 2014.

Our net loss attributable to common stockholders' for the three months ended March 31, 2014 was $14.0 million and net cash provided by operating activities of continuing operations was $5.3 million. For the three months ended March 31, 2014, 66.8% of our distributions was funded from net cash provided by operating activities of continuing operations and 33.2% of our distributions was funded from proceeds from debt financing. Our cumulative cash distributions and net loss from inception through March 31, 2014 were $23.3 million and $53.0 million, respectively. We have funded our cumulative distributions, which includes net cash distributions and distributions reinvested by stockholders, with cash flows from operating activities and 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.

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Funds from Operations, Modified Funds from Operations and Adjusted Funds from Operations

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

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

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As an opportunity REIT, a core element of our investment strategy and operations is the acquisition of distressed and value-add properties and the rehabilitation and renovation of such properties in an effort to create additional value in such properties.  As part of our operations, we intend to realize gains from such value-add efforts through the strategic disposition of such properties after we have added value through the execution of our business plan.  As we do not intend to hold any of our properties for a specific amount of time, we intend to take advantage of opportunities to realize gains from our value-add efforts on a regular basis during the course of our operations as such opportunities become available, in all events subject to the rules regarding "prohibited transactions" of real estate investment trusts of the Internal Revenue Code.  Therefore, we also use adjusted funds from operations, or AFFO, in addition to FFO and MFFO when evaluating our operations.  We calculate AFFO by adding/subtracting gains/losses realized on sales of our properties from MFFO.  We believe that AFFO presents useful information that assists investors and analysts in the assessment of our operating performance as it is reflective of the impact that regular, strategic property dispositions have on our continuing operations.

Core to our business plan is the acquisition of distressed assets at deep discounts.  These assets are operationally distressed at the time of purchase. Such assets often require substantial investments of capital and increased operating costs after acquisition to convert these assets into stable, cash flowing properties.  These capital expenditures are central to our revitalization strategy and are critical to creating value and restoring assets to their optimal performance.  These planned expenditures are necessary primarily during the first 12 to 24 months after we take operating control of an asset and often result in negative, or reduced, net operating income, MFFO and AFFO during this turnaround stage. We believe that the presentation of the MFFO and AFFO attributed to our stabilized assets and the MFFO and AFFO attributed to our unstabilized assets allows investors to better understand the operating performance of our stabilized assets as compared to those assets for which we have yet to complete the stabilization process. Stabilized assets are defined as assets that produced a positive MFFO during the three months ended March 31, 2014 and 2013, respectively.

Stabilized assets during the three months ended March 31, 2014 included: 107th Avenue, Arcadia, Vista Apartment Homes, Campus Club, Cannery Lofts, Williamsburg, The Redford, Cityside Crossing, Deerfield, The Reserve at Mt. Moriah, The Alcove, Ivy at Clear Creek, Retreat at Rocky Ridge, Village Square, Nob Hill, Brentdale, Centennial, Pinnacle, Jasmine at Holcomb Bridge, Addison Place, Pines of York, Evergreen at Coursey Place, Stone Ridge, Conifer Place, Hilltop Village, Retreat at Shawnee, Pheasant Run, Pinehurst and Fieldstone. Unstabilized assets during the three months ended March 31, 2014 included: Mosaic, One Hundred Chevy Chase Apartments, Jefferson Point, Terrace at River Oaks, Nicollet Ridge and Champion Farms. Non-property assets and corporate overhead, which consists primarily of general and administrative expenses at the company level, are allocated between stabilized and unstabilized assets based on the percentage of the total purchase price of all of our assets that the aggregate purchase prices of our stabilized and unstabilized assets respectively represent.

Stabilized assets during the three months ended March 31, 2013 included: 107th Avenue, Arcadia, Vista Apartment Homes, Campus Club, Cannery Lofts, Williamsburg, Cityside Crossing, Town Park (which was sold in April 2013) and Heatherwood (which was sold in April 2013), Deerfield, One Hundred Chevy Chase Apartments and Ivy at Clear Creek. Unstabilized assets during the three months ended March 31, 2013 consisted of The Redford, Mosaic, The Reserve at Mt. Moriah and The Alcove. Non-property assets and corporate overhead, which consists primarily of general and administrative expenses at the company level, are allocated between stabilized and unstabilized assets based on the percentage of the total purchase price of all our assets that the aggregate purchase prices of stabilized and unstabilized assets respectively represent.

Neither FFO, MFFO nor AFFO should be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor are any of these measures indicative of funds available to fund our cash needs, including our ability to fund distributions.  In particular, as we are currently in the acquisition phase of our life cycle, acquisition costs and other adjustments that are increases to MFFO and AFFO are, and may continue to be, a significant use of cash.  Accordingly, FFO, MFFO and AFFO should be reviewed in connection with other GAAP measurements.  Our FFO, MFFO and AFFO as presented may not be comparable to amounts calculated by other REITs.

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The following section presents our calculation of FFO, MFFO and AFFO and provides additional information related to our operations (in thousands, except per share amounts).  As a result of the timing of the commencement of our public offering and our active real estate operations, FFO, MFFO and AFFO 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 acquire additional investments.

	Three Months Ended
	March 31,
	2014			2013
Net loss – GAAP	$	(13,993	)	$	(200	)
Gain on bargain purchase	—			(3,460		)
Depreciation expense	6,467			1,784
FFO	(7,526		)	(1,876		)
Adjustments for straight-line rents	(228		)	(64		)
Amortization of intangible lease assets	4,612			985
Impairment charge	—			539
Acquisition costs	2,500			686
MFFO	(642		)	270
AFFO	$	(642	)	$	270
Basic and diluted loss per common share - GAAP	$	(0.21	)	$	(0.01	)
FFO per share	$	(0.11	)	$	0.05
MFFO per share	$	(0.01	)	$	0.02
AFFO per share	$	(0.01	)	$	0.02
Weighted average shares outstanding	67,364			22,612

	Three Months Ended March 31, 2014									Three Months Ended March 31, 2013
	MFFO and			MFFO and						MFFO and			MFFO and
	AFFO Attributed to Stabilized Assets			AFFO Attributed to Unstabilized Assets			Total			AFFO Attributed to Stabilized Assets			AFFO Attributed to Unstabilized Assets			Total
Net income (loss) - GAAP	$	(7,265	)	$	(6,728	)	$	(13,993	)	$	1,302		$	(1,502	)	$	(200	)
Gain on bargain purchase	—			—			—			—			(3,460		)	(3,460		)
Depreciation expense	5,457			1,010			6,467			1,284			500			1,784
FFO	(1,808		)	(5,718		)	(7,526		)	2,586			(4,462		)	(1,876		)
Adjustments for straight-line rents	(228		)	—			(228		)	(64		)	—			(64		)
Amortization of intangible lease assets	3,936			676			4,612			709			276			985
Impairment charge	—			—			—			—			539			539
Acquisition costs	204			2,296			2,500			601			85			686
MFFO	2,104			(2,746		)	(642		)	3,832			(3,562		)	270
AFFO	$	2,104		$	(2,746	)	$	(642	)	$	3,832		$	(3,562	)	$	270

Off-Balance Sheet Arrangements

As of March 31, 2014 and December 31, 2013, we did not have any off-balance sheet arrangements or obligations.

Subsequent Events

On February 27, 2014, we were the successful bidder at a foreclosure sale of the property collateralizing the Peterson Note. On April 6, 2014, we sold our interest in the sheriff's deed for the Peterson Apartments for $195,000 to an unaffiliated purchaser.

On May 5, 2014, we purchased a 142-unit multifamily community located in Plano, Texas from an unaffiliated seller for $15 million.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted as permitted under rules applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon, and as of the date of, that evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this quarterly report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.

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

Unregistered Sale of Equity Securities

All securities sold by us during the three months ended March 31, 2014 were sold in an offering registered under the Securities Act of 1933, as amended (the "Securities Act").

Use of Proceeds of Registered Securities

On June 16, 2010, our registration statement on Form S-11 (File No. 333-160463) was declared effective under the Securities Act.  We offered a maximum of 75,000,000 shares in our primary offering at an aggregate offering price of up to $750.0 million, or $10.00 per share with discounts available to certain categories of purchasers.  Additionally, we continue to offer up to 7,500,000 shares under our distribution reinvestment plan at an aggregate offering price of $71.25 million, or $9.50 per share.  Resource Securities was the dealer manager of our offering.  The primary offering closed on December 13, 2013, at which time we sold 62,485,502 shares of our common stock pursuant to our public offering, which generated gross offering proceeds of approximately $622.1 million. In addition, as of March 31, 2014, 1,657,758 shares had been purchased under our distribution reinvestment plan, which generated additional gross offering proceeds of approximately $16.0 million.

From the commencement of the public offering through March 31, 2014, we incurred selling commissions, dealer manager fees, other underwriting compensation and other organization and offering costs in the amounts set forth below. We pay selling commissions and dealer manager fees to Resource Securities, Inc., which then reallows all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse our Advisor and Resource Securities, Inc. for certain offering expenses as described in our prospectus, as amended and supplemented.

Type of Expense	Amount
Selling commissions and dealer manager fees	$	61,219,304
Other organization and offering costs (excluding underwriting compensation)	10,871,866
Total expenses	$	72,091,170

From the commencement of the initial public offering through March 31, 2014, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $573.8 million. As of March 31, 2014, we have

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used the net proceeds from our initial public offering to acquire approximately $343.5 million in real estate and real estate-related investments and to fund $4.7 million of capital expenditure projects to improve certain of our investments.  Of the amount used for the purchase of these investments, approximately $10.5 million was paid to our Advisor in the form of acquisition and advisory fees and acquisition expense reimbursements.

Redemption of Securities

During the three months ended March 31, 2014, we redeemed shares of our common stock as follows:

Period	Total Number of Shares Redeemed (1)	Average Price Paid per Share	Cumulative 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
January 2014	—	—	—	(2)
February 2014	—	—	—	(2)
March 2014	46,237	$8.66	46,237	(2)

(1)    All redemptions of equity securities in the three months ended March 31, 2014 were made pursuant to our share redemption program.

(2)    The share redemption program commenced on June 16, 2010 and was subsequently amended on September 29, 2011.

(3)    We currently limit the dollar value and number of shares that may be redeemed under the program as described below.

All redemption requests tendered were honored during the three months ended March 31, 2014.

We will not redeem in excess of 5% of the weighted-average number of shares outstanding during the 12-month period immediately prior to the effective date of redemption. Our board of directors will determine at least quarterly whether it has sufficient excess cash to redeem shares. Generally, the cash available for redemptions will be limited to proceeds from our distribution reinvestment plan plus, if we have positive operating cash flow from the previous fiscal year, 1% of all operating cash flow from the previous year.

Our Board of Directors, in its sole discretion, may suspend, terminate or amend our share redemption program without stockholder approval upon 30 days' notice if it determines that such suspension, termination or amendment is in our best interest. Our board may also reduce the number of shares purchased under the share redemption program if it determines the funds otherwise available to fund our share redemption program are needed for other purposes. These limitations apply to all redemptions, including redemptions sought upon the stockholder's death, qualifying disability or confinement to a long-term care facility.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(a) There have been no defaults with respect to any of our indebtedness.

(b) Not applicable.

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ITEM 6. EXHIBITS

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated July 18, 2013, by and among Paladin Realty Income Properties, Inc., Paladin Realty Income Properties, L.P., Resource Real Estate Opportunity OP, LP, and RRE Charlemagne Holdings, LLC (incorporated by reference to the Company’s Post-Effective Amendment No. 13 to the Registration Statement on Form S-11 (No. 333-163411) filed September 16, 2013)
2.2	Second Amendment to Agreement and Plan of Merger, dated September 13, 2013, by and among Paladin Realty Income Properties, Inc., Paladin Realty Income Properties, L.P., Resource Real Estate Opportunity OP, LP, and RRE Charlemagne Holdings, LLC (incorporated by reference to the Company’s Post-Effective Amendment No. 13 to the Registration Statement on Form S-11 (No. 333-163411) filed September 16, 2013)
2.3	Third Amendment to Agreement and Plan of Merger, dated December 16, 2013, by and among Paladin Realty Income Properties, Inc., Paladin Realty Income Properties, L.P., Resource Real Estate Opportunity OP, LP, and RRE Charlemagne Holdings, LLC (incorporated by reference to Post-Effective Amendment No. 15 to the Company's Registration Statement on Form S-11 (No. 333-160463) filed December 30, 2013)
3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed February 9, 2010)
3.2	Bylaws (incorporated by reference to Pre-Effective Amendment No. 3 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed February 9, 2010)
4.1	Form of Distribution Reinvestment Plan Enrollment Form, included as Appendix B to the prospectus (incorporated by reference to Post-Effective Amendment No. 15 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed December 30, 2013)
4.2	Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed November 12, 2009)
4.3	Amended and Restated Distribution Reinvestment Plan, included as Appendix A to the prospectus (incorporated by reference to Post-Effective Amendment No. 15 to the Company’s Registration Statement on Form S-11 (No. 333-160463) filed December 30, 2013)
10.1	Agreement of Sale and Purchase by and between Resource Real Estate Opportunity OP, LP and Addison Place Apartment Manager, LLC and Addison Place Townhomes, LLC, dated February 24, 2014

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Amended and Restated Share Redemption Program (incorporated by reference to the Company's Quarterly Report on Form 10-Q filed November 14, 2011)
101.1	The following information from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Loss; (iii) Consolidated Statements of Changes in Stockholders' Equity; (iv) Consolidated Statements of Cash Flows

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SIGNATURES

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

		RESOURCE REAL ESTATE OPPORTUNITY REIT, INC.
May 15, 2014	By:	/s/ Alan F. Feldman
		ALAN F. FELDMAN
		Chief Executive Officer
		(Principal Executive Officer)
May 15, 2014	By:	/s/ Steven R. Saltzman
		STEVEN R. SALTZMAN
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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