UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2017~~2018



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

For the transition period from to

Commission file number 000-54673

______________________________________________________

KBS LEGACY PARTNERS APARTMENT REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________



Maryland		27-0668930
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
800 Newport Center Drive, Suite 700 Newport Beach, California		92660
(Address of Principal Executive Offices)		(Zip Code)

(949) 417-6500

(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	¨		Accelerated Filer	¨
Non-Accelerated Filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	x
			Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of ~~November~~April 927, ~~2017~~2018, there were 21,026,756 outstanding shares of common stock of the registrant.

Table of Contents

KBS LEGACY PARTNERS APARTMENT REIT, INC.

FORM 10-Q

~~September~~March 3031, ~~2017~~2018

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016	2
		Condensed Consolidated Statements of Net Assets (Liquidation Basis) as of March 31, 2018 (unaudited) and December 31, 2017	2
		Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016	3
		Condensed Consolidated Statements of Changes in Net Assets (Liquidation Basis, unaudited) for the Three Months Ended March 31, 2018	3
		Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2016 and the Nine Months Ended September 30, 2017 (unaudited)	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
		Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2017 and 2016	5
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
		Condensed Notes to Consolidated Financial Statements as of September 30, 2017 (unaudited)	6
	Item 4.	Controls and Procedures	17
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
PART II.	OTHER INFORMATION		18
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
	Item 1.	Legal Proceedings	18
	Item 4.	Controls and Procedures	35
	Item 1A.	Risk Factors	18
PART II.	OTHER INFORMATION		36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	Item 1.	Legal Proceedings	36
	Item 3.	Defaults upon Senior Securities	18
	Item 1A.	Risk Factors	36
	Item 4.	Mine Safety Disclosures	18
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 5.	Other Information	18
	Item 3.	Defaults upon Senior Securities	38
	Item 6.	Exhibits	19
	Item 4.	Mine Safety Disclosures	38
SIGNATURES			20
	Item 5.	Other Information	38
	Item 6.	Exhibits	39
SIGNATURES			41

Table of Contents


PART I.	FINANCIAL INFORMATION


Item 1.	Financial Statements

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED CONSOLIDATED ~~BALANCE~~STATEMENTS ~~SHEETS~~OF NET ASSETS

(inLiquidation ~~thousands, except share and per share amounts~~Basis)

	September 30, 2017			December 31, 2016
	(unaudited)
Assets
Real estate held for investment:
Land	$	21,205		$	21,205
Buildings and improvements	162,858			162,574
Total real estate held for investment, cost	184,063			183,779
Less accumulated depreciation and amortization	(24,182		)	(20,873		)
Total real estate held for investment, net	159,881			162,906
Real estate held for sale, net	109,448			203,354
Total real estate, net	269,329			366,260
Cash and cash equivalents	47,547			15,998
Restricted cash	4,151			5,099
Assets related to real estate held for sale	17			477
Prepaid expenses and other assets	4,278			4,103
Total assets	$	325,322		$	391,937
Liabilities and stockholders’ equity
Notes payable:
Notes payable, net	$	129,526		$	131,366
Notes payable related to real estate held for sale, net	82,397			147,780
Total notes payable, net	211,923			279,146
Accounts payable and accrued liabilities	4,729			5,566
Due to affiliates	260			157
Distributions payable	938			1,154
Other liabilities	2,465			2,778
Total liabilities	220,315			288,801
Commitments and contingencies (Note 7)
Redeemable common stock	482			350
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—
Common stock, $.01 par value; 1,000,000,000 shares authorized, 21,026,756 and 20,896,268 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	210			209
Additional paid-in capital	181,138			180,196
Cumulative distributions and net losses	(76,823		)	(77,619		)
Total stockholders’ equity	104,525			102,786
Total liabilities and stockholders’ equity	$	325,322		$	391,937

(in thousands)

See accompanying condensed notes to consolidated financial statements.



	March 31, 2018		December 31, 2017
	(unaudited)
Assets
Real estate	$	—	$	217,500
Cash and cash equivalents	94,526		14,133
Restricted cash	—		3,042
Rents and other receivables, net	88		169
Other assets, net	99		325
Total assets	$	94,713	$	235,169
Liabilities
Liabilities for estimated costs in excess of estimated receipts during liquidation	$	1,330	$	686
Notes payable	—		132,932
Accounts payable and accrued liabilities	512		2,609
Due to affiliates	321		85
Liabilities for estimated closing costs and disposition fees	—		4,131
Other liabilities	—		1,379
Total liabilities	2,163		141,822
Commitments and contingencies (Note 9)
Net assets in liquidation	$	92,550	$	93,347

See accompanying condensed notes to condensed consolidated financial statements.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CHANGES IN NET ASSETS

~~(unaudited)~~For the Three Months Ended March 31, 2018

(inLiquidation ~~thousands, except share and per share amounts~~Basis)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Revenues:
Rental income	$	10,111		$	11,498	$	31,458		$	34,019
Total revenues	10,111			11,498		31,458			34,019
Expenses:
Operating, maintenance, and management	1,528			1,671		4,435			4,854
Real estate taxes and insurance	1,712			1,797		5,347			5,248
Asset management fees to affiliate	—			104		234			343
Property management fees and expenses to affiliate	1,432			1,506		4,422			4,359
General and administrative expenses	1,082			473		2,190			1,947
Depreciation and amortization	2,621			3,084		8,384			9,201
Interest expense	2,320			2,588		7,180			7,758
Total expenses	10,695			11,223		32,192			33,710
Other income:
Interest and other income	31			4,765		106			4,793
Gain on sale of real estate	14,653			—		31,123			—
Loss from extinguishment of debt	(403		)	—		(671		)	—
Total other income	14,281			4,765		30,558			4,793
Net income	$	13,697		$	5,040	$	29,824		$	5,102
Net income per common share, basic and diluted	$	0.65		$	0.24	$	1.42		$	0.25
Weighted-average number of common shares outstanding, basic and diluted	21,010,781			20,718,265		20,935,670			20,601,992

(unaudited, in thousands)

See accompanying condensed notes to consolidated financial statements.



Net assets in liquidation, beginning of period	$	93,347
Changes in net assets in liquidation
Change in liquidation value of investments in real estate after closing costs/disposition fees	(678		)
Other changes, net	(119		)
Changes in net assets in liquidation	(797		)
Net assets in liquidation, end of period	$	92,550

See accompanying condensed notes to condensed consolidated financial statements.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Year Ended December 31, 2016 and the Nine Months Ended September 30, 2017 (unaudited)

(dollars in thousands)

						Additional Paid-in Capital			Cumulative Distributions and Net Income (Loss)			Total Stockholders’ Equity
	Common Stock
	Shares		Amounts
Balance, December 31, 2015	20,508,397		$	205		$	176,476		$	(69,310	)	$	107,371
Issuance of common stock	586,585		6			5,731			—			5,737
Redemptions of common stock	(198,714	)	(2		)	(2,017		)	—			(2,019		)
Distributions declared	—		—			—			(13,430		)	(13,430		)
Other offering costs	—		—			6			—			6
Net income	—		—			—			5,121			5,121
Balance, December 31, 2016	20,896,268		209			180,196			(77,619		)	102,786
Issuance of common stock	347,390		3			2,950			—			2,953
Redemptions of common stock	(216,902	)	(2		)	(1,998		)	—			(2,000		)
Distributions declared	—		—			—			(29,028		)	(29,028		)
Other offering costs	—		—			(10		)	—			(10		)
Net income	—		—			—			29,824			29,824
Balance, September 30, 2017	21,026,756		$	210		$	181,138		$	(76,823	)	$	104,525

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Nine Months Ended September 30,
	2017			2016
Cash Flows from Operating Activities:
Net income	$	29,824		$	5,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,384			9,201
Bad debt expense	334			371
Loss due to property damages	767			145
Loss due to extinguishment of debt	671			—
Amortization of discount on notes payable	66			65
Amortization of deferred financing costs	316			311
Gain on sale of real estate, net	(31,123		)	—
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(1,382		)	(709		)
Accounts payable and accrued liabilities	(844		)	159
Due to affiliates	103			(4,615		)
Other liabilities	(181		)	89
Net cash provided by operating activities	6,935			10,119
Cash Flows from Investing Activities:
Proceeds from sale of real estate	121,305			—
Improvements to real estate	(1,804		)	(1,749		)
Insurance proceeds received for property damage	742			133
Net cash provided by (used in) investing activities	120,243			(1,616		)
Cash Flows from Financing Activities:
Principal payments on mortgage notes payable	(67,668		)	(4,355		)
Prepayment fees related to the extinguishment of debt	(608		)	—
Payments to redeem common stock	(2,000		)	(2,019		)
Payments of other offering costs	(10		)	7
Distributions paid	(26,291		)	(5,715		)
Net cash used in financing activities	(96,577		)	(12,082		)
Net increase (decrease) in cash, cash equivalents and restricted cash	30,601			(3,579		)
Cash, cash equivalents and restricted cash, beginning of period	21,097			24,869
Cash, cash equivalents and restricted cash, end of period	$	51,698		$	21,290
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	6,957		$	7,413
Supplemental Disclosure of Noncash Transactions:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	2,953		$	4,324
Increase in redeemable common stock payable	$	132		$	483

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September~~March 3031, ~~2017~~2018

(unaudited)


1.	ORGANIZATION

KBS Legacy Partners Apartment REIT, Inc. (the “Company”) was formed on July 31, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. ~~Substantially~~ On ~~all~~January of21, 2016, the Company’s ~~business~~board isof ~~conducted~~directors ~~through~~formed ~~KBS~~a ~~Legacy~~special ~~Partners~~committee ~~Limited Partnership~~ (the “~~Operating~~Special ~~Partnership~~Committee”), acomposed ~~Delaware~~of ~~limited~~all ~~partnership~~of ~~formed~~its onindependent ~~August 4, 2009~~directors to explore the availability of strategic alternatives involving the Company. ~~The~~On ~~Company~~August is14, 2017, the ~~sole~~Special ~~general~~Committee ~~partner~~and the board of directors unanimously approved the sale of all of the Company’s real estate properties and ~~owns~~the aCompany’s ~~0.1%~~dissolution ~~partnership~~pursuant ~~interest~~to inthe terms of the ~~Operating~~Company’s ~~Partnership. KBS~~plan ~~Legacy~~of ~~Partners~~complete ~~Holdings~~liquidation ~~LLC~~and dissolution (the “~~REIT~~Plan ~~Holdings~~of Liquidation”). The principal purpose of the Plan of Liquidation is to maximize stockholder value by selling the Company’s real estate properties, apaying ~~Delaware~~the ~~limited~~Company’s ~~liability~~debts ~~company~~and ~~formed~~distributing onthe ~~August 4~~net proceeds from liquidation to the Company’s stockholders. On December 19, ~~2009~~ 2017, ~~owns~~the Company’s stockholders approved the ~~remaining~~Plan 99of Liquidation.9% On ~~interest~~April in18, 2018, the ~~Operating~~Company ~~Partnership~~filed articles of dissolution (the “Articles of Dissolution”) with the State Department of Assessments and isTaxation ~~its~~of ~~sole~~Maryland ~~limited~~(the ~~partner~~“SDAT”) pursuant to the Plan of Liquidation. The ~~Company~~Articles isof Dissolution became effective on April 18, 2018. As a dissolved Maryland corporation, the Company’s sole ~~member~~purpose is the liquidation and ~~manager~~winding down of ~~REIT~~the ~~Holdings~~business affairs of the Company in accordance with the Plan of Liquidation. See Note 2, “Plan of Liquidation” and Note 10, “Subsequent Events — The Filing of the Articles of Dissolution.”

~~Subject~~ toSubstantially ~~certain~~all ~~restrictions~~of ~~and limitations,~~ the Company’s business ofis conducted through KBS Legacy Partners Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on August 4, 2009. The Company is ~~externally~~the ~~managed~~sole bygeneral partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS ~~Capital~~ ~~Advisors~~Legacy Partners Holdings LLC (~~the~~ “~~Advisor~~REIT Holdings”), ana ~~affiliate~~Delaware oflimited ~~the~~liability ~~Company~~company formed on August 4, 2009, ~~pursuant~~owns tothe anremaining ~~advisory~~99.9% ~~agreement~~interest in the ~~Company~~Operating ~~renewed~~Partnership ~~with~~and ~~the~~is ~~Advisor~~its onsole ~~January~~limited ~~25,~~partner. The ~~2017~~Company (is the ~~“Advisory~~ ~~Agreement”)~~sole member and manager of REIT Holdings.

OnSubject ~~August 7, 2009,~~to ~~the~~certain ~~Company~~restrictions ~~issued~~and 20limitations,~~000 shares~~ ofthe ~~its~~business ~~common~~of ~~stock~~the toCompany ~~KBS-Legacy~~is ~~Apartment~~externally ~~Community~~managed ~~REIT~~by ~~Venture,~~KBS Capital Advisors LLC (the “~~Sub-~~Advisor”), an affiliate of the Company, atpursuant ato ~~purchase~~an ~~price~~advisory ~~of $10~~agreement.~~00 per share.~~ AsSee ofNote ~~September 30~~8, ~~2017,~~“Related ~~the~~Party ~~Sub-Advisor~~Transactions ~~owned~~— ~~20,000 shares~~Advisory ~~of common stock of the Company~~Agreement.”

~~The~~On ~~Company~~March invested in and manages a portfolio of high quality apartment complexes located throughout the United States. The Company’s portfolio consists of “core” apartment complexes that were already well-positioned and producing rental income at acquisition. As of September 3029, ~~2017~~2018, the Company ~~owned~~sold ~~eight apartment~~its ~~complexes,~~final ~~all~~real ofestate ~~which were under contract to sell~~property. The sale of four of such properties (the “Core-Portfolio Properties”) is subject to stockholder approval of the Plan of Liquidation (defined below) and as such, the Core-Portfolio Properties are held for investment. As of September 30, 2017, the Company’s remaining four properties were held for sale and subsequent to September 30, 2017, the Company completed the sale of three of these properties. See Note 8, “Subsequent Events — Dispositions Subsequent to September 30, 2017.”

OnAs ~~August~~of March 1931, ~~2009~~ 2018, the Company ~~filed~~had ~~a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250~~21,~~000 shares and a maximum of 280~~026,~~000,000~~756 shares of common stock ~~for~~issued ~~sale~~and ~~to the public (the “Initial Offering”), of which 80,000,000 shares would be offered pursuant to the Company’s dividend reinvestment plan~~outstanding.

The SEC declared the Company’s registration statement for the Initial Offering effective on March 12, 2010, and the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager for the Initial Offering pursuant to a dealer manager agreement dated March 12, 2010 (the “Initial Dealer Manager Agreement”)2. ~~Under~~ ~~the~~PLAN ~~Initial~~OF ~~Dealer Manager Agreement, the Dealer Manager was responsible for marketing the Company’s shares being offered pursuant to the Initial Offering.~~ LIQUIDATION

OnThe ~~May~~Plan ~~31,~~of ~~2012,~~Liquidation authorizes the Company ~~filed~~to aundertake ~~registration~~an ~~statement~~orderly onliquidation, ~~Form~~pursuant ~~S-11~~to ~~with~~which the ~~SEC~~Company to(i) ~~register~~has asold ~~follow-on~~all ~~public~~of ~~offering~~its ~~(the~~real ~~“Follow-on~~estate ~~Offering”~~properties and ~~together~~dissolved ~~with~~and ~~the~~(ii) ~~Initial~~will ~~Offering~~pay all of its known liabilities, provide for the ~~“Offerings”). Pursuant~~payment toof ~~the~~its ~~registration~~unknown ~~statement,~~or ascontingent ~~amended~~liabilities, ~~the~~distribute ~~Company~~its ~~registered~~remaining upcash to anits ~~additional $2~~stockholders,~~000,000,000~~ ofand ~~shares~~wind ofup ~~common~~its ~~stock~~operations. ~~for~~The ~~sale~~Company is authorized to provide for the ~~public~~payment ~~and~~of upany tounascertained anor ~~additional~~contingent ~~$760,000,000~~liabilities ofand ~~shares~~may ofdo ~~common~~so ~~stock~~by ~~pursuant~~purchasing toinsurance, ~~the~~by ~~dividend~~establishing ~~reinvestment~~a ~~plan. The~~reserve ~~SEC~~fund ~~declared~~or ~~the~~in ~~Company’s~~other ~~registration~~ways. See ~~statement~~Note ~~for~~10, ~~the~~“Subsequent ~~Follow-on~~Events ~~Offering~~— ~~effective~~Estimated onValue ~~March 8,~~Per ~~2013~~Share. ”

The ~~Company~~Plan ~~retained~~of ~~the~~Liquidation ~~Dealer~~authorized ~~Manager~~the Company to ~~serve~~sell asany ~~the~~and ~~dealer~~all ~~manager~~of ~~for~~its ~~the~~assets ~~Follow-on~~without ~~Offering~~further ~~pursuant~~approval toof aits ~~dealer~~stockholders ~~manager~~and ~~agreement~~provides ~~dated~~that ~~March~~the 8,amounts ~~2013~~and ~~(the~~timing ~~“Follow-on~~of ~~Dealer~~any ~~Manager~~additional ~~Agreement”~~liquidating ~~and~~distributions ~~together~~will ~~with~~be determined by the ~~Initial~~Company’s ~~Dealer~~board ~~Manager~~of ~~Agreement~~directors, ~~the~~in ~~“Dealer~~its ~~Manager Agreements”)~~discretion. On ~~March 12,~~Pursuant ~~2013~~to applicable REIT rules, liquidating distributions the Company ~~ceased~~pays ~~offering shares~~ pursuant to the ~~Initial~~Plan ~~Offering~~of ~~and~~Liquidation onwill ~~March 13,~~qualify ~~2013~~for the dividends paid deduction, provided that they are paid within 24 months of the ~~Company~~December ~~commenced~~19, ~~offering~~2017 ~~shares~~approval toof the ~~public~~Plan ~~pursuant~~of toLiquidation by the ~~Follow-on~~Company’s ~~Offering~~stockholders.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

InPursuant to the ~~Initial~~Plan ~~Offering~~of Liquidation, ~~the~~on ~~Company~~December ~~sold~~20, 182017,~~088,084~~ ~~shares~~the Company’s board of ~~common~~directors ~~stock~~authorized ~~for~~an ~~gross~~initial ~~offering~~liquidating ~~proceeds~~distribution in the amount of $~~179~~4.205 ~~million,~~per ~~including~~share ~~368,872 shares~~ of common stock ~~under~~to ~~the~~its ~~dividend~~stockholders ~~reinvestment~~of ~~plan~~record ~~for~~as ~~gross~~of ~~offering~~the ~~proceeds~~close of ~~$3.5~~business ~~million. The~~on ~~Company~~December ~~ceased~~21, ~~offering~~2017 ~~shares~~(the in“Initial ~~the~~Liquidating ~~primary~~Distribution”). ~~Follow-on~~The ~~Offering~~Initial Liquidating Distribution was paid on ~~March~~December 3127, ~~2014~~2017 and ~~completed~~was ~~subscription~~funded ~~processing~~from ~~procedures~~proceeds onfrom ~~April~~real ~~30,~~estate ~~2014~~property sales. In ~~the~~For ~~Follow-~~information on ~~Offering,~~ the Company’s ~~sold~~authorization ~~3,943,266~~and ~~shares~~payment of ~~common~~the ~~stock~~Second ~~for~~Liquidating ~~gross~~Distribution ~~offering~~(defined ~~proceeds~~in ofNote ~~$39.7~~10 ~~million~~below), ~~including~~see 2Note 10,~~447,068~~ ~~shares~~“Subsequent ofEvents ~~common~~— ~~stock~~Authorization ~~under~~and ~~the~~Payment ~~dividend~~of ~~reinvestment~~the ~~plan~~Second ~~for~~Liquidating ~~gross offering proceeds of $23~~Distribution.~~9 million.~~ ”

The Company’s ~~sold~~expectations anabout ~~aggregate~~the completion of ~~22,031,350~~the ~~shares~~Plan of ~~common~~Liquidation ~~stock~~and inthe amount of any additional liquidating distributions that the ~~Offerings~~Company ~~for~~pays ~~gross~~to ~~offering~~its ~~proceeds~~stockholders ofand ~~$218.9~~when ~~million~~the Company will pay them are subject to risks and uncertainties and are based on certain estimates and assumptions, ~~including~~one anor ~~aggregate~~more of 2which may prove to be incorrect. As a result,~~815,940~~ ~~shares~~the actual amount of ~~common~~any ~~stock~~additional ~~under~~liquidating distributions the ~~dividend~~Company ~~reinvestment~~pays ~~plan~~to ~~for~~its ~~gross~~stockholders ~~offering~~may ~~proceeds~~be ofmore ~~$27.4~~or ~~million. The~~less than the Company ~~terminated~~estimates and the ~~dividend~~liquidating ~~reinvestment~~distributions ~~plan~~may ~~effective~~be aspaid oflater ~~August~~than ~~20,~~the ~~2017~~Company predicts. ~~Also~~ Accordingly, asit is not possible to precisely predict the timing of ~~September 30,~~any ~~2017,~~additional liquidating distributions the Company ~~had~~pays ~~redeemed~~to ~~1,024,594~~its ~~shares~~stockholders ~~sold~~or inthe aggregate amount of liquidating distributions that the ~~Offerings~~Company ~~for~~will ~~$9.9~~ultimately ~~million~~pay to its stockholders.

~~Plan~~The Company expects to comply with the requirements necessary to continue to qualify as a REIT through the completion of ~~Liquidation~~the liquidation process. The board of directors shall use commercially reasonable efforts to continue to cause the Company to maintain its REIT status, provided however, that the board of directors may elect to terminate the Company’s status as a REIT if it determines that such termination would be in the best interest of the stockholders.

On August 14, 2017, in connection with a review of potential strategic alternatives available to the Company, the board of directors unanimously approved the sale of all of the Company’s properties and the dissolution of the Company pursuant to the terms of a plan of complete liquidation and dissolution of the Company (the “Plan of Liquidation”), pending stockholder approval3. ~~The~~SUMMARY ~~principal~~OF ~~purpose~~SIGNIFICANT ofACCOUNTING the Plan of Liquidation is to maximize stockholder value by selling the Company’s properties, paying its debts and distributing the net proceeds from liquidation to the Company’s stockholders. Pursuant to the Company’s charter, the affirmative vote of a majority of all of the shares of common stock entitled to vote on the Plan of Liquidation is required for approval of the Plan of Liquidation. The Company can provide no assurance that the Plan of Liquidation will be approved by the Company’s stockholders.POLICIES

If the Plan of Liquidation is approved by the Company’s stockholders, the Company expects to pay liquidating distributions to its stockholders during the liquidation process and to pay the final liquidating distribution after the Company sells all of its remaining properties, pays all of its known liabilities and provides for unknown liabilities. The Company expects to complete these activities within 12 months after stockholder approval of the Plan of Liquidation. However, there can be no assurances regarding the amounts of any liquidating distributions or the timing thereof.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 205-30, “Liquidation Basis of Accounting,” and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim ~~periods~~period presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. ~~Operating~~ ~~results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.~~

The unaudited consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

Pursuant 7to the Company’s stockholders’ approval of the Plan of Liquidation, the Company adopted the liquidation basis of accounting as of December 1, 2017 (as the approval of the Plan of Liquidation by the Company’s stockholders became imminent within the last week of November 2017 based on the results of the Company’s solicitation of proxies from its stockholders for their approval of the Plan of Liquidation) and for the periods subsequent to December 1, 2017 in accordance with GAAP. Accordingly, on December 1, 2017, assets were adjusted to their estimated net realizable value, or liquidation value, which represented the estimated amount of cash that the Company would collect on disposal of assets as it carries out the Plan of Liquidation. Liabilities are carried at their contractual amounts due or estimated settlement amounts.

The costs and expenses that the Company expects to incur through the completion of its liquidation are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Condensed Consolidated Statement of Net Assets. Actual costs may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. See Note 4, “Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation” for further discussion. Actual costs incurred but unpaid as of March 31, 2018 are included in accounts payable and accrued liabilities and due to affiliates on the Condensed Consolidated Statement of Net Assets.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

Net assets in liquidation represents the remaining estimated liquidation value available to stockholders upon liquidation.

Use of Estimates

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

~~Segments~~Accrued Liquidation Costs

AsIn ofaccordance ~~September 30,~~with ~~2017,~~ the ~~Company~~liquidation ~~owned~~basis ~~eight~~of ~~apartment complexes~~accounting, ~~all~~the ofCompany ~~which~~accrues ~~were~~for ~~under~~certain ~~contract~~estimated toliquidation ~~sell. The~~costs ~~sale~~to of the ~~Core-Portfolio~~extent ~~Properties~~it ishas ~~subject~~a toreasonable ~~stockholder~~basis ~~approval~~for ofestimation. ~~the~~These ~~Plan~~consist of ~~Liquidation~~legal ~~and~~fees, asdissolution ~~such~~costs, ~~the~~final ~~Core-Portfolio~~audit/tax ~~Properties~~costs, ~~are~~fees ~~held~~paid ~~for~~to ~~investment. As~~financial ~~of September 30~~advisors, ~~2017~~insurance, ~~the Company’s remaining four properties were held for sale. Substantially all of the Company’s revenue~~ and ~~net~~distribution ~~income~~processing ~~(loss) is from real estate, and therefore, the Company currently operates in one reportable segment~~costs.

~~Reclassifications~~4. LIABILITIES FOR ESTIMATED COSTS IN EXCESS OF ESTIMATED RECEIPTS DURING LIQUIDATION

~~Certain~~The ~~amounts~~liquidation inbasis of accounting requires the Company’s ~~prior~~to ~~period~~estimate ~~consolidated~~net ~~financial~~cash ~~statements~~flows ~~have~~from ~~been~~operations ~~reclassified~~and to ~~conform~~accrue toall ~~the~~costs ~~current~~associated ~~period~~with ~~presentation. These~~implementing ~~reclassifications~~and ~~have~~completing ~~not changed~~ the ~~results~~Plan of ~~operations of prior periods~~Liquidation. ~~During~~As ~~the nine months ended September 30, 2017, the Company sold three apartment complexes. Additionally, as~~ of ~~September~~March 3031, ~~2017~~2018, the Company ~~had~~estimated ~~classified~~that ~~four~~it ~~apartment~~will ~~complexes~~have ascosts ~~held~~in ~~for~~excess ~~sale. As~~of aestimated ~~result,~~receipts ~~certain~~during ~~assets and liabilities were reclassified to held for sale on~~ the ~~consolidated~~liquidation ~~balance sheets for all periods presented~~process. ~~Additionally,~~These ~~during~~amounts ~~the~~can ~~year~~vary ~~ended~~significantly ~~December~~due 31to, ~~2016,~~among ~~the~~other ~~Company elected to early adopt ASU No. 2016-18 (as defined below). As a result~~things, the ~~Company~~timing noand ~~longer~~amounts ~~presents~~associated ~~the~~with ~~changes~~discharging ~~within~~known ~~restricted~~and ~~cash~~contingent inliabilities ~~the consolidated statements of cash flows. Instead, restricted cash is included with cash~~ and ~~cash equivalents when reconciling~~ the ~~beginning~~costs ofassociated ~~period~~with ~~and end of period total amounts shown on~~ the ~~consolidated~~winding ~~statements~~down of ~~cash flows~~operations. In ~~addition,~~These ~~during~~costs ~~the~~are ~~nine~~estimated ~~months~~and ~~ended~~are ~~September 30,~~anticipated ~~2017, the Company reclassed the prepayment fee incurred related~~ to ~~the~~be ~~repayment~~paid ofout ~~the~~over ~~mortgage loan secured by a real estate property sold in March 2017, previously recorded as interest expense during~~ the ~~three~~liquidation ~~months ended March 31, 2017, to loss from extinguishment of debt~~period.

~~Square~~The ~~Footage~~change in the liabilities for estimated costs in excess of estimated receipts during liquidation as of March 31, ~~Occupancy~~2018 ~~and~~is ~~Other~~as ~~Measures~~follows (in thousands):

Any references to square footage or occupancy are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.



	December 31, 2017			Cash Payments (Receipts)			Remeasurement of Assets and Liabilities			March 31, 2018
Assets:
Estimated net inflows from investments in real estate	$	1,820		$	(1,298	)	$	(371	)	$	151
	1,820			(1,298		)	(371		)	151
Liabilities:
Liquidation transaction costs	(1,500		)	—			—			(1,500		)
Corporate expenditures	(827		)	594			252			19
Capital expenditures	(179		)	165			14			—
	(2,506		)	759			266			(1,481		)
Total liabilities for estimated costs in excess of estimated receipts during liquidation	$	(686	)	$	(539	)	$	(105	)	$	(1,330	)

~~Per~~5. ~~Share~~NET ~~Data~~ASSETS IN LIQUIDATION

~~Basic~~Net ~~net~~assets ~~income~~in ~~(loss)~~liquidation ~~per~~decreased ~~share~~by ofapproximately ~~common~~$0.8 ~~stock~~million isduring ~~calculated~~the bythree ~~dividing~~months ~~net~~ended ~~income~~March 31, ~~(loss)~~2018 byprimarily ~~the~~due ~~weighted-average~~to ~~number~~a ofchange ~~shares~~in estimated closing costs. The net assets in liquidation as of ~~common~~March 31, ~~stock~~2018 ~~issued~~would ~~and~~result ~~outstanding~~in ~~during~~the ~~such~~payment ~~period. Diluted~~of ~~net~~additional ~~income~~estimated ~~(loss)~~liquidating distributions of approximately $4.40 per share of common stock ~~equals~~to ~~basic~~the ~~net~~Company’s ~~income~~stockholders of record as of March 31, 2018, which amount includes the Second Liquidating Distribution (~~loss~~defined in Note 10 below). See ~~per~~“Subsequent ~~share~~Events — Authorization and Payment of ~~common~~the ~~stock~~Second asLiquidating ~~there~~Distribution.” This ~~were~~estimate noof ~~potentially~~additional ~~dilutive~~liquidating ~~securities~~distributions ~~outstanding~~includes projections of costs and expenses to be incurred during the ~~nine~~estimated ~~months~~period ~~ended~~required ~~September 30~~to complete the Plan of Liquidation, ~~2017~~which could vary significantly based on different estimates and ~~2016~~assumptions.

~~Distributions~~ declared per share of common stock were $0.137 and $1.388 for the three and nine months ended September 30, 2017. Distributions declared per share of common stock were based on daily record dates for each day during the period commencing January 1, 2017 through February 28, 2017. Distributions declared per share of common stock assumes each share was issued and outstanding each day during this period. For each day that was a record date for distributions during this period, distributions were calculated at a rate of $0.00178082 per share per day. For the month of March 2017 and for the period from May 2017 through September 2017, the Company’s board of directors declared monthly distributions based on a monthly record date. Additionally, the Company’s board of directors declared a special distribution in the amount $1.00 per share of common stock to stockholders of record as of the close of business on April 20, 2017.6

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

~~Distributions declared per share of common stock were $0~~6.~~164~~ ~~and~~REAL ~~$0.486~~ESTATE for the three and nine months ended September 30, 2016, respectively. Distributions declared per share of common stock assumes each share was issued and outstanding each day that was a record date for distributions during these periods. For the three and nine months ended September 30, 2016, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2016 through February 28, 2016 and March 1, 2016 through September 30, 2016 was a record date for distributions. SALES

~~Recently~~During ~~Issued~~the ~~Accounting~~three ~~Standards~~months ~~Update~~ended March 31, 2018, the Company sold its final four real estate properties.

InLegacy May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The primary source of revenue for the Company is generated through leasing arrangements, which are excluded from this standard. The Company’s revenues that may be impacted by this standard primarily include other operating income, sales of real estate and other ancillary income earned at ~~its~~Valley ~~properties. In~~Ranch 2016, other operating income and other ancillary income were approximately 3% of consolidated revenue. The Company is in process of evaluating how this standard will impact sales of real estate. The Company continues to evaluate the impact that the standard will have on its consolidated financial statements. The Company expects to adopt the standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the adoption.

InOn ~~January~~October ~~2016~~26, 2010, the ~~FASB~~Company, ~~issued~~through ~~ASU~~an ~~No.~~indirect ~~2016-01,~~wholly ~~Financial~~owned ~~Instruments~~subsidiary, -purchased ~~Overall~~a ~~(Subtopic 825~~504-~~10):~~unit ~~Recognition~~apartment ~~and~~complex ~~Measurement of Financial Assets and Financial Liabilities~~ (“~~ASU~~Legacy ~~No.~~at ~~2016-01~~Valley Ranch”)~~. The~~ ~~amendments~~on inapproximately ~~ASU No~~20.3 ~~2016-01~~acres ~~address certain aspects~~ of ~~recognition,~~land ~~measurement,~~located ~~presentation~~in ~~and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where~~ the ~~fair~~Valley ~~value~~Ranch ~~option~~community ~~has~~of ~~been~~Irving, ~~elected~~Texas. ~~ASU~~ On ~~No.~~February ~~2016-01~~8, ~~also requires entities to present financial assets and financial liabilities separately~~2018, ~~grouped~~the byCompany ~~measurement~~completed ~~category~~the ~~and~~sale ~~form~~ of ~~financial~~Legacy ~~asset~~at inValley ~~the~~Ranch ~~balance sheet or in the accompanying notes~~ to ~~the~~an ~~financial~~unaffiliated ~~statements. ASU~~buyer ~~No. 2016-01 is effective~~ for ~~annual~~$67.5 ~~periods beginning after December 15~~million, ~~2017,~~net ~~including interim periods within those fiscal years. Early application~~ of ~~certain~~closing ~~provisions of the standard is permitted for financial statements that have not been previously issued~~credits. The ~~Company~~liquidation ~~does~~value ~~not expect the adoption~~ of ~~ASU~~Legacy ~~No.~~at ~~2016-01~~Valley toRanch ~~have~~as aof ~~significant~~December ~~impact~~1, on2017 ~~its~~was ~~financial~~$67.5 ~~statements~~million.

InCrystal ~~February~~Park 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.Waterford

On 9May 8, 2013, the Company, through an indirect wholly owned subsidiary, purchased a 314-unit apartment complex (“Crystal Park at Waterford”) on approximately 16.3 acres of land located in Frederick, Maryland. On February 8, 2018, the Company completed the sale of Crystal Park at Waterford to an unaffiliated buyer for $45.7 million, net of closing credits. The liquidation value of Crystal Park at Waterford as of December 1, 2017 was $45.7 million.

Lofts at the Highlands

On February 25, 2014, the Company, through an indirect wholly owned subsidiary, purchased a 200-unit apartment complex (the “Lofts at the Highlands”) on approximately 2.8 acres of land located in St. Louis, Missouri. On March 28, 2018, the Company completed the sale of the Lofts at the Highlands to an unaffiliated buyer for $44.4 million. The liquidation value of the Lofts at the Highlands as of December 1, 2017 was $44.4 million.

The Residence at Waterstone

On April 6, 2012, the Company, through an indirect wholly owned subsidiary, purchased a 255-unit apartment complex (“The Residence at Waterstone”) on approximately 25.2 acres of land located in northwest Baltimore suburb of Pikesville, Maryland. On March 29, 2018, the Company completed the sale of The Residence at Waterstone to an unaffiliated buyer for $59.9 million, net of closing credits. The liquidation value of The Residence at Waterstone as of December 1, 2017 was $59.9 million.


7.	NOTES PAYABLE

During the three months ended March 31, 2018, the Company entered into defeasance agreements in relation to, or the buyers of certain properties assumed, the following notes payable:

Defeasance of the Legacy at Valley Ranch Mortgage Loan

On February 8, 2018, in connection with the sale of Legacy at Valley Ranch, the Company entered into a defeasance agreement with the lender to defease the entire outstanding principal balance of $30.2 million and release Legacy at Valley Ranch as security for the Legacy at Valley Ranch Mortgage Loan.

Defeasance of the Crystal Park at Waterford Mortgage Loan

On February 8, 2018, in connection with the sale of Crystal Park at Waterford, the Company entered into a defeasance agreement with the lender to defease the entire outstanding principal balance of $26.2 million and release Crystal Park at Waterford as security for the Crystal Park at Waterford Mortgage Loan.

Release and Buyer Assumption of the Lofts at the Highlands Mortgage Loan

On March 28, 2018, in connection with the sale of the Lofts at the Highlands, the buyer of the Lofts at the Highlands assumed the Lofts at the Highlands Mortgage Loan with an outstanding principal balance of $30.2 million at the time of the sale.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

InRelease ~~August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts~~ and ~~Cash~~Buyer ~~Payments~~Assumption ~~(“ASU No. 2016-15”). ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement~~ of ~~cash flows.~~ The ~~amendments~~Residence inat ~~ASU~~Waterstone ~~No.~~Mortgage 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); and (d) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow. ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the impact of adopting ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.Loan

InOn ~~November~~March ~~2016~~29, ~~the FASB issued ASU No. 2016-18~~2018, ~~Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period~~ in ~~the~~connection ~~total of cash, cash equivalents, restricted cash and restricted cash equivalents. Therefore, amounts generally described as restricted cash should be included~~ with ~~cash and cash equivalents when reconciling~~ the ~~beginning~~sale of ~~period~~The ~~and~~Residence ~~end~~at ofWaterstone, ~~period total amounts shown on~~ the ~~statement~~buyer of ~~cash~~The ~~flows. ASU~~Residence ~~No.~~at ~~2016-18~~Waterstone isassumed ~~effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.~~ The ~~Company~~Residence ~~elected~~at toWaterstone ~~early~~Mortgage ~~adopt~~Loan ~~ASU~~with ~~No.~~an ~~2016-18~~outstanding ~~for~~principal ~~the~~balance ~~reporting~~of ~~period ended December 31, 2016 and applied it retrospectively~~$44. As5 amillion ~~result~~at of the ~~adoption~~time of ~~ASU No. 2016-18,~~ the ~~Company no longer presents the changes within restricted cash in the consolidated statements of cash flows~~sale.

38. ~~REAL~~RELATED ~~ESTATE~~PARTY TRANSACTIONS

The Company has entered into the advisory agreement with the Advisor, which entitled the Advisor to specified fees upon the provision of certain services with regard to the management and disposition of the Company’s real estate properties, among other services, as well as reimbursement of certain costs incurred by the Advisor in providing services to the Company, such as certain operating costs. The Company has also entered into a fee reimbursement agreement with KBS Capital Markets Group (the “Dealer Manager”) pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the DTCC Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve or served as the advisor and dealer manager, respectively, for KBS Real Estate ~~Held~~Investment ~~for~~Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”).

AsOn ofJanuary ~~September 30~~6, ~~2017~~2014, the Company’s, ~~portfolio~~together ofwith ~~real~~KBS ~~estate~~REIT ~~held~~I, ~~for~~KBS ~~investment~~REIT ~~consisted~~II, ofKBS REIT III, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II, the ~~four~~Dealer ~~Core~~Manager, the Advisor and other KBS-~~Portfolio~~affiliated ~~Properties~~entities, ~~(further~~entered ~~described~~into inan errors and omissions and directors and officers liability insurance program where the ~~table~~lower ~~below),~~tiers ~~all~~of such insurance coverage are shared. The cost of ~~which~~these ~~were~~lower ~~under~~tiers ~~contract~~is allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to ~~sell~~each entity. The ~~sale~~allocation of ~~the~~these ~~Core-Portfolio~~shared ~~Properties~~coverage costs is ~~subject~~proportionate to ~~stockholder~~the ~~approval~~pricing ofby the ~~Plan~~insurance marketplace for the first tiers of ~~Liquidation~~directors and asofficers ~~such,~~liability coverage purchased individually by each REIT. The Advisor’s and the ~~Core-Portfolio~~Dealer ~~Properties~~Manager’s ~~are~~portion ~~held~~of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for ~~investment~~the errors and omissions insurance. ~~These~~In ~~properties~~June ~~contained 1~~2015,~~273~~ ~~units~~KBS ~~and~~Growth ~~encompassing~~& ~~1.4~~Income ~~million rentable~~REIT ~~square~~was ~~feet,~~added ~~and~~to ~~were~~the ~~93%~~insurance ~~occupied~~program at terms similar to those described above. ~~The~~In ~~following~~June ~~table~~2017, ~~provides~~the ~~summary~~Company ~~information~~renewed ~~regarding~~its participation in the ~~properties~~program, ~~that~~and ~~were~~the ~~held~~program ~~for~~is ~~investment~~effective bythrough ~~the~~June ~~Company~~30, as2018. As KBS REIT I was implementing its plan of ~~September 30~~liquidation, at renewal in June 2017, ~~(dollars~~it elected to cease participation in ~~thousands):~~the program and obtain separate insurance coverage.

Property Name	Date Acquired	Location	Total Real Estate, Cost		Accumulated Depreciation and Amortization			Total Real Estate, Net
Legacy at Valley Ranch	10/26/2010	Irving, TX	$	36,636	$	(5,813	)	$	30,823
The Residence at Waterstone	04/06/2012	Pikesville, MD	65,213		(8,658		)	56,555
Crystal Park at Waterford	05/08/2013	Frederick, MD	46,224		(6,253		)	39,971
Lofts at the Highlands	02/25/2014	St. Louis, MO	35,990		(3,458		)	32,532
			$	184,063	$	(24,182	)	$	159,881

During the three months ended March 31, 2018, no other business transactions occurred between the Company and KBS REIT I, KBS REIT II, KBS REIT III, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Growth & Income REIT.

108

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

~~Additionally,~~Advisory asAgreement of September 30, 2017 and December 31, 2016, the Company had recorded unamortized tax abatement intangible assets relating to its real estate held for investment, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $2.3 million and $2.5 million, respectively. During the three and nine months ended September 30, 2017, the Company recorded amortization expense of $41,000 and $0.1 million, respectively, related to tax abatement intangible assets. During the three and nine months ended September 30, 2016, the Company recorded amortization expense of $65,000 and $0.2 million, respectively, related to tax abatement intangible assets.

~~Real~~On ~~Estate~~February ~~Held~~1, 2018, the Company renewed its advisory agreement with the Advisor. The effective date of the renewed advisory agreement was January 25, 2018. The renewed advisory agreement (i) removed the Company’s responsibility for ~~Sale~~paying any fees or compensation to the Advisor for services rendered commencing with the day immediately following the date on which the Company sold its final real estate property, which sale occurred on March 29, 2018, (ii) removed the Company’s responsibility for paying directly or reimbursing the Advisor for any of the expenses paid or incurred by the Advisor on the Company’s behalf or in connection with the services provided to the Company commencing with the day immediately following the date on which the Company sold its final real estate property, and (iii) provides for the automatic termination of the advisory agreement, without further action by or on behalf of the Company or the Advisor, upon the payment by the Company of the final liquidating distribution pursuant to the Plan of Liquidation and the completion of all of the Advisor’s duties under the renewed advisory agreement, including without limitation, those duties relating to completing tax reporting and providing related information.

InOther ~~accordance~~than ~~with~~the ~~ASU~~changes ~~No.~~described ~~2014-08~~above, ~~Presentation~~ ofthere ~~Financial~~were ~~Statements~~no ~~(Topic~~material ~~205) and~~changes ~~Property,~~to ~~Plant,~~the ~~and~~terms ~~Equipment (Topic 360): Reporting Discontinued Operations and Disclosures~~ of ~~Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations from properties that are classified as held for sale in~~ the ~~ordinary~~advisory ~~course~~agreement ofpreviously ~~business would generally be included~~ in ~~continuing operations on the Company’s consolidated statements of operations~~effect.

~~During~~Asset ~~the~~Management nine months ended September 30, 2017, the Company disposed of three apartment complexes. Additionally, as of September 30, 2017, the Company had classified Poplar Creek, Legacy at Martin’s Point, Millennium Apartment Homes and Legacy Grand at Concord as held for sale and subsequent to September 30, 2017, the Company completed the sale of three of these properties. See Note 8, “Subsequent Events — Dispositions Subsequent to September 30, 2017.” The results of operations for the properties sold during the nine months ended September 30, 2017 and the properties held for sale as of September 30, 2017 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to these seven properties, which were included in continuing operations (in thousands):Fee

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues
Rental income	$	4,968	$	6,271	$	15,903	$	18,583
Total revenues	4,968		6,271		15,903		18,583
Expenses
Operating, maintenance, and management	714		875		2,220		2,564
Real estate taxes and insurance	896		918		2,918		2,911
Asset management fees to affiliate	—		174		138		174
Property management fees to affiliate	767		843		2,390		2,415
General and administrative expenses	55		—		99		7
Depreciation and amortization	1,279		1,755		4,361		5,237
Interest expense	1,048		1,293		3,645		3,876
Total expenses	$	4,759	$	5,858	$	15,771	$	17,184

Pursuant to the advisory agreement, the asset management fee payable by the Company to the Advisor with respect to investments in real estate was a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs (regardless of the level of debt used to finance the investment), and (ii) 2.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs, less any debt used to finance the investment.

Due to certain limitations in the advisory agreement, as of March 31, 2018, the Company had deferred and not accrued payment of $11.3 million of asset management fees for the period from February 2013 through September 2017. As the Company ceased paying regular monthly distributions after October 2, 2017, the Advisor agreed to waive all future asset management fees.

As of March 31, 2018, as part of the liquidation basis of accounting, the Company accrued $0 of asset management fees, as the Company does not expect to pay any previously deferred asset management fees and, pursuant to the advisory agreement, commencing on March 30, 2018, no longer has any responsibility for paying any fees or compensation to the Advisor, for services rendered by the Advisor.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

~~The~~Property ~~following~~Management ~~summary presents the major components of assets and liabilities related to the Company’s four real estate properties held for sale as of September 30, 2017 and December 31, 2016 (in thousands):~~Agreements

	September 30, 2017			December 31, 2016
Assets related to real estate held for sale
Total real estate, at cost	$	125,737		$	230,072
Accumulated depreciation and amortization	(16,289		)	(26,718		)
Real estate held for sale, net	109,448			203,354
Other assets	17			477
Total assets related to real estate held for sale	$	109,465		$	203,831
Liabilities related to real estate held for sale
Notes payable, net	82,397			147,780
Total liabilities related to real estate held for sale	$	82,397		$	147,780

The Company, through indirect wholly owned subsidiaries (each, a “Property Owner”), entered into property management agreements with Legacy Partners, Inc. (“LPI”), an affiliate of KBS-Legacy Apartment Community REIT Venture, LLC (the “Sub-Advisor”), (each a “Property Management Agreement”), pursuant to which LPI provided, among other services, general property management services, including bookkeeping and accounting services, construction management services and budgeting and business plans for the Company’s properties, as follows:

4. NOTES PAYABLE



Property Name	Effective Date	Management Fee Percentage
Watertower Apartments ⁽¹⁾	04/07/2015	2.75%
Crystal Park at Waterford ⁽²⁾	04/14/2015	3.00%
The Residence at Waterstone ⁽³⁾	04/28/2015	3.00%
Lofts at the Highlands ⁽⁴⁾	05/05/2015	3.00%
Legacy at Martin’s Point ⁽⁵⁾	05/12/2015	3.00%
Poplar Creek ⁽⁶⁾	05/14/2015	3.00%
Wesley Village ⁽⁷⁾	05/19/2015	3.00%
Legacy Grand at Concord ⁽⁸⁾	05/21/2015	3.00%
Millennium Apartment Homes ⁽⁹⁾	05/27/2015	3.00%
Legacy Crescent Park ⁽¹⁰⁾	05/29/2015	3.00%
Legacy at Valley Ranch ⁽¹¹⁾	06/09/2015	3.00%

____________________

As(1) ofOn September 30 12, 2017 ~~and December 31~~, ~~2016,~~ the Company’s ~~notes~~sold ~~payable,~~Watertower ~~including~~Apartments. The ~~notes~~Property ~~payable~~Management ~~related~~Agreement tofor ~~real~~Watertower ~~estate~~Apartments ~~held~~was ~~for~~terminated ~~sale,~~effective ~~consisted~~as of ~~the~~September ~~following~~12, ~~(dollars~~2017. ~~in thousands):~~

	Book Value as of September 30, 2017			Book Value as of December 31, 2016			Contractual Interest Rate as of September 30, 2017	Payment Type	Maturity Date
Legacy at Valley Ranch Mortgage Loan	$	30,493		$	30,958		3.9%	Principal & Interest	04/01/2019
Poplar Creek Mortgage Loan	19,125			19,414			4.0%	Principal & Interest	03/01/2019	(1)
The Residence at Waterstone Mortgage Loan	44,955			45,653			3.8%	Principal & Interest	05/01/2019	(1)
Legacy Crescent Park Mortgage Loan (2)	—			13,560			(2)	(2)	(2)
Legacy at Martin’s Point Mortgage Loan	21,506			21,866			3.3%	Principal & Interest	06/01/2019	(1)
Wesley Village Mortgage Loan (3)	—			26,862			(3)	(3)	(3)
Watertower Mortgage Loan (4)	—			23,943			(4)	(4)	(4)
Crystal Park Mortgage Loan	26,477			27,013			2.5%	Principal & Interest	06/01/2018	(1)
Millennium Mortgage Loan	19,806			20,190			2.7%	Principal & Interest	07/01/2018	(1)
Legacy Grand at Concord Mortgage Loan	22,158			22,392			4.1%	Principal & Interest	12/01/2050	(1)
Lofts at the Highlands Mortgage Loan	30,417			30,754			3.4%	Principal & Interest	08/01/2052	(1)
Total notes payable principal outstanding	$	214,937		$	282,605
Discount on note payable, net	(2,578		)	(2,644		)
Deferred financing costs, net	(436		)	(815		)
Total notes payable, net	$	211,923		$	279,146

⁽²⁾ On February 8, 2018, the Company sold Crystal Park at Waterford. The Property Management Agreement for Crystal Park at Waterford was terminated effective as of February 8, 2018.

(13) On March 29, 2018, the Company sold The Residence at Waterstone. The ~~Company~~Property ~~has~~Management ~~the~~Agreement ~~right~~for toThe ~~repay~~Residence ~~the~~at ~~loan~~Waterstone ~~subject~~was toterminated ~~certain~~effective ~~conditions~~as ~~and~~of ~~prepayment~~March ~~penalties~~29, 2018.

(24) On ~~September~~March 2928, ~~2017~~2018, inthe ~~connection~~Company ~~with~~sold the ~~disposition~~Lofts ofat ~~Legacy~~the ~~Crescent~~Highlands. The ~~Park,~~Property ~~the~~Management ~~Company~~Agreement ~~paid~~for ~~off~~the Lofts at the ~~Legacy~~Highlands ~~Crescent~~was ~~Park~~terminated ~~Mortgage~~effective ~~Loan~~as of March 28, 2018.

(35) On ~~March~~October 931, 2017, inthe ~~connection~~Company ~~with~~sold ~~the~~Legacy ~~disposition~~at ofMartin’s ~~Wesley~~Point. The ~~Village,~~Property ~~the~~Management ~~Company~~Agreement ~~paid~~for ~~off~~Legacy ~~the~~at ~~Wesley~~Martin’s ~~Village~~Point ~~Mortgage~~was ~~Loan~~terminated effective as of October 31, 2017.

(46) On ~~September~~December 1220, 2017, inthe ~~connection~~Company ~~with~~sold ~~the~~Poplar ~~disposition~~Creek. The ofProperty ~~Watertower~~Management ~~Apartments,~~Agreement ~~the~~for ~~Company~~Poplar ~~paid~~Creek ~~off~~was ~~the~~terminated ~~Watertower~~effective ~~Mortgage~~as ~~Loan~~of December 20, 2017.

(7) 12On March 9, 2017, the Company sold Wesley Village. The Property Management Agreement for Wesley Village was terminated effective as of March 9, 2017.

⁽⁸⁾ On October 30, 2017, the Company sold Legacy Grand at Concord. The Property Management Agreement for Legacy Grand at Concord was terminated effective as of October 30, 2017.

⁽⁹⁾ On October 31, 2017, the Company sold Millennium Apartment Homes. The Property Management Agreement for Millennium Apartment Homes was terminated effective as of October 31, 2017.

⁽¹⁰⁾ On September 29, 2017, the Company sold Legacy Crescent Park. The Property Management Agreement for Legacy Crescent Park was terminated effective as of September 29, 2017.

⁽¹¹⁾ On February 8, 2018, the Company sold Legacy at Valley Ranch. The Property Management Agreement for Legacy at Valley Ranch was terminated effective as of February 8, 2018.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

~~During~~Under the ~~three~~Property ~~and~~Management ~~nine~~Agreements, ~~months~~each ~~ended~~Property ~~September 30,~~Owner ~~2017,~~paid ~~the~~LPI: ~~Company~~(i) ~~incurred~~a ~~$2.3~~monthly ~~million~~fee ~~and~~based ~~$7.2~~on ~~million~~a ofpercentage ~~interest~~(as ~~expense,~~described ~~respectively. During~~in the ~~three~~table ~~and~~above, ~~nine~~the ~~months~~“Management ~~ended~~Fee ~~September 30,~~Percentage”) ~~2016,~~of the ~~Company~~Gross ~~incurred~~Monthly ~~$2.6~~Collections ~~million~~(as ~~and~~defined ~~$7.8~~in ~~million~~each ofProperty ~~interest~~Management ~~expense~~Agreement), ~~respectively. Included~~(ii) ina ~~interest~~construction ~~expense~~supervision ~~for~~fee ~~the~~equal ~~three~~to ~~and~~a ~~nine~~percentage ~~months~~of ~~ended~~construction ~~September 30,~~costs ~~2017~~to ~~were~~the ~~$0.1~~extent ~~million~~overseen by LPI and ~~$0.3~~as ~~million~~further ofdetailed ~~amortization~~in ofeach ~~deferred~~Property ~~financing~~Management ~~costs~~Agreement, ~~respectively. Included~~(iii) ina ~~interest~~leasing ~~expense~~commission ~~for~~at ~~the~~a ~~three~~rate ~~and~~to ~~nine~~be ~~months~~agreed ~~ended~~upon ~~September 30,~~between ~~2016~~the ~~were~~Property ~~$0.1~~Owner ~~million~~ and ~~$0.3~~LPI ~~million~~for ofexecuted ~~amortization~~retail ofleases ~~deferred~~that ~~financing~~were ~~costs,~~procured ~~respectively. Also~~or ~~included~~obtained inby ~~interest~~LPI, ~~expense~~(iv) ~~for~~certain ~~the~~reimbursements ~~three~~if ~~and~~included ~~nine~~in ~~months~~an ~~ended~~approved ~~September 30,~~capital ~~2017~~budget ~~were $22,000~~ and ~~$66,000~~(v) ofcertain ~~amortization~~reimbursements ofif ~~discount~~included onin athe ~~note~~approved ~~payable,~~operating ~~respectively~~budget, ~~and~~including ~~$22,000~~the ~~and~~reimbursement ~~$65,000~~ of ~~amortization~~the ofsalaries ~~discount~~and benefits for on-site apersonnel. Unless ~~note~~otherwise ~~payable~~provided for ~~the~~in ~~three~~an ~~and~~approved ~~nine~~operating ~~months ended September 30~~budget, ~~2016,~~LPI ~~respectively. As~~was ofresponsible ~~September 30,~~for ~~2017~~all ~~and~~expenses ~~December 31,~~that ~~2016,~~it ~~the~~incurred ~~Company~~in ~~recorded~~rendering ~~interest~~services ~~payable~~pursuant ofto ~~$0.6~~each ~~million and~~Property ~~$0.8~~Management ~~million, respectively~~Agreement.

~~The~~Summarized ~~following~~below isare athe ~~schedule~~related-party ofcosts ~~maturities,~~incurred ~~including~~by ~~principal~~the ~~payments,~~Company for the ~~Company’s~~three ~~notes~~months ~~payable~~ended ~~outstanding~~March 31, 2018 and 2017, respectively, and any related amounts payable as of ~~September~~March 3031, 2018 and December 31, 2017 (in thousands):

October 1, 2017 through December 31, 2017	$	1,125
					Payable as of
2018	49,291
	Three Months Ended March 31,				March 31,		December 31,
2019	113,752
	2018		2017		2018		2017
2020	852
Expensed
2021	884
Asset management fees (1)	$	—	$	234	$	—	$	—
Thereafter	49,033
Reimbursable operating expenses (2)	23		69		3		16
	$	214,937
Property management fees and expenses (3)	954		1,611		318		69
Disposition fees (4)	1,414		371		—		—
	$	2,391	$	2,285	$	321	$	85

5. FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired long-lived assets). Fair value, as defined under GAAP, is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2017

(unaudited)

The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:

Cash and cash equivalents, restricted cash, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

Notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

The following were the face value, carrying amount and fair value of the Company’s notes payable as of September 30, 2017 and December 31, 2016 (dollars in thousands):

	September 30, 2017						December 31, 2016
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	214,937	$	211,923	$	217,106	$	282,605	$	279,146	$	279,258

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. Low levels of transaction volume for certain financial instruments have made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

6. RELATED PARTY TRANSACTIONS

The Company has entered into the Advisory Agreement with the Advisor and the Follow-on Dealer Manager Agreement with the Dealer Manager. These agreements entitled the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Follow-on Offering and entitle the Advisor to specified fees upon the provision of certain services with regard to the management and disposition of the Company’s real estate properties, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, such as expenses related to the dividend reinvestment plan, which the Company terminated effective as of August 20, 2017, and certain costs incurred by the Advisor in providing services to the Company, such as certain operating costs. The Company has also entered into a fee reimbursement agreement with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the DTCC Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform. The Advisor and Dealer Manager also serve or served as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2017

(unaudited)

On January 6, 2014, the Company, together with KBS REIT I, KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Strategic Opportunity REIT II, Inc., the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2015, KBS Growth & Income REIT, Inc. was added to the insurance program at terms similar to those described above. In June 2017, the Company renewed its participation in the program, and the program is effective through June 30, 2018. As KBS REIT I is implementing its plan of liquidation, at renewal in June 2017, KBS REIT I elected to cease participation in the program and obtain separate insurance coverage.

During the three and nine months ended September 30, 2017 and 2016, no other business transactions occurred between the Company and KBS REIT I, KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.

Pursuant to the terms of these agreements and the property management agreements discussed below, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2017 and 2016, respectively, and any related amounts payable as of September 30, 2017 and December 31, 2016 (in thousands):

	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30,		December 31,
	2017		2016		2017		2016		2017		2016
Expensed
Asset management fees (1)	$	—	$	104	$	234	$	343	$	—	$	—
Reimbursable operating expenses (2)	68		68		192		184		24		15
Property management fees and expenses (3)	1,432		1,506		4,422		4,359		236		142
Disposition fees (4)	436		—		807		—		—		—
	$	1,936	$	1,678	$	5,655	$	4,886	$	260	$	157

____________________

(1) ~~See~~During ~~“Advisory~~the ~~Agreement~~three –months ~~Asset~~ended ~~Management~~March 31, ~~Fee”~~2017, ~~below~~the Company incurred $0.7 million of asset management fees. However, the Company only recorded $0.2 million pursuant to the limitations in the advisory agreement. The Company did not accrue the remaining $0.5 million of these asset management fees as it was uncertain whether any of this amount will be paid in the future. For the three months ended March 31, 2018, the Company did not record any asset management fees as the Advisor had agreed to waive all future asset management fees after October 2, 2017.

(2) Reimbursable operating expenses primarily consist of marketing research costs and property site visit expenses incurred by the Sub-Advisor and internal audit personnel costs, accounting software and cybersecurity related expenses incurred by the Advisor under the ~~Advisory~~advisory ~~Agreement~~agreement. Beginning July 1, 2010, the Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $4721,000 and $4836,000 for the three months ended ~~September~~March 3031, ~~2017~~2018 and ~~2016~~2017, respectively, and ~~$119,000~~were ~~and~~the ~~$123,000~~only ~~for~~type of employee costs reimbursed under the ~~nine~~advisory ~~months~~agreement ~~ended~~through ~~September~~March 3031, ~~2017~~2018. As ~~and~~described ~~2016~~above, ~~respectively~~pursuant to the advisory agreement, ~~and~~commencing ~~were~~on March 30, 2018, the ~~only~~Company ~~type~~no oflonger ~~employee~~has ~~costs~~any ~~reimbursed~~responsibility ~~under~~for ~~the~~paying ~~Advisory~~any ~~Agreement~~fees ~~through~~or ~~September 30~~compensation to the Advisor, ~~2017~~for services rendered by the Advisor. The Company ~~does~~did not reimburse for employee costs in connection with services for which the Advisor ~~earns~~earned acquisition or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company ~~reimburses~~reimbursed the Advisor and Sub-Advisor for certain of the Company’s direct property operating costs incurred from third parties that were initially paid by the Advisor and Sub-Advisor on behalf of the Company.

(3) Property management fees and expenses ~~are~~were all paid to ~~Legacy Partners, Inc~~LPI. Those ~~(“LPI”),~~amounts aninclude ~~affiliate~~retention ofbonuses ~~the~~in ~~Sub-Advisor,~~addition ~~and~~to ~~consist~~fees ~~of (i) reimbursable on-site salary~~ and ~~related benefits~~ expenses ~~for~~that ~~personnel~~are atdescribed ~~the~~above ~~managed~~under ~~properties, and (ii) fees for account maintenance and bookkeeping services. See~~ “— Property Management Agreements.”

(4) Disposition fees ~~with~~presented ~~respect~~are toamounts ~~real~~incurred ~~estate~~pursuant ~~sold~~to ~~are~~the ~~included~~advisory inagreement ~~the~~and ~~gain~~approved onby ~~sale~~the ofconflicts ~~real~~committee ~~estate,~~during ~~net,~~the inthree ~~the~~months ~~accompanying~~ended ~~consolidated~~March 31, ~~statements~~2018 ofand ~~operations~~2017.

In connection with the Follow-on Offering, the Company’s sponsors agreed to provide additional indemnification to one of the participating broker-dealers. The Company agreed to add supplemental coverage to its directors’ and officers’ insurance coverage to insure the sponsors’ obligations under this indemnification agreement in exchange for reimbursement by the sponsors to the Company for all costs, expenses and premiums related to this supplemental coverage. During the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018, the Advisor ~~reimbursed~~did ~~the~~not ~~Company~~incur ~~for~~any acosts ~~$27,000~~of ~~property~~the ~~insurance~~supplemental ~~rebate.~~coverage obtained by the Company.

1511

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 1.	Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~March 3031, ~~2017~~2018

(unaudited)

~~In connection with the Follow-on Offering, the Company’s sponsors agreed to provide additional indemnification to one of the participating broker-dealers~~9. ~~The~~ ~~Company~~COMMITMENTS ~~agreed~~AND to add supplemental coverage to its directors’ and officers’ insurance coverage to insure the sponsors’ obligations under this indemnification agreement in exchange for reimbursement by the sponsors to the Company for all costs, expenses and premiums related to this supplemental coverage. During the nine months ended September 30, 2017, the Advisor incurred $61,000 for the costs of the supplemental coverage obtained by the Company.CONTINGENCIES

On March 9, 2017, the Company sold Wesley Village to the Purchaser. Gary T. Kachadurian, one of the Company’s independent directors, is also a director of a real estate investment trust sponsored by the purchaser of Wesley Village (the “Purchaser REIT”) and is Vice Chairman of the manager of the Purchaser REIT and as such, Mr. Kachadurian (i) recused himself from all of the Company’s deliberations relating to the disposition of Wesley Village, and (ii) informed the Company and its board of directors that he recused himself from all of the Purchaser REIT’s and its manager’s deliberations relating to the acquisition of Wesley Village.

Advisory Agreement - Asset Management Fee

Pursuant to the Advisory Agreement, the asset management fee payable by the Company to the Advisor with respect to investments in real estate is a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs (regardless of the level of debt used to finance the investment), and (ii) 2.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs, less any debt used to finance the investment.

The Advisory Agreement defers the Company’s obligation to pay asset management fees, without interest, accruing from February 1, 2013 through July 31, 2013. The Company will only be obligated to pay the Advisor such deferred amounts if and to the extent that the Company’s funds from operations, as such term is defined by the National Association of Real Estate Investment Trusts and interpreted by the Company, as adjusted for the effects of straight-line rents and acquisition costs and expenses (“AFFO”) for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “AFFO Surplus”). The amount of any AFFO Surplus in a given month shall be applied first to pay to the Advisor asset management fees currently due with respect to such month (including any that would otherwise have been deferred for that month in accordance with the Advisory Agreement) and then to pay asset management fees previously deferred by the Advisor in accordance with the Advisory Agreement that remain unpaid. As of September 30, 2017, the Company had deferred payment of $1.5 million of asset management fees for the period from February 2013 through July 2013, but did not record an accrual on its books as the Company believed that the chance of payment of this amount to the Advisor is remote.

In addition, the Advisory Agreement defers without interest under certain circumstances, the Company’s obligation to pay asset management fees accruing from August 1, 2013. Specifically, the Advisory Agreement defers the Company’s obligation to pay an asset management fee for any month in which the Company’s modified funds from operations (“MFFO”) for such month, as such term is defined in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 and interpreted by the Company, excluding asset management fees, does not exceed the amount of distributions declared by the Company for record dates of that month. The Company remains obligated to pay the Advisor an asset management fee in any month in which the Company’s MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an “MFFO Surplus”); however, any amount of such asset management fee in excess of the MFFO Surplus is also deferred under the Advisory Agreement. If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will not be applied to pay asset management fee amounts previously deferred by the Advisor in accordance with the Advisory Agreement. As of September 30, 2017, the Company had deferred payment of $8.0 million of asset management fees for the period from August 2013 through December 2016, but did not record an accrual on its books as the Company believed that the chance of payment of this amount to the Advisor is remote.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2017

(unaudited)

During the nine months ended September 30, 2017, the Company incurred $2.0 million of asset management fees. However, the Company only recorded $0.2 million pursuant to the limitations in the Advisory Agreement as noted above. The Company did not accrue the remaining $1.8 million of these asset management fees as it is not expected that any of these amounts will be paid in the future. During the nine months ended September 30, 2016, the Company incurred $2.2 million of asset management fees. However, the Company only recorded $0.3 million pursuant to the limitations in the Advisory Agreement as noted above. The Company did not accrue the remaining $1.9 million of these asset management fees as it is not expected that any of these amounts will be paid in the future.

However, notwithstanding any of the foregoing, any and all deferred asset management fees shall be immediately due and payable at such time as the Company’s stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to the Company’s share redemption plan, and (ii) an 8.0% per year cumulative, non-compounded return on such net invested capital (the “Stockholders’ 8% Return”). The Stockholders’ 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of the Company’s stockholders to have received any minimum return in order for the Advisor to receive deferred asset management fees.

Property Management Agreements

The Company, through indirect wholly owned subsidiaries (each, a “Property Owner”), entered into property management agreements with LPI (each a “Property Management Agreement”), pursuant to which LPI provides or provided, among other services, general property management services, including bookkeeping and accounting services, construction management services and budgeting and business plans for the Company’s properties, as follows:

Property Name	Effective Date	Management Fee Percentage
Watertower Apartments (1)	04/07/2015	2.75%
Crystal Park at Waterford	04/14/2015	3.00%
The Residence at Waterstone	04/28/2015	3.00%
Lofts at the Highlands	05/05/2015	3.00%
Legacy at Martin’s Point	05/12/2015	3.00%
Poplar Creek	05/14/2015	3.00%
Wesley Village (2)	05/19/2015	3.00%
Legacy Grand at Concord	05/21/2015	3.00%
Millennium Apartment Homes (3)	05/27/2015	3.00%
Legacy Crescent Park (3) (4)	05/29/2015	3.00%
Legacy at Valley Ranch	06/09/2015	3.00%

(1) On September 12, 2017, the Company sold Watertower Apartments. The Property Management Agreement for Watertower Apartments was terminated effective as of September 12, 2017.

(2) On March 9, 2017, the Company sold Wesley Village. The Property Management Agreement for Wesley Village was terminated effective as of March 9, 2017.

(3) Under the Property Management Agreement, the Property Owner pays or paid LPI the Management Fee Percentage in an amount equal to the greater of (a) 3% of the Gross Monthly Collections (as defined in the Property Management Agreement) or (b) $4,000 per month.

(4) On September 29, 2017, the Company sold Legacy Crescent Park. The Property Management Agreement for Legacy Crescent Park was terminated effective as of September 29, 2017.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2017

(unaudited)

Under the Property Management Agreements for the Company’s remaining properties, each Property Owner pays or paid LPI: (i) a monthly fee based on a percentage (as described in the table above, the “Management Fee Percentage”) of the Gross Monthly Collections (as defined in each Property Management Agreement), (ii) a construction supervision fee equal to a percentage of construction costs to the extent overseen by LPI and as further detailed in each Property Management Agreement, (iii) a leasing commission at a rate to be agreed upon between the Property Owner and LPI for executed retail leases that were procured or obtained by LPI, (iv) certain reimbursements if included in an approved capital budget and (v) certain reimbursements if included in the approved operating budget, including the reimbursement of the salaries and benefits for on-site personnel. Unless otherwise provided for in an approved operating budget, LPI is responsible for all expenses that it incurs in rendering services pursuant to each Property Management Agreement. Each Property Management Agreement had an initial term of one year and each has continued on a month-to-month basis pursuant to its terms. Either party may terminate a Property Management Agreement provided it gives 30 days’ prior written notice of its desire to terminate such agreement. The Property Owner may also terminate the Property Management Agreement with cause immediately upon notice to LPI and the expiration of any applicable cure period. LPI may terminate each Property Management Agreement at any time without cause upon prior written notice to the Property Owner which, depending upon the terms of the particular Property Management Agreement, requires either 30, 60 or 90 days prior written notice. LPI may terminate the Property Management Agreement for cause if a Property Owner commits any material default under the Property Management Agreement and the default continues for a period of 30 days after notice from LPI to a Property Owner for a default or, in the case of Lofts at the Highlands, Legacy Grand at Concord, and Millennium Apartment Homes, if a monetary default continues for a period of 10 days after notice of such monetary default.

7. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company is dependent on the Advisor and the Sub-Advisor for certain services that are essential to the Company~~, including the management of the daily operations of the Company~~’s ~~investment~~completion ~~portfolio;~~of the ~~disposition~~Plan of ~~investments;~~Liquidation, ~~and~~including ~~other~~ general and administrative responsibilities. ~~The Company is also dependent on LPI to provide the property management services under the Property Management Agreements.~~ In the event that these companies are unable to provide any of the respective services, the Company will be required to obtain such services from other sources.

Environmental

As ana former owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or ~~results~~net ofassets ~~operations~~in liquidation. However, changes in applicable environmental laws and regulations, ~~the uses~~ and ~~conditions of properties in the vicinity of the Company’s property, the activities of its tenants and~~ other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.

Legal Matters

From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s ~~results~~financial ofcondition ~~operations~~ or ~~financial~~net ~~condition~~assets in liquidation, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

10. 18SUBSEQUENT EVENTS

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS LEGACY PARTNERS APARTMENT REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2017

(unaudited)

8. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

~~Distributions~~The ~~Paid~~Filing of the Articles of Dissolution

On ~~October~~April 218, ~~2017~~2018, the Company ~~paid~~filed ~~distributions~~the Articles of ~~$0.9~~Dissolution ~~million,~~with ~~which~~the ~~related~~SDAT pursuant to ~~distributions declared for September 2017 in~~ the ~~amount~~Plan of $0Liquidation.~~04460959~~ The ~~per~~Articles ~~share~~ of ~~common~~Dissolution ~~stock~~became toeffective ~~stockholders of record as of the close of business~~ on ~~September~~April 2018, ~~2017~~2018.

~~Dispositions~~As ~~Subsequent~~of April 18, 2018, the Company directed its transfer agent to ~~September~~close 30the Company’s stock transfer books and at such time cease recording stock transfers except by will, ~~2017~~intestate succession or operation of law. The right of a holder of record of the Company’s common stock to receive distributions in accordance with the Plan of Liquidation and Maryland General Corporation Law is not affected by the filing of the Articles of Dissolution.

~~Disposition~~Authorization and Payment of ~~Legacy~~the ~~Grand~~Second atLiquidating ~~Concord~~Distribution

On ~~February~~April 1827, ~~2014~~2018, the Company,’s ~~through~~board anof ~~indirect~~directors ~~wholly~~authorized ~~owned subsidiary, purchased~~ a ~~240-unit~~liquidating ~~apartment~~distribution ~~complex~~in ~~(“Legacy~~the ~~Grand~~amount atof ~~Concord”) on approximately 18.~~$4.16 ~~acres~~per share of ~~land~~common ~~located~~stock into ~~Concord, North Carolina. On October 30, 2017,~~ the Company’s ~~completed~~stockholders ~~the sale~~ of ~~Legacy~~record ~~Grand~~as atof ~~Concord~~the toclose anof ~~unaffiliated~~business ~~buyer~~on ~~for~~April ~~$32.9 million~~27, ~~net~~2018 of(the ~~closing~~“Second ~~costs~~Liquidating ~~and fees~~Distribution”). InThe ~~connection~~Second ~~with~~Liquidating ~~the~~Distribution ~~disposition~~was ofpaid ~~Legacy~~on ~~Grand~~April ~~at Concord~~30, ~~the~~2018 ~~Company repaid the entire $22.1 million principal balance~~ and ~~all~~was ~~other~~funded ~~sums~~from ~~due~~proceeds ~~under~~from ~~the~~real ~~mortgage~~estate ~~loan~~property ~~secured by Legacy Grand at Concord, including a prepayment fee of $0~~sales.~~9 million.~~

~~Disposition~~Estimated ofValue ~~Millennium~~Per ~~Apartment Homes~~Share

On ~~June~~April 727, ~~2013~~2018, the Company,’s ~~through~~board anof ~~indirect~~directors ~~wholly~~approved ~~owned~~an ~~subsidiary,~~estimated ~~purchased~~value aper ~~305-unit~~share ~~apartment~~of ~~complex~~the ~~(“Millennium~~Company’s ~~Apartment~~common ~~Homes”)~~stock onof ~~approximately 32~~$0.924, ~~acres~~effective ofApril ~~land~~27, ~~located in Greenville~~2018, ~~South~~which ~~Carolina. On~~amount ~~October~~is ~~31,~~equal ~~2017,~~to the Company’s ~~completed~~estimated ~~the~~remaining ~~sale~~net ofproceeds ~~Millennium~~from ~~Apartment~~liquidation ~~Homes~~as toof anApril ~~unaffiliated~~27, ~~buyer for $35~~2018.6 The ~~million,~~estimated ~~net~~value ofper ~~closing~~share ~~costs~~is ~~and~~based ~~fees. In~~on ~~connection with~~ the ~~disposition~~authorization of ~~Millennium Apartment Homes,~~ the ~~Company~~Second ~~repaid~~Liquidating ~~the~~Distribution ~~entire~~of $194.816 ~~million~~per ~~principal~~share ~~balance~~ and ~~all~~the ~~other~~amount ~~sums~~of ~~due~~the ~~under~~reserve ~~the~~fund ~~mortgage~~of ~~loan~~$0.24 ~~secured~~per byshare ~~Millennium~~established ~~Apartment~~by ~~Homes,~~the ~~including~~Company apursuant ~~prepayment~~to ~~fee~~the Plan of $0Liquidation.~~2 million.~~

~~Disposition~~The Company established the reserve to pay potential unknown liabilities and expenses in liquidation for which management believes there is minimal exposure. The Company anticipates it will distribute any remaining funds to stockholders by the end of ~~Legacy~~2018. However, atthere ~~Martin’s~~can ~~Point~~be no assurances as to whether there will be any reserve funds available for distribution or the timing of any such distribution.

On May 31, 2012, the Company, through an indirect wholly owned subsidiary, purchased a 256-unit apartment complex (“Legacy at Martin’s Point”) on approximately 13.2 acres of land located in the Chicago suburb of Lombard, Illinois. On October 31, 2017, the Company completed the sale of Legacy at Martin’s Point to an unaffiliated buyer for $37.6 million, net of closing costs and fees. In connection with the disposition of Legacy at Martin’s Point, the Company repaid the entire $21.5 million principal balance and all other sums due under the mortgage loan secured by Legacy at Martin’s Point, including a prepayment fee of $0.5 million.12

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PART I.	FINANCIAL INFORMATION (CONTINUED)


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 KBS Legacy Partners Apartment REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Legacy Partners Apartment REIT, Inc., a Maryland corporation, and, as required by context, KBS Legacy Partners Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Legacy Partners Apartment REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

• We ~~are~~may ~~dependent~~face onunanticipated ~~KBS Capital Advisors LLC (“KBS Capital Advisors”)~~difficulties, ~~our~~delays ~~advisor,~~or ~~and~~expenditures ~~our~~relating ~~sub-advisor~~ to ~~manage~~the ~~our~~completion ~~investments~~of ~~and~~the toPlan ~~provide~~of ~~certain other services. We are dependent on Legacy Partners~~Liquidation, ~~Inc.,~~which ~~formerly~~may ~~known~~reduce asor ~~Legacy~~delay ~~Partners~~our ~~Residential,~~payment ~~Inc. (“LPI”), an affiliate~~ of ~~our~~any ~~sub-advisor,~~additional toliquidating ~~provide property management services for our remaining real estate properties~~distributions.

• All of our executive officers, some of our directors and other key real estate professionals are also officers, managers, directors, key professionals and/or holders of a controlling interest in our advisor, the sub-advisor, our dealer manager, our property manager and other sponsor-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other programs and investors advised by our sponsors. Fees paid to our advisor in connection with the management of our properties are based on the cost of the property, not on the quality of the services rendered to us. This arrangement could result in unanticipated actions.

• We pay substantial fees to and expenses of our advisor and its affiliates and our property manager and, in connection with our public offerings, we paid substantial fees to participating broker-dealers. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders.

• Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to stockholders.

• We depend on tenants for our revenue. Revenues from our real property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults or early termination or non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.

• Although our board of directors has approved the sale of all of our assets and our dissolution pursuant to the terms of a plan of complete liquidation and dissolution (the “Plan of Liquidation”), we can give no assurance whether we will be able to obtain the stockholder approvals required to consummate the Plan of Liquidation or, if we do receive such approval, whether we will be able to successfully implement the Plan of Liquidation and sell our assets, pay our debts and distribute the net proceeds from liquidation to our stockholders as we expect.

• We can give no assurance regarding the timing of asset dispositions and the sale prices we will receive for assets and the amount and timing of liquidating distributions to be received by our stockholders.

• We may face unanticipated difficulties, delays or expenditures relating to our implementation of the Plan of Liquidation, which may reduce or delay our payment liquidating distributions.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)


•	We may face risks associated with legal proceedings, including stockholder litigation, that may be instituted against us related to the Plan of Liquidation.

• IfWe ~~our~~are ~~stockholders~~dependent doon ~~not~~KBS ~~approve~~Capital ~~the~~Advisors ~~Plan~~LLC of(“KBS ~~Liquidation~~Capital Advisors”), weour ~~may~~advisor, ~~sell~~and ~~the rest of~~ our ~~properties~~sub-advisor, ~~other~~KBS-Legacy ~~than~~Apartment ~~the~~Community ~~Core-Portfolio~~REIT ~~Properties~~Venture, LLC (~~defined~~the ~~below~~“Sub-Advisor”), which ~~would~~is ~~cause~~a ~~our~~joint ~~general~~venture ~~and~~among ~~administrative~~KBS ~~expenses~~Capital toAdvisors ~~increase~~and ~~relative~~Legacy toPartners ~~our~~Residential ~~revenue~~Realty LLC (“LPRR LLC”), ~~result~~the inco-manager ~~lower~~of ~~distributions~~the Sub-Advisor, to ~~our~~provide ~~stockholders~~certain ifother weservices ~~begin~~and ~~paying~~to ~~regular~~carry ~~monthly~~out ~~distributions~~our ~~again~~liquidation and ~~could~~dissolution ~~adversely~~pursuant ~~affect~~to ~~stockholder~~the ~~returns~~Plan of Liquidation.

•All ~~During~~forward-looking ~~any~~statements ~~calendar~~should ~~year,~~be ~~once~~read ~~we have redeemed $1.5 million of shares under our share redemption program, including shares redeemed~~ in ~~connection~~light ~~with a stockholder’s death, “qualifying disability,” or “determination~~ of ~~incompetence” (both as defined in~~ the ~~share~~applicable ~~redemption~~risks ~~program~~identified ~~and together with redemptions~~ in ~~connection~~Part ~~with a stockholder’s death~~I, ~~“Special~~Item ~~Redemptions”),~~1A ~~the remaining $0.5 million~~ of ~~the~~our ~~$2.0~~Annual ~~million~~Report ~~annual~~on ~~redemption~~Form ~~limit~~10-K ~~shall be reserved exclusively~~ for ~~Special~~the ~~Redemptions.~~year Inended ~~January~~December 31, 2017, wefiled ~~exhausted~~with the ~~$1.5~~Securities ~~million of funds available for redemptions for 2017~~ and inExchange ~~August~~Commission ~~2017, we exhausted $0.5 million of funds available for Special Redemptions for 2017. Therefore, we have no funds available for redemptions for~~ (the ~~remainder~~“SEC”) ofon ~~2017.~~March ~~As of September 30~~9, ~~2017, we had a total of $3~~2018.~~6 million of outstanding and unfulfilled ordinary redemption and Special Redemptions requests.~~

All forward-looking statements should be read in light of the risks identified herein, in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2017 and in our Definitive Proxy Statement, as filed with the SEC on September 22, 2017 (the “Proxy Statement”).

Overview

We were formed on July 31, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010 ~~and intend to continue to operate in such a manner~~. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner. On January 21, 2016, our board of directors formed a special committee (the “Special Committee”) composed of all of our independent directors to explore the availability of strategic alternatives involving us. On August 14, 2017, the Special Committee and the board of directors unanimously approved the sale of all of our real estate properties and our dissolution pursuant to the terms of our plan of complete liquidation and dissolution (the “Plan of Liquidation”). The principal purpose of the Plan of Liquidation is to maximize stockholder value by selling our real estate properties, paying our debts and distributing the net proceeds from liquidation to our stockholders. On December 19, 2017, our stockholders approved the Plan of Liquidation. On April 18, 2018, we filed articles of dissolution (the “Articles of Dissolution”) with the State Department of Assessments and Taxation of Maryland (the “SDAT”) pursuant to the Plan of Liquidation. The Articles of Dissolution became effective on April 18, 2018. As a dissolved Maryland corporation, our sole purpose is the liquidation and winding down of the business affairs of the Company in accordance with the Plan of Liquidation. See “ — Subsequent Events — The Filing of the Articles of Dissolution.”

WeOn ~~invested~~March in and manage a portfolio of high quality apartment complexes located throughout the United States. Our portfolio consists of “core” apartment complexes that were already well-positioned and producing rental income at acquisition. As of September 3029, ~~2017~~2018, we owned eight apartment complexes, all of which were under contract to sell. The sale of four of such properties (the “Core-Portfolio Properties”) is subject to stockholder approval of the Plan of Liquidation and as such, the Core-Portfolio Properties are held for investment. As of September 30, 2017, our remaining four properties were held for sale and subsequent to September 30, 2017, we completed the sale of ~~three~~our offinal ~~these~~real ~~properties. See~~estate ~~“—Subsequent Events — Dispositions Subsequent to September 30, 2017~~property.”

As our advisor, KBS Capital Advisors is responsible for managing our day-to-day operations ~~and our portfolio of real estate assets~~. Subject to the terms of the advisory agreement between KBS Capital Advisors and us, KBS Capital Advisors delegates certain advisory duties to ~~a sub-advisor, KBS-Legacy Apartment Community REIT Venture, LLC (~~the “Sub-Advisor~~”), which is a joint venture between KBS Capital Advisors and Legacy Partners Residential Realty LLC (“LPRR LLC”)~~. Notwithstanding such delegation to the Sub-Advisor, KBS Capital Advisors retains ultimate responsibility for the performance of all the matters entrusted to it under the advisory agreement. KBS Capital Advisors made recommendations on all of our investments to our board of directors. A majority of our board of directors, including a majority of our independent directors acting through the conflicts committee, approved our investments. KBS Capital Advisors, either directly or through the Sub-Advisor, also provides ~~asset-management, marketing, investor-relations and other~~ administrative services on our behalf. ~~LPI is the property manager for our real estate property investments.~~ Our Sub-Advisor owns 20,000 shares of our common stock. We have no paid employees.

On March 12, 2010, we commenced our initial public offering of 280,000,000 shares of common stock for sale to the public, of which 80,000,000 shares were offered pursuant to our dividend reinvestment plan (the “Initial Offering”). We retained KBS Capital Markets Group LLC (“KBS Capital Markets Group”), an affiliate of our advisor, to serve as the dealer manager for the Initial Offering pursuant to a dealer manager agreement dated March 12, 2010 (the “Initial Dealer Manager Agreement”).13

On May 31, 2012, we filed a registration statement on Form S-11 with the SEC to register a follow-on public offering (the “Follow-on Offering” and together with the Initial Offering, the “Offerings”). Pursuant to the Follow-on Offering registration statement, as amended, we registered up to an additional $2,000,000,000 of shares of common stock for sale to the public and up to an additional $760,000,000 of shares pursuant to our dividend reinvestment plan. The SEC declared our registration statement for the Follow-on Offering effective on March 8, 2013.

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PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

We retained KBS Capital Markets Group to serve as the dealer manager for the Follow-on Offering pursuant to a dealer manager agreement dated March 8, 2013 (the “Follow-on Dealer Manager Agreement” and together with the Initial Dealer Manager Agreement, the “Dealer Manager Agreements”). On March 12, 2013, we ceased offering shares pursuant to the Initial Offering and on March 13, 2013, we commenced offering shares to the public pursuant to the Follow-on Offering. We ceased offering shares of common stock in the primary Follow-on Offering on March 31, 2014 and completed subscription processing procedures on April 30, 2014. We terminated our dividend reinvestment plan effective as of August 20, 2017.

Through its completion on March 12, 2013, we sold 18,088,084 shares of common stock in the Initial Offering for gross offering proceeds of $179.2 million, including 368,872 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $3.5 million. In our primary Follow-on Offering, we sold 3,943,266 shares of common stock for gross offering proceeds of $39.7 million, including 2,447,068 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $23.9 million.

We sold an aggregate of 22,031,350 shares of common stock in the Offerings for gross offering proceeds of $218.9 million, including an aggregate of 2,815,940 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $27.4 million. Also, as of September 30, 2017, we had redeemed 1,024,594 shares sold in the Offerings for $9.9 million. We have used substantially all of the net proceeds from the primary Offerings to invest in and manage a portfolio of high quality apartment communities located throughout the United States as described above.

Plan of Liquidation

OnThe ~~August~~Plan ~~14, 2017, in connection with a review~~ of ~~potential~~Liquidation ~~strategic~~authorizes ~~alternatives~~us ~~available~~ to ~~us,~~undertake ~~our~~an ~~board~~orderly ofliquidation, ~~directors~~pursuant ~~unanimously~~to ~~approved~~which ~~the~~we ~~sale~~(i) ofhave sold all of our real estate properties and ~~our~~dissolved ~~dissolution~~and ~~pursuant~~(ii) towill ~~the~~pay ~~terms~~all of ~~the~~our ~~Plan~~known ~~of Liquidation~~liabilities, ~~pending~~provide ~~stockholder~~for ~~approval. The principal purpose of~~ the ~~Plan~~payment of ~~Liquidation~~our isunknown toor ~~maximize~~contingent ~~stockholder value by selling our properties~~liabilities, ~~paying~~distribute our ~~debts~~remaining ~~and~~cash ~~distributing the net proceeds from liquidation~~ to our stockholders., ~~Pursuant~~and towind up our ~~charter,~~operations. ~~the~~We ~~affirmative~~are ~~vote~~authorized ofto aprovide ~~majority~~for ofthe ~~all~~payment of ~~the~~any ~~shares~~unascertained ofor ~~common~~contingent ~~stock~~liabilities ~~entitled~~and tomay ~~vote~~do onso ~~the~~by ~~Plan~~purchasing ofinsurance, ~~Liquidation~~by isestablishing ~~required~~a ~~for~~reserve ~~approval~~fund ofor ~~the~~in ~~Plan~~other ~~of Liquidation~~ways. See We“ ~~can~~— ~~provide~~Subsequent noEvents ~~assurance~~— ~~that~~Estimated ~~the~~Value ~~Plan~~Per ~~of Liquidation will be approved by our stockholders~~Share.”

IfThe ~~the~~ Plan of Liquidation isauthorized ~~approved~~us byto ~~our~~sell ~~stockholders,~~any weand ~~expect~~all toof ~~pay~~our ~~liquidating~~assets ~~distributions~~without tofurther approval of our stockholders ~~during~~and ~~the~~provides ~~liquidation~~that ~~process~~the amounts and totiming ~~pay~~of ~~the~~any ~~final~~additional liquidating ~~distribution~~distributions ~~after~~will webe ~~sell~~determined ~~all~~by of our ~~remaining~~board ~~properties~~of directors, ~~pay~~in ~~all~~its ofdiscretion. ~~our~~Pursuant ~~known~~to ~~liabilities~~applicable ~~and~~REIT ~~provide~~rules, ~~for~~liquidating ~~unknown~~distributions ~~liabilities.~~we Wepay ~~expect~~pursuant to ~~complete~~the ~~these~~Plan ~~activities~~of ~~within~~Liquidation 12will ~~months~~qualify ~~after~~for ~~stockholder~~the ~~approval~~dividends ofpaid ~~the~~deduction, ~~Plan~~provided ofthat ~~Liquidation.~~they ~~However,~~are ~~there~~paid ~~can~~within be24 nomonths ~~assurances~~of ~~regarding~~ the ~~amounts~~December 19, 2017 approval of ~~any~~the ~~liquidating~~Plan ~~distributions~~of orLiquidation ~~the~~by ~~timing~~our ~~thereof~~stockholders.

~~Market~~Pursuant ~~Outlook~~to ─the ~~Multifamily~~Plan ~~Real~~of ~~Estate~~Liquidation, on December 20, 2017, our board of directors authorized an initial liquidating distribution in the amount of $4.05 per share of common stock to our stockholders of record as of the close of business on December 21, 2017 (the “Initial Liquidating Distribution”). The Initial Liquidating Distribution was paid on December 27, 2017 and ~~Finance~~was ~~Markets~~funded from proceeds from real estate property sales. On April 27, 2018, our board of directors authorized a liquidating distribution in the amount of $4.16 per share of common stock to our stockholders of record as of the close of business on April 27, 2018 (the “Second Liquidating Distribution”). The Second Liquidating Distribution was paid on April 30, 2018 and was funded from proceeds from real estate property sales.

Strong demand and trailing supply have been dominant themes for professionally managed, multifamily rental real estate (“Multifamily”) in the United States since the recession of 2008-2009. Although the U.S. Multifamily outlook remains positive, supply and affordability are becoming concerns in a growing number of urban core markets, most notably, New York City, San Francisco, Los Angeles, Miami and other prominent coastal cities. The beneficiaries of these “urban-core concerns” have increasingly been suburban markets. With more renters opting for the suburbs, vacancy has been declining and rents increasing in suburban markets. This trend is likely to continue, assuming the economy continues to grow and suburban markets remain affordable compared to their urban counterparts. These factors bode well for our portfolio, which is predominantly located in suburban markets.

It is approaching eight years since the recession of 2008-2009. Since that time, the U.S. economy has experienced modest, but sustained, real GDP and job growth. The pace of growth eased in 2016 however, as compared to 2014 and 2015. Real GDP growth in 2014 and 2015 was 2.4% and 2.6%, respectively, versus 1.6% for 2016. It is noteworthy that the easing of economic growth in 2016 occurred predominantly in the first half of the year. Following annualized real GDP growth of 0.8% and 1.4% in the first and second quarters of 2016, real GDP growth spiked in the third quarter to 3.5% and again eased to 2.1% in the fourth quarter. In 2017, annualized real GDP increased 1.2% and 3.1% in the first and second quarters, respectively. In terms of job growth, the United States added 3.0 and 2.7 million jobs in 2014 and 2015, respectively, versus 2.2 million jobs gained in 2016. Over the course of the first three quarters of 2017, the United States added an estimated 1.3 million jobs.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

U.S. construction of new multifamily units was at historical lows following the recession, as demand was anemic stemming from the loss of approximately 8.6 million jobs. A historical high of prime-age renters (20-34 year olds) were living with their parents waiting for the job market to recover at the time. In anticipation of the economic recovery and a release of this pent-up demand, multifamily developers began increasing the number of new construction units, rebounding from 98,000 in 2009 to over 350,000 units in 2015. In 2016, Multifamily starts remained in the 350,000 units range, outpacing demand, albeit only slightly, for the first time since the recession.

As with many Multifamily experts, we see the 2016 supply imbalance as a temporary phenomenon and unrelated to our portfolio. Supply concerns are predominantly focused in a limited number of urban core markets, and our portfolio is suburban weighted. Also, the majority of the new construction pipeline in 2017 is focused in urban core markets. Moreover, Multifamily supply is projected to slow towards historic norms over the next 1-2 years, as banks have been gradually tightening their construction lending standards and equity investors have been becoming more selective about the developments they pursue. In point of fact, for the first seven months of 2017, multifamily construction starts were down 10% as compared to the same period in 2016.

Demand remains strong and is projected to sustain Multifamily fundamentals for the next few years. Vacancy was 4.8% and 4.6% in 2014 and 2015, respectfully, and remained at 4.6% in 2016. Vacancy was 4.3% at the end of the second quarter of 2017 and is projected to remain in the 4.3% to 4.5% range through 2020, as demand continues to absorb new unit deliveries and the rate of new construction eases. Such vacancy levels compare favorably to the historical equilibrium vacancy rate of 5.6%. With more supply generally in recent years, Multifamily rent growth eased somewhat in 2016. Rent growth was 3.4% for the year, as compared to 4.2% and 5.0% in 2014 and 2015, respectively. Rent growth was down to 3.0% at the end of the second quarter of 2017; however, with persistent demand and easing supply as noted, rent growth is projected to increase to 3.7% by the end of 2018.

With Multifamily supply and affordability concerns centered primarily in urban core markets, particularly with regard to large coastal cities, more and more renters are opting for the suburbs. According to CBRE Research, the least affordable Multifamily markets in the U.S. in 2011 have become even more unaffordable in the years since then. Furthermore, according to the latest data available from the U.S. Census Bureau, 1.8 million more people moved to the suburbs than to urban cores. This shift of demand towards the suburbs is projected to continue and well located, relatively affordable (as compared to their urban core counterparts) suburban apartments are likely to continue to perform well in the short-term (2-3 years).

In the medium- and long-term, we believe the prospects for Multifamily real estate investment continue to be promising. We expect several positive demographic trends, as noted below, will drive the demand for Multifamily housing for the remainder of this decade and well into the next.

• U.S. population growth - The U.S. Census Bureau projects that the U.S. population will increase by approximately 38 million (12%) between 2015 and 2030. Note that, currently, about 36% of people choose to rent as opposed to own a home.

• Baby Boomers downsizing - The population age 65 and over is increasing, driven by Baby Boomers, from approximately 48 million in 2015 to about 74 million in 2030. Despite generally having enough income to purchase a home, many Baby Boomers are downsizing, opting for the convenience and amenities of Multifamily properties.

• Echo Boom - The children of the Baby Boom generation, dubbed the Echo Boomers, will have increased the prime rental age group, 20 to 34 year olds, by 2 million (69 million total) from 2015 to 2020. This age cohort is expected to remain at this elevated level, up 4 million from 2010, through 2030 according to the U.S. Census Bureau.

Finally, with regard to the Multifamily investment market, although interest rates increased in 2016 and again in the first half of 2017, Multifamily capitalization rates have changed very little and values have remained stable. Increasing interest rates have historically had a negative effect on Multifamily values. However, three key factors are buoying values. First, Multifamily market fundamentals, as described above, are strong and their forecast promising. Secondly, the spread between 10-year U.S. Treasuries and capitalization rates has been atypically wide in recent years and can therefore absorb modest interest rate hikes without increasing capitalization rates. Lastly, U.S. commercial real estate, including Multifamily, is a favored investment for foreign capital due to the lack of attractive risk-adjusted returns in the foreseeable future elsewhere.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources

~~Our~~As ~~principal~~of ~~demands~~March 31, ~~for~~2018, ~~funds~~we ~~during~~had ~~the~~$94.5 ~~short~~million of cash and ~~long-term~~cash ~~are~~equivalents. ~~and~~Our ~~will~~principal bedemands for funds during liquidation have been for: the payment of operating expenses, capital expenditures, and general and administrative expenses, including expenses in connection with the Plan of Liquidation ~~if approved by our stockholders~~; ~~payments~~repayment ~~under~~of debt ~~obligations~~; ~~redemptions of common stock;~~ and ~~payments~~the payment of ~~certain~~liquidating distributions to our stockholders. Topursuant ~~date,~~to ~~we have had~~ the ~~following~~Plan ~~sources~~ of ~~capital~~Liquidation. ~~for meeting our cash requirements:~~

•On ~~Proceeds~~April ~~from~~30, ~~our~~2018, ~~now-terminated~~we ~~primary~~paid ~~Offerings;~~the Second Liquidating Distribution in an aggregate amount of $87.5 million.

•On ~~Proceeds~~December ~~from~~19, 2017, in connection with the implementation of our ~~now-terminated~~Plan ~~dividend~~of ~~reinvestment~~Liquidation, ~~plan;~~our board of directors approved the termination of our share redemption program effective as of January 21, 2018. As such, December 29, 2017 was the last redemption date under the share redemption program for Special Redemptions. However, because of certain limitations on the dollar value of shares that could have been redeemed under our share redemption program, we were unable to redeem any shares on December 29, 2017.

•Going ~~Proceeds~~forward, ~~from~~we ~~asset~~expect ~~sales;~~our principal demands for funds during liquidation to be for general and administrative expenses, including expenses in connection with the Plan of Liquidation, and the possible payment of additional liquidating distributions to our stockholders pursuant to the Plan of Liquidation. We believe our cash on hand will be sufficient to meet our cash needs during the completion of our liquidation.

•On ~~Debt~~February ~~financings;~~1, 2018, we renewed our advisory agreement with our advisor, effective as of January 25, 2018. The renewed advisory agreement (i) removed our responsibility for paying any fees or compensation to our advisor for services rendered commencing with the day immediately following the date on which we sold our final real estate property, which sale occurred on March 29, 2018, (ii) removed our responsibility for paying directly or reimbursing our advisor for any of the expenses paid or incurred by our advisor on our behalf or in connection with the services provided to us commencing with the day immediately following the date on which we sold our final real estate property, and (iii) provides for the automatic termination of the advisory agreement, without further action by or on behalf of us or our advisor, upon the payment by us of the final liquidating distribution pursuant to the Plan of Liquidation and the completion of all of our advisor’s duties under the renewed advisory agreement, including without limitation, those duties relating to completing tax reporting and providing related information.

•Sales ~~Cash~~of ~~flow~~Real ~~generated by our real estate investments.~~Estate

AsDuring ~~described above under “ — Overview — Plan of Liquidation,” our board of directors unanimously approved~~ the ~~sale~~three ofmonths ~~all~~ended of our assets and our dissolution pursuant to the terms of the Plan of Liquidation. If the Plan of Liquidation is approved by our stockholders, we expect to sell all of our assets, pay all of our known liabilities, provide for unknown liabilities and distribute the net proceeds from liquidation to our stockholders. There can be no assurances regarding the amounts of any liquidating distributions or the timing thereof. We sold an aggregate of 22,031,350March ~~shares of common stock in the Offerings for gross offering proceeds of $218.9 million~~31, ~~including an aggregate of 2~~2018,~~815,940 shares~~ ~~of common stock under our dividend reinvestment plan for gross offering proceeds of $27.4 million. Also as of September 30, 2017,~~ we ~~had redeemed 1,024,594 shares~~ sold ~~in the Offerings for $9.9 million. We intend to use~~ our ~~cash~~four onremaining ~~hand, cash flow generated by our~~ real estate ~~operations and proceeds from the sale of real estate~~ properties ~~as our primary sources of immediate and long-term liquidity~~.

As of September 30, 2017, we owned eight apartment complexes, all of which were under contract to sell. The sale of the Core-Portfolio Properties is subject to stockholder approval of the Plan of Liquidation and as such, the Core-Portfolio Properties are held for investment. As of September 30, 2017, our remaining four properties were held for sale and subsequent to September 30, 2017, we completed the sale of three of these properties. See “—Subsequent Events — Dispositions Subsequent to September 30, 2017.” Our real estate investments generate cash flow in the form of rental revenues, which are reduced by operating expenditures, debt service payments, the payment of property management and asset management fees and corporate general and administrative expenses. Cash flows from operations from our real estate investments is primarily dependent upon the occupancy level of our properties, the net effective rental rates on our leases, the collectibility of rent and how well we manage our expenditures. Cash flows from operations from our real estate investments has been reduced as a result of real estate property sales and will continue to be reduced as we sell additional real estate properties. As of September 30, 2017, real estate held for investment was 93% occupied. 14

As of September 30, 2017, our total debt outstanding was $214.9 million. We limit our total liabilities to 75% of the cost (before deducting depreciation and other non-cash reserves) of our tangible assets; however, we may exceed that limit if a majority of the conflicts committee approves each borrowing in excess of this limitation and we disclose such borrowing to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of September 30, 2017, our borrowings and other liabilities were approximately 59% of the cost (before deducting depreciation and other non-cash reserves) of our tangible assets. As of September 30, 2017, we had a total of $162.4 million of debt obligations scheduled to mature within the next two years. Subsequent to September 30, 2017, we repaid $63.4 million of debt in connection with the dispositions of three of our properties. See “—Subsequent Events — Dispositions Subsequent to September 30, 2017.”

We paid distributions to our stockholders during the nine months ended September 30, 2017 using a combination of cash flows from operations and proceeds from the disposition of one real estate asset, Wesley Village. As described in the Proxy Statement, subsequent to our payment of the September 2017 monthly distribution, we ceased paying regular monthly distributions. We do not expect to pay regular monthly distributions. However, if the Plan of Liquidation is not approved by our stockholders, we intend to pursue a longer-term business plan for the Core-Portfolio Properties and sell our remaining properties. We would likely distribute a portion of the net proceeds from such property sales to our stockholders. We may begin paying regular monthly distributions again, but such distributions likely would be at an amount less than our previous regular monthly distributions, as would be appropriate for our smaller size. We can give no assurance, however, that these expectations would be realized. We believe that our cash flows from operations, cash on hand and proceeds from asset sales are sufficient to meet our liquidity needs for the foreseeable future.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~Under~~Legacy ~~our~~at ~~charter,~~Valley weRanch 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 has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended September 30, 2017 did not exceed the charter-imposed limitation.

On ~~April~~October 526, ~~2017~~2010, ~~our~~we, ~~board~~through ofan ~~directors~~indirect ~~approved~~wholly anowned ~~estimated~~subsidiary, ~~value~~purchased ~~per~~a ~~share~~504-unit ofapartment ~~our~~complex ~~common~~(“Legacy ~~stock~~at ofValley ~~$8.35,~~Ranch”) ~~effective~~on ~~April~~approximately 20~~, 2017~~. ~~The~~3 ~~estimated~~acres ~~value~~of ~~per~~land ~~share~~located isin ~~equal to~~ the ~~estimated~~Valley ~~value~~Ranch ~~per~~community ~~share~~ of ~~our~~Irving, ~~common stock of $9~~Texas.35 On ~~approved~~February ~~by our board of directors on December 9~~8, ~~2016~~2018, ~~reduced~~we ~~for~~completed the ~~impact~~sale of ~~the~~Legacy ~~special~~at ~~distribution~~Valley ofRanch ~~$1.00 per share paid~~ to ~~our~~an ~~stockholders~~unaffiliated ofbuyer ~~record~~for as$67.5 ~~of the close of business on April 20~~million, ~~2017, which was paid on May 1, 2017 and funded from the~~ net ~~proceeds from the sale~~ of ~~Wesley~~closing ~~Village (the “Special Distribution”)~~credits. ~~Any~~The ~~future~~liquidation ~~special~~value ~~distributions~~of weLegacy ~~pay~~at ~~from~~Valley ~~the~~Ranch ~~proceeds~~as of ~~future~~December ~~dispositions~~1, ~~will~~2017 ~~further~~was ~~reduce~~$67.5 ~~our estimated value per share~~million.

~~Cash~~Crystal ~~Flows~~Park ~~from~~at ~~Operating Activities~~Waterford

AsOn ofMay ~~September 30~~8, ~~2017~~2013, we ~~owned eight apartment complexes~~, ~~all~~through ofan ~~which~~indirect ~~were~~wholly ~~under~~owned ~~contract~~subsidiary, topurchased ~~sell. The~~a ~~sale of the Core~~314-~~Portfolio~~unit ~~Properties~~apartment iscomplex ~~subject~~(“Crystal toPark ~~stockholder~~at ~~approval~~Waterford”) ofon ~~the~~approximately ~~Plan~~16.3 acres of ~~Liquidation~~land ~~and~~located asin ~~such~~Frederick, ~~the Core-Portfolio Properties are held for investment~~Maryland. AsOn ofFebruary ~~September 30~~8, ~~2017~~2018, ~~our remaining four properties were held for sale and subsequent to September 30, 2017,~~ we completed the sale of ~~three~~Crystal ofPark ~~these~~at ~~properties. During~~Waterford ~~the~~to ~~nine~~an ~~months~~unaffiliated ~~ended~~buyer ~~September 30,~~for ~~2017~~$45.7 million, net ~~cash~~of ~~provided~~closing ~~by operating activities was $6~~credits.9 ~~million. We~~The ~~expect~~liquidation ~~our~~value ~~cash~~of ~~flows~~Crystal ~~from~~Park ~~operations~~at toWaterford ~~decrease~~ as ~~a result~~ of ~~prior~~December ~~disposition~~1, ~~and~~2017 ~~anticipated~~was ~~dispositions~~$45.7 ~~of real estate investments~~million.

~~Cash~~Lofts ~~Flows~~at ~~from~~the ~~Investing Activities~~Highlands

~~Net~~On ~~cash~~February ~~provided~~25, by2014, ~~investing~~we, ~~activities~~through ~~was~~an ~~$120.2~~indirect ~~million~~wholly ~~for~~owned subsidiary, purchased a 200-unit apartment complex (the ~~nine~~“Lofts ~~months~~at ~~ended~~the ~~September 30~~Highlands”) on approximately 2.8 acres of land located in St. Louis, ~~2017~~Missouri. On ~~and~~March ~~consisted~~28, ~~primarily~~2018, we completed the sale of the ~~following:~~Lofts at the Highlands to an unaffiliated buyer for $44.4 million. The liquidation value of the Lofts at the Highlands as of December 1, 2017 was $44.4 million.

•The ~~$121.3~~Residence ~~million~~at ~~of proceeds from the sale of three apartment complexes; and~~Waterstone

•On April 6, 2012, we, through an indirect wholly owned subsidiary, purchased a 255-unit apartment complex (“The Residence at Waterstone”) on approximately 25.2 acres of land located in northwest Baltimore suburb of Pikesville, Maryland. On March 29, 2018, we completed the sale of The Residence at Waterstone to an unaffiliated buyer for $159.89 million, ~~used~~net ~~for~~of ~~improvements~~closing tocredits. The ~~real~~liquidation ~~estate~~value of The Residence at Waterstone as of December 1, 2017 was $59.9 million.

~~Cash~~Changes ~~Flows~~in ~~from~~Net ~~Financing~~Assets ~~Activities~~in Liquidation

~~Net~~For ~~cash used in financing activities was $96.6 million for~~ the ~~nine~~Three ~~months~~Months ~~ended~~Ended ~~September 30~~March 31, ~~2017 and consisted primarily of the following:~~2018

•Net assets in liquidation decreased by approximately $670.78 million offrom ~~principal~~$93.3 ~~payments~~million on ~~our~~December ~~mortgage~~31, ~~notes~~2017 ~~payable;~~to $92.6 million on March 31, 2018. The primary reason for the decline in net assets in liquidation was due to a change in estimated closing costs of $0.7 million.

•The net assets in liquidation as of March 31, 2018 would result in the payment of estimated liquidating distributions of approximately $264.340 ~~million~~per share of ~~net~~common ~~cash~~stock ~~distributions~~to our stockholders of record as of March 31, ~~after~~2018, ~~giving~~which ~~effect~~amount toincludes ~~dividends~~the ~~reinvested~~Second byLiquidating ~~stockholders~~Distribution. See “ — Subsequent Events — Authorization and Payment of $3the Second Liquidating Distribution.0” This ~~million;~~estimate of liquidating distributions includes projections of costs and expenses to be incurred during the estimated period required to complete the Plan of Liquidation.

• $2.0 million of cash used for redemptions of common stock.

In addition to using our capital resources to meet our debt service obligations, for capital expenditures and for operating costs, we use our capital resources to make certain payments to our advisor. We paid our advisor fees in connection with the management and disposition of our assets and for certain costs incurred by our advisor in providing services to us. Among the fees payable to our advisor is an asset management fee.

Advisory Agreement - Asset Management Fee

Pursuant to the advisory agreement, the asset management fee payable by us to our advisor with respect to investments in real estate is a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs (regardless of the level of debt used to finance the investment), and (ii) 2.0% of the amount paid or allocated to fund the acquisition, development, construction or improvement of the property (whether at or subsequent to acquisition), including acquisition expenses and budgeted capital improvement costs, less any debt used to finance the investment.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The advisory agreement defers our obligation to pay asset management fees, without interest, accruing from February 1, 2013 through July 31, 2013. We will only be obligated to pay our advisor such deferred amounts if and to the extent that our funds from operations, as such term is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) and interpreted by us, as adjusted for the effects of straight-line rents and acquisition costs and expenses (“AFFO”) for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “AFFO Surplus”). The amount of any AFFO Surplus in a given month shall be applied first to pay our advisor’s asset management fees currently due with respect to such month (including any that would otherwise have been deferred for that month in accordance with the advisory agreement) and then to pay asset management fees previously deferred by our advisor in accordance with the advisory agreement that remain unpaid. As of September 30, 2017, we had deferred payment of $1.5 million of asset management fees for the period from February 2013 through July 2013, but did not record an accrual on our books as we believed that the chance of payment of this amount to our advisor is remote.

In addition, the advisory agreement defers without interest under certain circumstances, our obligation to pay asset management fees accruing from August 1, 2013. Specifically, the advisory agreement defers our obligation to pay an asset management fee for any month in which our modified funds from operations (“MFFO”) for such month, as such term is defined in the practice guideline issued by the Investment Program Association (“IPA”) in November 2010 and interpreted by us, excluding asset management fees, does not exceed the amount of distributions declared by us for record dates of that month. We remain obligated to pay our advisor an asset management fee in any month in which our MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an “MFFO Surplus”); however, any amount of such asset management fee in excess of the MFFO Surplus is also deferred under the advisory agreement. If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will not be applied to pay asset management fee amounts previously deferred by our advisor in accordance with the advisory agreement. As of September 30, 2017, we had deferred payment of $8.0 million of asset management fees for the period from August 2013 through December 2016, but did not record an accrual on our books as we do not expect to pay this amount to our advisor. During the nine months ended September 30, 2017, we incurred $2.0 million of asset management fees. However, we only recorded $0.2 million pursuant to the limitations in the advisory agreement as noted above. We did not accrue the remaining $1.8 million of these deferred asset management fees as it is not expected that any of these amounts will be paid in the future.

However, notwithstanding any of the foregoing, any and all deferred asset management fees shall be immediately due and payable at such time as our stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption plan, and (ii) an 8.0% per year cumulative, non-compounded return on such net invested capital (the “Stockholders’ 8% Return”). The Stockholders’ 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to receive deferred asset management fees. During the year ended December 31, 2016, we reversed, as described above, an aggregate of $4.8 million of deferred asset management fees that were previously accrued. We believed the the chance of payment of the deferred asset management fees is remote based on the estimated value per share and management’s current projection of cash flow and distributions to our stockholders.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of September 30, 2017 (in thousands):

			Payments Due During the Years Ending December 31,
Contractual Obligations	Total		Remainder of 2017		2018-2019		2020-2021		Thereafter
Outstanding debt obligations (1)	$	214,937	$	1,125	$	163,043	$	1,736	$	49,033
Interest payments on outstanding debt obligations (2)	47,840		1,892		10,435		3,670		31,843

(1) Amounts include principal payments only.

(2) Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as of September 30, 2017. We incurred interest expense of $6.8 million, excluding amortization of deferred financing costs and discount on notes payable of $0.4 million, for the nine months ended September 30, 2017.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations

As of September 30, 2016, we owned 11 apartment complexes. Subsequent to September 30, 2016, we sold three apartment complexes. As a result, as of September 30, 2017, we owned eight apartment complexes, of which four apartment complexes were held for sale. The results of operations presented for the three and nine months ended September 30, 2017 and 2016 are not directly comparable due to the dispositions of three apartment complexes subsequent to January 1, 2017.

Our results of operations for the nine months ended September 30, 2017 are not indicative of those expected in future periods due to asset sales and anticipated asset sales. If the Plan of Liquidation is approved by our stockholders, we will undertake an orderly liquidation by selling all of our assets, paying our known liabilities, providing for unknown liabilities and distributing the net proceeds from liquidation to our stockholders. There can be no assurances regarding the amounts of any liquidating distributions or the timing thereof. In general, we expect that our revenues and expenses related to our portfolio will decrease in future periods due to anticipated disposition activity.

Comparison of the three months ended September 30, 2017 versus the three months ended September 30, 2016

The following table provides summary information about our results of operations for the three months ended September 30, 2017 and 2016 (dollar amounts in thousands):

	Three Months Ended September 30,					Increase (Decrease)			Percentage Change		$ Change Due to Dispositions (1)			$ Change Due to Properties Held Throughout Both Periods (2)
	2017			2016
Rental income	$	10,111		$	11,498	$	(1,387	)	(12	)%	$	(1,305	)	$	(82	)
Operating, maintenance, and management costs	1,528			1,671		(143		)	(9	)%	(229		)	86
Real estate taxes and insurance	1,712			1,797		(85		)	(5	)%	(104		)	19
Asset management fees to affiliate	—			104		(104		)	(100	)%	n/a			n/a
Property management fees and expenses to affiliate	1,432			1,506		(74		)	(5	)%	(61		)	(13		)
General and administrative expenses	1,082			473		609			129	%	n/a			n/a
Depreciation and amortization expense	2,621			3,084		(463		)	(15	)%	(342		)	(121		)
Interest expense	2,320			2,588		(268		)	(10	)%	(228		)	(40		)
Interest and other income	31			4,765		(4,734		)	(99	)%	—			(4,734		)
Gain on sale of real estate, net	14,653			—		14,653			100	%	14,653			—
Loss from extinguishment of debt	(403		)	—		(403		)	(100	)%	(403		)	—

(1) Represents the dollar amount increase (decrease) for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 related to real estate disposed of on or after July 1, 2016.

(2) Represents the dollar amount increase (decrease) for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 related to real estate owned by us throughout both periods presented.

Rental income decreased from $11.5 million for the three months ended September 30, 2016 to $10.1 million for the three months ended September 30, 2017, primarily due to the dispositions of three apartment complexes subsequent to July 1, 2016. We expect rental income to decrease as a result of anticipated dispositions of real estate investments.

Operating, maintenance and management costs and real estate taxes and insurance decreased from $3.5 million for the three months ended September 30, 2016 to $3.2 million for the three months ended September 30, 2017 primarily due to the dispositions of three apartment complexes subsequent to July 1, 2016. We expect operating, maintenance and management costs and real estate taxes and insurance to decrease as a result of anticipated dispositions of real estate investments.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Asset management fees to affiliate with respect to our real estate investments was $0.1 million for the three months ended September 30, 2016. During the three months ended September 30, 2016, we incurred $0.7 million of asset management fees, of which $0.1 million was recorded based on certain payment limitations in the advisory agreement. The remaining $0.6 million of asset management fees were deferred but not accrued as it is not expected that any of these amounts will be paid in the future. During the three months ended September 30, 2017, we incurred $0.7 million of asset management fees, none of which was recorded based on certain payment limitations in the advisory agreement. The entire $0.7 million of asset management fees were deferred but not accrued as it is not expected that any of these amounts will be paid in the future. For a discussion of the asset management fee payable by us to our advisor and the deferrals of the asset management fee, see “Liquidity and Capital Resources — Advisory Agreement — Asset Management Fee” herein.

Property management fees and expenses to affiliate decreased from $1.5 million for the three months ended September 30, 2016 to $1.4 million for the three months ended September 30, 2017 primarily due to the dispositions of three apartment complexes subsequent to July 1, 2016. We expect our property management fees and expenses to affiliate to decrease as a result of anticipated dispositions of real estate investments.

General and administrative expenses increased from $0.5 million for the three months ended September 30, 2016 to $1.1 million for the three months ended September 30, 2017. This increase was primarily due to legal fees incurred related to liquidation matters and anticipated dispositions of real estate investments and an increase in other professional fees related to the engagement of Robert A. Stanger & Co., Inc. (“Stanger”) by the special committee of our board of directors to act as our financial advisor in connection with the exploration of strategic alternatives. Overall, we expect general and administrative expenses to vary in future periods pending the approval of our dissolution pursuant to the terms of the Plan of Liquidation by a majority of our stockholders and anticipated dispositions of real estate investments.

Depreciation and amortization expense decreased from $3.1 million for the three months ended September 30, 2016 to $2.6 million for the three months ended September 30, 2017 primarily due to the dispositions of three apartment complexes subsequent to July 1, 2016 and four apartment complexes that were classified as held for sale as of September 30, 2017. Upon classifying a property as held for sale, we cease depreciation and amortization expense for that property. Overall, we expect depreciation and amortization expense to decrease in future periods as a result of anticipated dispositions of real estate investments.

Interest expense decreased from $2.6 million for the three months ended September 30, 2016 to $2.3 million for the three months ended September 30, 2017 primarily due to an overall decrease in our total debt outstanding due to loan repayments in connection with the dispositions of three apartment complexes subsequent to July 1, 2016. In general, we expect our interest expense to decrease in future periods as a result of anticipated dispositions of real estate investments.

Interest and other income decreased from $4.8 million for the three months ended September 30, 2016 to $31,000 for the three months ended September 30, 2017. Interest and other income for the three months ended September 30, 2016 of $4.8 million relates to the reversal of previously deferred and accrued asset management fees of $1.5 million for the period from February 2013 through July 2013 and $3.3 million for the period from August 2013 through December 2014 as we do not expect to pay these amounts to our advisor. For a discussion of the asset management fee payable by us to our advisor and the deferrals of the asset management fee, see “—Liquidity and Capital Resources — Advisory Agreement — Asset Management Fee” herein.

We recognized a gain on sale of real estate of $14.7 million, net of disposition fees of $0.4 million paid to our advisor, related to the dispositions of two apartment complexes during the three months ended September 30, 2017. We did not sell any real estate properties during the three months ended September 30, 2016.

During the three months ended September 30, 2017, we recognized a loss on extinguishment of debt of $0.4 million related to the repayment of the mortgage loans secured by a real estate property we sold. We did not recognize any loss on extinguishment of debt during the three months ended September 30, 2016.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the nine months ended September 30, 2017 versus the nine months ended September 30, 2016

The following table provides summary information about our results of operations for the nine months ended September 30, 2017 and 2016 (dollar amounts in thousands):

	Nine Months Ended September 30,					Increase (Decrease)			Percentage Change		$ Change Due to Dispositions (1)			$ Change Due to Properties Held Throughout Both Periods (2)
	2017			2016
Rental income	$	31,458		$	34,019	$	(2,561	)	(8	)%	$	(2,633	)	$	72
Operating, maintenance, and management costs	4,435			4,854		(419		)	(9	)%	(399		)	(20		)
Real estate taxes and insurance	5,347			5,248		99			2	%	(155		)	254
Asset management fees to affiliate	234			343		(109		)	(32	)%	n/a			n/a
Property management fees and expenses to affiliate	4,422			4,359		63			1	%	(17		)	80
General and administrative expenses	2,190			1,947		243			12	%	n/a			n/a
Depreciation and amortization expense	8,384			9,201		(817		)	(9	)%	(759		)	(58		)
Interest expense	7,180			7,758		(578		)	(7	)%	(447		)	(131		)
Interest and other income	106			4,793		(4,687		)	(98	)%	—			(4,687		)
Gain on sale of real estate, net	31,123			—		31,123			100	%	31,123			—
Loss from extinguishment of debt	(671		)	—		(671		)	(100	)%	(671		)	—

(1) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 related to real estate disposed of on or after January 1, 2016.

(2) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 related to real estate owned by us throughout both periods presented.

Rental income decreased from $34.0 million for the nine months ended September 30, 2016 to $31.5 million for the nine months ended September 30, 2017, primarily due to the dispositions of three apartment complexes during the nine months ended September 30, 2017. We expect rental income to decrease as a result of anticipated dispositions of real estate investments.

Operating, maintenance and management costs and real estate taxes and insurance decreased from $10.1 million for the nine months ended September 30, 2016 to $9.8 million for the nine months ended September 30, 2017 primarily due to the dispositions of three apartment complexes during the nine months ended September 30, 2017, partially offset by an increase due to property tax reassessments. We expect operating, maintenance and management costs and real estate taxes and insurance to decrease as a result of anticipated dispositions of real estate investments.

Asset management fees to affiliate with respect to our real estate investments decreased slightly from $0.3 million to $0.2 million for the nine months ended September 30, 2016 and 2017, respectively. During the nine months ended September 30, 2016, we incurred $2.2 million of asset management fees, of which $0.3 million was recorded based on certain payment limitations in the advisory agreement. The remaining $1.9 million of asset management fees were deferred but not accrued as it is not expected that any of these amounts will be paid in the future. During the nine months ended September 30, 2017, we incurred $2.0 million of asset management fees, of which $0.2 million was recorded based on certain payment limitations in the advisory agreement. The remaining $1.8 million of asset management fees were deferred but not accrued as it is not expected that any of these amounts will be paid in the future. For a discussion of the asset management fee payable by us to our advisor and the deferrals of the asset management fee, see “Liquidity and Capital Resources — Advisory Agreement — Asset Management Fee” herein.

General and administrative expenses increased from $1.9 million for the nine months ended September 30, 2016 to $2.2 million for the nine months ended September 30, 2017. This increase was primarily due to legal fees incurred related to liquidation matters and anticipated dispositions of real estate investments and a net increase in other professional fees related to the engagement of Stanger by the special committee of our board of directors to act as our financial advisor. Overall, we expect general and administrative expenses to vary in future periods pending the approval of our dissolution pursuant to the terms of the Plan of Liquidation by a majority of our stockholders and anticipated dispositions of real estate investments.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Depreciation and amortization expense decreased from $9.2 million for the nine months ended September 30, 2016 to $8.4 million for the nine months ended September 30, 2017 primarily due to the dispositions of three apartment complexes during the nine months ended September 30, 2017. Overall, we expect depreciation and amortization expense to decrease in future periods as a result of anticipated dispositions of real estate investments.

Interest expense decreased from $7.8 million for the nine months ended September 30, 2016 to $7.2 million for the nine months ended September 30, 2017. The decrease in interest expense is primarily due to an overall decrease in our total debt outstanding due to loan repayments in connection with the dispositions of three apartment complexes during the nine months ended September 30, 2017, and an overall decrease in the average loan balance of our existing notes payable related to properties held throughout both periods. In general, we expect our interest expense to decrease in future periods as a result of anticipated dispositions of real estate investments.

Interest and other income decreased from $4.8 million for the three months ended September 30, 2016 to $0.1 million for the three months ended September 30, 2017. Interest and other income for the nine months ended September 30, 2016 of $4.8 million relates to the reversal of previously deferred and accrued asset management fees of $1.5 million for the period from February 2013 through July 2013 and $3.3 million for the period from August 2013 through December 2014 as we do not expect to pay these amounts to our advisor. For a discussion of the asset management fee payable by us to our advisor and the deferrals of the asset management fee, see “—Liquidity and Capital Resources — Advisory Agreement — Asset Management Fee” herein.

We recognized a gain on sale of real estate of $31.1 million, net of disposition fees of $0.8 million paid to our advisor, related to the dispositions of three apartment complexes during the nine months ended September 30, 2017. We did not sell any real estate properties during the nine months ended September 30, 2016.

During the nine months ended September 30, 2017, we recognized a loss on extinguishment of debt of $0.7 million related to the repayment of the mortgage loans secured by two real estate properties we sold. We did not recognize any loss on extinguishment of debt during the nine months ended September 30, 2016.

Funds from Operations and Modified Funds from Operations and Adjusted MFFO

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current NAREIT definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets 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 to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating and financing activities.

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses MFFO as an indicator of our ongoing performance. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the IPA in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

In addition, our management uses an adjusted MFFO (“Adjusted MFFO”) as an indicator of our ongoing performance. Adjusted MFFO provides an adjustment to MFFO to exclude a reversal of accrued asset management fees, which management does not believe reflects the operating performance of our investments and does not provide an indication of future operating performance.

We believe that MFFO and Adjusted MFFO are helpful measures of ongoing operating performance because they exclude non-operating items included in FFO. Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO and Adjusted MFFO provide comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

FFO, MFFO and Adjusted MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO, MFFO and Adjusted MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO, MFFO and Adjusted MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO, MFFO and Adjusted MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO, MFFO and Adjusted MFFO, in addition to net income and cash flows from operations as defined by GAAP, are meaningful supplemental performance measures; however, neither FFO, MFFO nor Adjusted MFFO reflects adjustments for the operations of properties sold or held for sale during the periods presented. During periods of significant disposition activity, FFO, MFFO and Adjusted MFFO are much more limited measures of future performance.

For the periods presented, MFFO adjustments consist of the exclusion of the amortization of a discount on a note payable and the exclusion of loss from the extinguishment of debt. We have excluded these items based on the following economic considerations:

• Amortization of a discount on a note payable. Discounts on debt are amortized over the term of the loan as an adjustment to interest expense. This application results in interest expense recognition that is different than the underlying contractual terms of the debt. We have excluded the amortization of a discount in our calculation of MFFO to more appropriately reflect the economic impact of our debt as the amortization of a discount has no ongoing economic impact on our operations. We believe excluding this item provides investors with a useful supplemental metric that directly addresses core operating performance; and

• Loss from extinguishment of debt. A loss from extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculation of MFFO and Adjusted MFFO, for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Net income	$	13,697		$	5,040		$	29,824		$	5,102
Depreciation of real estate assets	2,620			3,083			8,381			9,199
Amortization of lease-related costs	1			1			3			2
Gain on sale of real estate, net	(14,653		)	—			(31,123		)	—
FFO	1,665			8,124			7,085			14,303
Amortization of discount on note payable	22			22			66			65
Loss from extinguishment of debt	403			—			671			—
MFFO	2,090			8,146			7,822			14,368
Reversal of accrued asset management fees (1)	—			(4,752		)	—			(4,752		)
Adjusted MFFO	$	2,090		$	3,394		$	7,822		$	9,616

(1) Relates to reversal of previously deferred and accrued asset management fees of $1.5 million for the period from February 2013 through July 2013 and $3.3 million for the period from August 2013 through December 2014 as we do not expect to pay these amounts to our advisor.

FFO, MFFO and Adjusted MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.

Distributions

From time to time during our operational stage, we may not be able to pay distributions solely from our cash flows from operations or FFO, in which case distributions may be paid in whole or in part from cash on hand, proceeds from asset sales and/or from proceeds from our dividend reinvestment plan. We terminated our dividend reinvestment plan effective as of August 20, 2017. Distributions declared, distributions paid and cash flows from operations were as follows for the first, second and third quarters of 2017 (in thousands, except per share amounts):

Period	Distributions Declared (1)		Distribution Declared Per Share (1)		Distributions Paid (2)						Cash Flows from Operations
					Cash		Reinvested		Total
First Quarter 2017	$	3,346	$	0.160	$	1,983	$	1,365	$	3,348	$	1,753
Second Quarter 2017	22,807		1.091		22,184		841		23,025		3,995
Third Quarter 2017	2,875		0.137		2,124		747		2,871		1,187
	$	29,028	$	1.388	$	26,291	$	2,953	$	29,244	$	6,935

_____________________

(1) Distributions declared per share of common stock were based on daily record dates for each day during the period commencing January 1, 2017 through February 28, 2017. For each day that was a record date for distributions during this period, distributions were calculated at a rate of $0.00178082 per share per day. For the month of March 2017 and for the period from May 2017 through September 2017, the Company’s board of directors declared monthly distributions based on a monthly record date. Additionally, the Company’s board of directors declared a special distribution in the amount $1.00 per share of common stock to stockholders of record as of the close of business on April 20, 2017. Distributions declared per share of common stock assumes each share was issued and outstanding each day that was a record date for distributions during the period presented.

(2) Other than special distributions, distributions were paid on a monthly basis. In general, distributions for all record dates of a given month are paid on or about the first business day of the following month.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

For the nine months ended September 30, 2017, we paid aggregate distributions of $29.2 million, including $26.3 million of distributions paid in cash and $2.9 million of distributions reinvested through our dividend reinvestment plan. FFO for the nine months ended September 30, 2017 was $7.1 million and cash flows from operations was $6.9 million. We funded our total distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with $20.9 million from the proceeds from the sale of Wesley Village and $8.3 million of cash flows from operations and cash on hand. For the purposes of determining the source of our distributions paid, we assume first that we use cash flows from operations from the relevant periods to fund distribution payments. All non-operating expenses (including general and administrative expenses to the extent not covered by cash flows from operations), debt service and other obligations are assumed to be paid from our dividend reinvestment plan as permitted by our offering documents and loan agreements. See the reconciliation of FFO to net income above.

As described in the Proxy Statement, subsequent to our payment of the September 2017 monthly distribution, we ceased paying regular monthly distributions. We do not expect to pay regular monthly distributions. However, if the Plan of Liquidation is not approved by our stockholders, we intend to pursue a longer-term business plan for the Core-Portfolio Properties and sell our remaining properties. We would likely distribute a portion of the net proceeds from such property sales to our stockholders. We may begin paying regular monthly distributions again, but such distributions likely would be at an amount less than our previous regular monthly distributions, as would be appropriate for our smaller size. We can give no assurance, however, that these expectations would be realized.

From inception through September 30, 2017, we paid aggregate distributions of $86.0 million, and our cumulative net income for the same period was $10.1 million.

In addition, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward - Looking Statements,” “Market Outlook — MultiFamily Real Estate and Finance Markets,” “Liquidity and Capital Resources” and “Results of Operations” herein, the risks discussed in Part II, Item 1A “Risk Factors” herein, the risks in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 10, 2017, and in the Proxy Statement. Those factors include: the future operating performance of our investments in the existing real estate and financial environment, our ability to refinance existing indebtedness at comparable terms and our ability to successfully dispose of some of our assets pursuant to our execution of our strategic alternatives. In the event our FFO and/or cash flows from operations decrease further in the future as a result of the disposition of additional real estate investments, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flows from operations.

Critical Accounting Policies

~~Our~~Below ~~consolidated~~is ~~interim~~a ~~financial~~discussion ~~statements~~of ~~and~~the ~~condensed~~accounting ~~notes~~policies ~~thereto~~that ~~have~~management ~~been~~believes ~~prepared~~are inor ~~accordance~~will ~~with~~be ~~GAAP~~critical ~~and~~during inour ~~conjunction with the rules and regulations of the SEC~~liquidation. ~~The~~We ~~preparation~~consider ofthese ~~our~~policies ~~financial~~critical ~~statements~~in ~~requires~~that they involve significant management judgments, and assumptions, ~~and~~require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of ~~assets and~~ liabilities and our disclosure of contingent ~~assets and~~ liabilities as of the dates of the financial statements ~~and the reported amounts of revenue and expenses during the reporting periods~~. With different estimates or assumptions, materially different amounts could be reported in our financial statements. ~~Additionally,~~ other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. There have been no significant changes to our policies during 2017.

Pursuant 33to our stockholders’ approval of the Plan of Liquidation, we adopted the liquidation basis of accounting as of December 1, 2017 (as the approval of the Plan of Liquidation by our stockholders became imminent within the last week of November 2017 based on the results of our solicitation of proxies from our stockholders for their approval of the Plan of Liquidation) and for the periods subsequent to December 1, 2017 in accordance with GAAP. Accordingly, on December 1, 2017, assets were adjusted to their estimated net realizable value, or liquidation value, which represented the estimated amount of net cash that we would collect on disposal of assets as we carry out our Plan of Liquidation. Liabilities are carried at their contractual amounts due or estimated settlement amounts.

Table of Contents


PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The costs and expenses that we expect to incur through the completion of our liquidation are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Condensed Consolidated Statement of Net Assets. Actual costs may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. See Note 4, “Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation” for further discussion. Actual costs incurred but unpaid as of March 31, 2018 are included in accounts payable and accrued liabilities and due to affiliates on the Condensed Consolidated Statement of Net Assets.

Accrued Liquidation Costs

In accordance with the liquidation basis of accounting, we accrue for certain estimated liquidation costs to the extent we have a reasonable basis for estimation. These consist of legal fees, dissolution costs, final audit/tax costs, fees paid to financial advisors, insurance, and distribution processing costs.

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

~~Distributions~~The ~~Paid~~Filing of the Articles of Dissolution

On ~~October~~April 218, ~~2017~~2018, we ~~paid~~filed ~~distributions~~the Articles of ~~$0.9~~Dissolution ~~million,~~with ~~which~~the ~~related~~SDAT pursuant to ~~distributions declared for September 2017 in~~ the ~~amount~~Plan of $0Liquidation.~~04460959~~ The ~~per~~Articles ~~share~~ of ~~common~~Dissolution ~~stock~~became toeffective ~~stockholders of record as of the close of business~~ on ~~September~~April 2018, ~~2017~~2018.

~~Dispositions~~On ~~Subsequent~~April 18, 2018, we directed our transfer agent to ~~September~~close 30our stock transfer books and at such time cease recording stock transfers except by will, ~~2017~~intestate succession or operation of law. The right of a holder of record of our common stock to receive distributions in accordance with the Plan of Liquidation and Maryland General Corporation Law is not affected by the filing of the Articles of Dissolution.

~~Disposition~~Authorization and Payment of ~~Legacy~~the ~~Grand~~Second atLiquidating ~~Concord~~Distribution

On ~~February~~April 1827, ~~2014~~2018, ~~we,~~our ~~through~~board anof ~~indirect~~directors ~~wholly~~authorized ~~owned~~the ~~subsidiary,~~Second ~~purchased~~Liquidating aDistribution ~~240-unit~~in ~~apartment~~the ~~complex~~amount ~~(“Legacy Grand at Concord”) on approximately 18.4 acres~~ of ~~land located in Concord, North Carolina~~$4. On16 ~~October~~per ~~30,~~share ~~2017, we completed the sale~~ of ~~Legacy~~common ~~Grand~~stock ~~at Concord~~ to anour ~~unaffiliated~~stockholders ~~buyer~~of ~~for~~record ~~$32.9~~as ~~million, net~~ of ~~closing costs and fees. In connection with~~ the ~~disposition~~close of ~~Legacy~~business ~~Grand~~on atApril ~~Concord~~27, ~~we repaid the entire $22~~2018.1 The ~~million~~Second ~~principal~~Liquidating ~~balance~~Distribution ~~and~~was ~~all~~paid ~~other~~on ~~sums~~April ~~due~~30, ~~under~~2018 ~~the~~and ~~mortgage~~was ~~loan~~funded ~~secured~~from byproceeds ~~Legacy~~from ~~Grand~~real atestate ~~Concord,~~property ~~including a prepayment fee of $0~~sales.~~9 million.~~

~~Disposition~~Estimated ofValue ~~Millennium~~Per ~~Apartment Homes~~Share

On ~~June~~April 727, ~~2013~~2018, ~~we,~~our ~~through~~board anof ~~indirect~~directors ~~wholly~~approved ~~owned~~an ~~subsidiary,~~estimated ~~purchased~~value aper ~~305-unit~~share ~~apartment~~of ~~complex~~our ~~(“Millennium~~common ~~Apartment~~stock ~~Homes”) on approximately 32.9 acres~~ of ~~land located in Greenville~~$0.24, ~~South~~effective ~~Carolina. On~~April ~~October 31~~27, ~~2017~~2018, wewhich ~~completed~~amount ~~the~~is ~~sale~~equal ofto ~~Millennium~~our ~~Apartment~~estimated ~~Homes~~remaining tonet anproceeds ~~unaffiliated~~from ~~buyer~~liquidation ~~for~~as ~~$35.6~~of ~~million~~April 27, ~~net~~2018. The ofestimated ~~closing~~value ~~costs~~per ~~and~~share ~~fees. In~~is ~~connection~~based ~~with~~on the ~~disposition~~authorization of ~~Millennium~~the ~~Apartment~~Second ~~Homes,~~Liquidating weDistribution ~~repaid~~of ~~the entire~~ $194.816 ~~million~~per ~~principal~~share ~~balance~~ and ~~all~~the ~~other~~amount ~~sums~~of ~~due under~~ the ~~mortgage~~reserve ~~loan~~fund ~~secured~~of by$0.24 ~~Millennium~~per ~~Apartment~~share ~~Homes,~~we ~~including~~established apursuant ~~prepayment~~to ~~fee~~the Plan of $0Liquidation.~~2 million.~~

~~Disposition~~We established the reserve to pay potential unknown liabilities and expenses in liquidation for which our management believes there is minimal exposure. We anticipate that we will distribute any remaining funds to stockholders by the end of ~~Legacy~~2018. However, atthere ~~Martin’s~~can ~~Point~~be no assurances as to whether there will be any reserve funds available for distribution or the timing of any such distribution.

On May 31, 2012, we, through an indirect wholly owned subsidiary, purchased a 256-unit apartment complex (“Legacy at Martin’s Point”) on approximately 13.2 acres of land located in the Chicago suburb of Lombard, Illinois. On October 31, 2017, we completed the sale of Legacy at Martin’s Point to an unaffiliated buyer for $37.6 million, net of closing costs and fees. In connection with the disposition of Legacy at Martin’s Point, we repaid the entire $21.5 million principal balance and all other sums due under the mortgage loan secured by Legacy at Martin’s Point, including a prepayment fee of $0.5 million.16

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PART I.	FINANCIAL INFORMATION (CONTINUED)


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity to fund the renovation and refinancing of our real estate investment portfolio and to fund our operationsNone. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. If we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.

Interest rate fluctuations will generally not affect our future earnings or cash flows related to our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of September 30, 2017, the fair value estimate of our fixed rate debt was $217.1 million and the outstanding principal balance of our fixed rate debt was $214.9 million. The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of September 30, 2017. With respect to our fixed rate instruments, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our ongoing operations.

Conversely, to the extent we have any variable rate debt, movements in interest rates on variable rate debt would change our future earnings and cash flows, but generally not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of variable rate instruments. As of September 30, 2017, we did not have any variable rate debt outstanding.

The weighted-average interest rate of our fixed rate debt as of September 30, 2017 was 3.5%. The weighted-average interest rate represents the actual interest rate in effect as of September 30, 2017.

For a discussion of the interest rate risks related to the current capital and credit markets, see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC.


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, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the 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 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 as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act 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.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~September~~March 3031, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.	OTHER INFORMATION


Item 1.	Legal Proceedings

None.


Item 1A.	Risk Factors

Please see the applicable risks ~~discussed below,~~ in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017, as filed with the SEC on March 109, ~~2017, and in the Proxy Statement~~2018.

We exhausted funds available for all redemptions for the remainder of 2017 in August 2017.

Because of limitations on the dollar value of shares that may be redeemed under our share redemption program as described below, we exhausted funds available for all redemptions for the remainder of 2017 in January 2017 and funds available for Special Redemptions for the remainder of 2017 in August 2017. As of September 30, 2017, we had a total of $3.6 million of outstanding and unfulfilled ordinary redemption and Special Redemptions requests.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds


a)	During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.


b)	Not applicable.

c) WeOn ~~have~~December a19, 2017, in connection with the implementation of the Plan of Liquidation, our board of directors approved the termination of our share redemption program ~~that~~effective ~~may~~as ~~enable~~of ~~stockholders~~January to21, ~~sell~~2018. ~~their~~Thus, the last redemption date under the share redemption program would have been December 29, 2017. However, because of certain limitations on the dollar value of shares that could have been redeemed under our share redemption program, we were unable to usredeem inany ~~limited~~shares ~~circumstances~~on December 29, 2017.

Pursuant to our share redemption program, there are several limitations on our ability to redeem shares:

• Unless the shares are being redeemed in connection with a Special Redemption, we may not redeem shares until the stockholder has held his or her shares for one year.

• During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

• We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

• We may redeem only the number of shares that we could purchase with the amount of the net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year; provided that we may not redeem more than $2.0 million of shares in the aggregate during any calendar year. Furthermore, during any calendar year, once we have redeemed $1.5 million of shares under our share redemption program, including in connection with Special Redemptions, the remaining $0.5 million of the $2.0 million annual redemption limit shall be reserved exclusively for shares being redeemed in connection with a Special Redemption. Notwithstanding anything contained in this paragraph to the contrary, we may increase or decrease the funding available for the redemption of shares pursuant to our share redemption program upon ten business days’ notice to our stockholders. We may provide this notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (b) in a separate mailing to our stockholders.

Because of limitations on the dollar value of shares that may be redeemed under our share redemption program, we exhausted the funds available for all redemptions for the remainder of 2017 in January 2017, and in August 2017, we exhausted the funds available for Special Redemptions for the remainder of 2017. As of September 30, 2017, we had a total of $3.6 million of outstanding and unfulfilled ordinary redemption and Special Redemptions requests.

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PART II. OTHER INFORMATION (CONTINUED)

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)

Pursuant to our share redemption program, redemptions made in connection with a Special Redemption are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date. The price at which we redeem all other shares eligible for redemption is as follows:

• For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated value per share as of the applicable redemption date;

• For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated value per share as of the applicable redemption date;

• For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated value per share as of the applicable redemption date; and

• For those shares held by the redeeming stockholder for at least four years, 100% of our most recent estimated value per share as of the applicable redemption date.

If we cannot redeem all shares presented for redemption in any month because of the limitations on redemptions set forth in our share redemption program, then we will honor redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than the minimum purchase requirement described in our currently effective, or the most recently effective, registration statement as such registration statement has been amended or supplemented, then we would redeem all of such stockholder’s shares.

Upon a transfer of shares, any pending redemption requests with respect to such transferred shares will be canceled as of the date we accept the transfer. Stockholders wishing us to continue to consider a redemption request related to any transferred shares must resubmit their redemption request.

On December 9, 2016, our board of directors approved an estimated value per share of our common stock of $9.35 (unaudited) based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding, all as of September 30, 2016. For a full description of the assumptions and methodologies used to value our assets and liabilities in connection with the calculation of the December 2016 estimated value per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Market Information” of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 10, 2017.

On April 5, 2017, our board of directors approved an estimated value per share of our common stock of $8.35, effective April 20, 2017. The estimated value per share is equal to the December 2016 estimated value per share of the our common stock of $9.35, reduced for the impact of the Special Distribution. For a full description of the methodologies and assumptions used in the determination of the April 2017 estimated value per share, see our Current Report on Form 8-K, filed with the SEC on April 11, 2017.

Our board of directors may amend, suspend or terminate the program without stockholder approval upon 30 days’ notice, provided that we may increase or decrease the funding available for the redemption of shares pursuant to our share redemption program upon ten business days’ notice to our stockholders. We may provide this notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (b) in a separate mailing to our stockholders.

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PART II. OTHER INFORMATION (CONTINUED)

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)

During the nine months ended September 30, 2017, we funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan, which we terminated effective as of August 20, 2017, and we redeemed shares pursuant to our share redemption program as follows:

Month	Total Numberof SharesRedeemed (1)	AveragePrice PaidPer Share (2)		Total Number of Shares Purchased as Part of the Share Redemption Program	Approximate Dollar Value of SharesAvailable That May Yet Be RedeemedUnder the Share Redemption Program
January 2017	182,847	$	9.33	182,847	(3)
February 2017	6,738	9.35		6,738	(3)
March 2017	3,207	9.35		3,207	(3)
April 2017	200	8.35		200	(3)
May 2017	8,198	8.35		8,198	(3)
June 2017	10,357	8.35		10,357	(3)
July 2017	4,016	8.35		4,016	(3)
August 2017	1,339	8.35		1,339	(3)
September 2017	—	—		—	(3)
Total	216,902			216,902

(1) We announced the adoption and commencement of the program on March 12, 2010. We announced amendments to the program on January 18, 2013 (which amendment became effective on February 17, 2013), on February 26, 2013 (which amendment became effective on March 28, 2013), on January 28, 2014 (which amendment became effective on February 27, 2014) and on October 17, 2014 (which amendment became effective on November 16, 2014).

(2) The prices at which we redeem shares under our share redemption program are set forth above.

(3) We limit the dollar value of shares that may be redeemed under our share redemption program as described above. In January 2017, we exhausted the $1.5 million of funds available for all redemptions in 2017 and in August 2017, we exhausted $0.5 million of funds available for Special Redemptions for 2017. As of September 30, 2017, we had a total of $3.6 million outstanding and unfulfilled ordinary redemption and Special Redemptions requests, representing 444,284 shares. We recorded $1.5 million of redemptions payable in other liabilities on the accompanying consolidated balance sheets.


Item 3.	Defaults upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

None.


Item 5.	Other Information

None.

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PART II.	OTHER INFORMATION (CONTINUED)


Item 6.	Exhibits

Ex.		Description
2.1		Plan of Complete Liquidation and Dissolution, incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed September 22, 2017
3.1		Articles of Amendment and Restatement as adopted on January 8, 2010, incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11, Commission File No. 333-161449, filed January 12, 2010
3.2		Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Periodic Report on Form 8-K, filed November 17, 2016
4.1		Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-161449, filed October 2, 2009
4.3		Fourth Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed March 10, 2017
10.1		Eleventh Amendment to Agreement for Purchase and Sale - ~~Legacy~~Residence at ~~Valley~~Waterstone ~~Ranch~~ Apartments, by and between KBS Legacy Partners ~~Dakota~~Pikesville ~~Hill~~ LLC and ~~RREF~~Elite ~~III-P~~Street ~~Elite~~Capital ~~Venture~~Waterstone Equity DE, LLC, ~~made~~dated ~~and entered into~~ as of ~~September~~January 511, ~~2017~~2018, incorporated by reference to Exhibit 10.155 to the Company’s ~~Periodic~~Annual Report on Form 810-K for the year ended December 31, 2017, filed ~~September~~March 89, ~~2017~~2018
10.2		Twelfth Amendment to Agreement for Purchase and Sale - ~~Crystal~~Lofts ~~Park~~ at ~~Waterford~~the Highlands Apartments, by and between KBS Legacy Partners ~~Crystal~~Lofts LLC and ~~RREF~~Elite ~~III-P~~Street ~~Elite~~Capital ~~Venture~~Lofts Equity DE, LLC, ~~made~~dated ~~and entered into~~ as of ~~September~~January 511, ~~2017~~2018, incorporated by reference to Exhibit 10.256 to the Company’s ~~Periodic~~Annual Report on Form 810-K for the year ended December 31, 2017, filed ~~September~~March 89, ~~2017~~2018
10.3		~~Agreement~~Advisory ~~for Purchase and Sale - Lofts at the Highlands Apartments~~Agreement, by and between ~~KBS~~the ~~Legacy~~Company ~~Partners Lofts LLC~~ and ~~RREF~~KBS ~~III-P~~Capital ~~Elite~~Advisors ~~Venture,~~ LLC, ~~made~~dated ~~and entered into~~ as of ~~September~~January 525, ~~2017~~2018, incorporated by reference to Exhibit 10.357 to the Company’s ~~Periodic~~Annual Report on Form 810-K for the year ended December 31, 2017, filed ~~September~~March 89, ~~2017~~2018
10.4		Twelfth Amendment to Agreement for Purchase and Sale - Residence at Waterstone Apartments, by and between KBS Legacy Partners Pikesville LLC and ~~RREF~~Elite ~~III-P~~Street ~~Elite~~Capital ~~Venture~~Waterstone Equity DE, LLC, ~~made~~dated ~~and entered into~~ as of ~~September~~March 5, ~~2017~~2018, incorporated by reference to Exhibit 10.458 to the Company’s ~~Periodic~~Annual Report on Form 810-K for the year ended December 31, 2017, filed ~~September~~March 89, ~~2017~~2018
10.5		~~First~~Thirteenth Amendment to Agreement for Purchase and Sale - ~~Legacy~~Lofts at ~~Valley~~the ~~Ranch~~Highlands Apartments, by and between KBS Legacy Partners ~~Dakota~~Lofts ~~Hill~~ LLC and ~~RREF~~Elite ~~III-P~~Street ~~Elite~~Capital ~~Venture~~Lofts Equity DE, LLC, dated as of ~~October~~March 25, 2018, incorporated by reference to Exhibit 10.59 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed March 9, 2018
10.6		First Amendment to Agreement for Purchase and Sale - Crystal Park at Waterford Apartments, by and between KBS Legacy Partners Crystal LLC and RREF III-P Elite Venture, LLC, dated as of October 2, 2017
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.7		First Amendment to Agreement for Purchase and Sale - Lofts at the Highlands Apartments, by and between KBS Legacy Partners Lofts LLC and RREF III-P Elite Venture, LLC, dated as of October 2, 2017
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.8		First Amendment to Agreement for Purchase and Sale - Residence at Waterstone Apartments, by and between KBS Legacy Partners Pikesville LLC and RREF III-P Elite Venture, LLC, dated as of October 2, 2017
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.9		Second Amendment to Agreement for Purchase and Sale - Legacy at Valley Ranch Apartments, by and between KBS Legacy Partners Dakota Hill LLC and RREF III-P Elite Venture, LLC, dated as of November 6, 2017
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.10		Second Amendment to Agreement for Purchase and Sale - Crystal Park at Waterford Apartments, by and between KBS Legacy Partners Crystal LLC and RREF III-P Elite Venture, LLC, dated as of November 6, 2017
99.1		Fifth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed October 17, 2014
10.11		Second Amendment to Agreement for Purchase and Sale - Lofts at the Highlands Apartments, by and between KBS Legacy Partners Lofts LLC and RREF III-P Elite Venture, LLC, dated as of November 6, 2017
101.INS		XBRL Instance Document
10.12		Second Amendment to Agreement for Purchase and Sale - Residence at Waterstone Apartments, by and between KBS Legacy Partners Pikesville LLC and RREF III-P Elite Venture, LLC, dated as of November 6, 2017
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits (continued)

Ex.		Description
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 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Fifth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed October 17, 2014
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

SIGNATURES

Pursuant to the requirements 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.

		KBS LEGACY PARTNERS APARTMENT REIT, INC.
Date:	~~November~~April 1330, ~~2017~~2018	By:	/s/ W. DEAN HENRY
			W. Dean Henry
			Chief Executive Officer
			(principal executive officer)
Date:	~~November~~April 1330, ~~2017~~2018	By:	/s/ JEFFREY K. WALDVOGEL
			Jeffrey K. Waldvogel
			Chief Financial Officer, Treasurer and Secretary
			(principal financial officer)

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Filing Compare · KBS Legacy Partners Apartment REIT, Inc.