UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March~~June 3130, 2020

☐	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 000-55923

RESOURCE APARTMENT REIT III, Inc.

(Exact name of registrant as specified in its charter)

Maryland		47-4608249
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1845 Walnut Street, 18th Floor, Philadelphia, PA, 19103
1845 Walnut Street, 17th Floor, Philadelphia, PA, 19103
(Address of principal executive offices) (Zip code)
(215) 231-7050
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ 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 definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer.	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		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 7(a)(2)(B) of the Securities Act. ☑

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

As of ~~May~~August 46, 2020, there were 625,848 outstanding shares of Class A common stock, 1,121,639 outstanding shares of Class T common stock, and 10,~~406~~401,~~822~~323 outstanding shares of Class I common stock of Resource Apartment REIT III, Inc.

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RESOURCE APARTMENT REIT III, INC.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

		PAGE
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Balance Sheets – March 31, 2020 (unaudited) and December 31, 2019	4
	Consolidated Balance Sheets – June 30, 2020 (unaudited) and December 31, 2019	4
	Consolidated Statements of Operations and Comprehensive Loss - For the Three Months Ended March 31, 2020 and 2019 (unaudited)	5
	Consolidated Statements of Operations and Comprehensive Loss - For the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	5
	Consolidated Statements of Changes in Stockholders' Equity – Three Months Ended March 31, 2020 and 2019 (unaudited)	7
	Consolidated Statements of Changes in Stockholders' Equity – For the Three and Six Months Ended June 30, 2020 and 2019 (unaudited)	7
	Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2020 and 2019 (unaudited)	8
	Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2020 and 2019 (unaudited)	9
	Notes to Consolidated Financial Statements – March 31, 2020 (unaudited)	9
	Notes to Consolidated Financial Statements – June 30, 2020 (unaudited)	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3231
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	4446
ITEM 4.	Controls and Procedures	4446
PART II	OTHER INFORMATION
ITEM 1.	Legal Proceedings	4548
ITEM 1A.	Risk Factors	45
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
ITEM 6.	Exhibits	50
ITEM 6.	Exhibits	48
SIGNATURES		51
SIGNATURES		49

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Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expects," "intend," "may," "plan," "potential," "project," "should," "will" and "would" or the negative of these terms or other comparable terminology. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company’s control and which could materially affect the Company’s results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company, particularly its ability to collect rent, the personal financial condition of its tenants and their ability to pay rent, and the real estate market and the global economy and financial markets. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which ~~are highly uncertain and~~ cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Actual results may differ materially from those contemplated by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31, 2020			December 31, 2019
	June 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Investments:
Rental properties, net	$	~~192~~191,~~812~~077		$	196,483
Identified intangible assets, net		—			173
Total investments		~~192~~191,~~812~~077			196,656
Cash		2523,~~193~~845			28,430
Restricted cash		1,~~761~~924			1,916
Tenant receivables, net		3692			31
Due from related parties		2			—
Prepaid expenses and other assets		867			599
Prepaid expenses and other assets		937			599
Total assets	$	217,805		$	227,632
Total assets	$	220,741		$	227,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage notes payable, net	$	143,~~980~~940		$	145,503
Accounts payable and accrued expenses		1,~~516~~104			2,552
Accrued real estate taxes		~~724~~1,242			601
Due to related parties		32,~~036~~004			4,938
Tenant prepayments		~~158~~132			194
Security deposits		~~391~~426			382
Distributions payable		—			1,587
Total liabilities		~~149~~148,~~805~~848			155,757
Stockholders’ equity:
Preferred stock, par value $0.01: 10,000,000 shares authorized, none issued and outstanding		—			—
Convertible stock, par value $0.01: 50,000 shares authorized, issued and outstanding		1			1
Class A common stock, par value $0.01: 25,000,000 shares authorized, 625,848 and 628,691 issued and outstanding, respectively		6			6
Class T common stock, par value $0.01: 25,000,000 shares authorized, 1,121,639 and 1,115,458 issued and outstanding, respectively		11			11
Class I common stock, par value $0.01: 75,000,000 shares authorized, 10,406,822 and 10,327,291 issued and outstanding, respectively		104			103
Class I common stock, par value $0.01: 75,000,000 shares authorized, 10,401,323 and 10,327,291 issued and outstanding, respectively		104			103
Additional paid-in capital		104,~~480~~430			103,725
Accumulated other comprehensive loss		(2619	)		(32	)
Accumulated deficit		(3335,~~640~~576	)		(31,939	)
Total stockholders’ equity		7068,~~936~~957			71,875
Total liabilities and stockholders’ equity	$	~~220~~217,~~741~~805		$	227,632

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Rental income	$	5,~~089~~132		$	34,~~723~~091		$	10,221		$	7,747
Total revenues		5,~~089~~132			34,~~723~~091			10,221			7,747
Expenses:
Rental operating - expenses		~~869~~1,049			~~682~~810			1,918			1,492
Rental operating - payroll		~~489~~491			~~371~~412			980			783
Rental operating - real estate taxes		~~730~~705			~~497~~579			1,435			1,076
Subtotal- rental operating		2,~~088~~245			1,~~550~~801			4,333			3,351
Property management fees		—			23			—			5
Management fees - related parties		~~780~~793			~~574~~631			1,573			1,205
General and administrative		~~416~~355			~~860~~602			771			1,395
Loss on disposal of assets		~~129~~73			87131			202			218
Depreciation and amortization expense		2,~~360~~235			2,~~237~~216			4,595			4,453
Total expenses		5,~~773~~701			5,~~310~~384			11,474			10,627
Loss before net gains on dispositions		(~~684~~569	)		(1,~~587~~293	)		(1,253	)		(2,880	)
Net gain on disposition of property		~~530~~—			—			530			—
Loss before other income (expense)		(~~154~~569	)		(1,~~587~~293	)		(723	)		(2,880	)
Other income (expense):
Interest income		279			7083			36			153
Interest expense		(1,~~543~~376	)		(1,~~268~~392	)		(2,919	)		(2,660	)
Total other income (expense)		(1,~~516~~367	)		(1,~~198~~309	)		(2,883	)		(2,507	)
Net loss	$	(1,~~670~~936	)	$	(2,~~785~~602	)	$	(3,606	)	$	(5,387	)
Other comprehensive (loss) income:
Other comprehensive income:
Designated derivatives, fair value adjustments		67			(2	)		13			—
Total other comprehensive (loss) income		6			(2	)
Total other comprehensive income		7			2			13			—
Comprehensive loss	$	(1,~~664~~929	)	$	(2,~~787~~600	)	$	(3,593	)	$	(5,387	)

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - (continued)

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Class A common stock:
Net loss attributable to Class A common stockholders	$	(88100	)	$	(~~170~~138	)	$	(188	)	$	(306	)
Net loss per Class A share, basic and diluted	$	(0.1416	)	$	(0.2722	)	$	(0.30	)	$	(0.48	)
Weighted average Class A common shares outstanding, basic and diluted		~~629~~626			~~635~~636			627			636
Class T common stock:
Net loss attributable to Class T common stockholders	$	(~~130~~178	)	$	(~~325~~269	)	$	(309	)	$	(591	)
Net loss per Class T share, basic and diluted	$	(0.1216	)	$	(0.2924	)	$	(0.28	)	$	(0.53	)
Weighted average Class T common shares outstanding, basic and diluted		1,~~118~~122			1,~~114~~118			1,120			1,116
Class R common stock:
Net loss attributable to Class R common stockholders	$	—		$	(2,~~200~~089	)	$	—		$	(4,291	)
Net loss per Class R share, basic and diluted	$	—		$	(0.2823	)	$	—		$	(0.51	)
Weighted average Class R common shares outstanding, basic and diluted		—			78,~~937~~969			—			8,456
Class I common stock:
Net loss attributable to Class I common stockholders	$	(1,~~452~~658	)	$	(90106	)	$	(3,109	)	$	(199	)
Net loss per Class I share, basic and diluted	$	(0.1416	)	$	(0.2418	)	$	(0.30	)	$	(0.41	)
Weighted average Class I common shares outstanding, basic and diluted		10,~~355~~406			~~380~~586			10,381			484

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED ~~MARCH~~JUNE 3130, 2020 ~~AND 2019~~

(in thousands)

(unaudited)

	Common Stock																			Convertible Stock
	Shares											Amount
	A Shares			T Shares			R Shares		I Shares			A Shares		T Shares		R Shares		I Shares		Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance, at April 1, 2020		626			1,122			—		10,407		$	6	$	11	$	—	$	104		50	$	1	$	104,480		$	(26	)	$	(33,640	)	$	70,936
Other comprehensive income		—			—			—		—			—		—		—		—		—		—		—			7			—			7
Net loss		—			—			—		—			—		—		—		—		—		—		—			—			(1,936	)		(1,936	)
Share redemptions		—			—			—		(6	)		—		—		—		—		—		—		(50	)		—			—			(50	)
Balance, at June 30, 2020		626			1,122			—		10,401		$	6	$	11	$	—	$	104		50	$	1	$	104,430		$	(19	)	$	(35,576	)	$	68,957
Balance, at January 1, 2020		629			1,115			—		10,327		$	6	$	11	$	—	$	103		50	$	1	$	103,725		$	(32	)	$	(31,939	)	$	71,875
True-up of prior year cash distributions declared		—			—			—		—			—		—		—		—		—		—		—			—			(31	)		(31	)
Common stock issued through distribution reinvestment plan		2			10			—		82			—		—		—		1		—		—		856			—			—			857
Other comprehensive income		—			—			—		—			—		—		—		—		—		—		—			613			—			613
Net loss		—			—			—		—			—		—		—		—		—		—		—			—			(13,~~670~~606	)		(13,~~670~~606	)
Share redemptions		(5	)		(3	)		—		(28	)		—		—		—		—		—		—		(~~101~~151	)		—			—			(~~101~~151	)
Balance, at March 31, 2020		626			1,122			—		10,407		$	6	$	11	$	—	$	104		50	$	1	$	104,480		$	(26	)	$	(33,640	)	$	70,936
Balance, at June 30, 2020		626			1,122			—		10,401		$	6	$	11	$	—	$	104		50	$	1	$	104,430		$	(19	)	$	(35,576	)	$	68,957

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

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

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF ~~CASH~~CHANGES ~~FLOWS~~IN STOCKHOLDERS' EQUITY- (continued)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

(in thousands)

(unaudited)

	Three Months Ended March 31,
	Common Stock																		Convertible Stock
	2020			2019
	Shares										Amount
Cash flows from operating activities:
	A Shares			T Shares			R Shares		I Shares		A Shares		T Shares		R Shares		I Shares		Shares		Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Net loss	$	(1,670	)	$	(2,785	)
Balance, at April 1, 2019		637			1,119			8,744		456	$	6	$	11	$	87	$	5		50	$	1	$	92,374		$	(42	)	$	(19,502	)	$	72,940
Adjustment to reconcile net loss to net cash used in operating activities:
Issuance of common stock		—			—			489		157		—		—		5		1		—		—		6,218			—			—			6,224
Loss on disposal of assets		129			87
Offering costs		—			—			—		—		—		—		—		—		—		—		(598	)		—			—			(598	)
Depreciation and amortization		2,360			2,237
Cash distributions declared		—			—			—		—		—		—		—		—		—		—		—			—			(1,353	)		(1,353	)
Amortization of deferred financing costs		74			59
Common stock issued through distribution reinvestment plan		3			8			61		1		—		—		1		—		—		—		666			—			—			667
Net gain on disposition of property		(530	)		—
Other comprehensive income		—			—			—		—		—		—		—		—		—		—		—			2			—			2
Realized loss on change in fair value of interest rate cap		6			1
Net loss		—			—			—		—		—		—		—		—		—		—		—			—			(2,602	)		(2,602	)
Changes in operating assets and liabilities:
Share redemptions		(17	)		(28	)		—		—		—		—		—		—		—		—		(388	)		—						(388	)
Tenant receivables, net		(8	)		7
Balance, at June 30, 2019		623			1,099			9,294		614	$	6	$	11	$	93	$	6		50	$	1	$	98,272		$	(40	)	$	(23,457	)	$	74,892
Due from related parties		(2	)		3
Balance, at January 1, 2019		634			1,111			7,182		330	$	6	$	11	$	72	$	3		50	$	1	$	77,896		$	(40	)	$	(15,459	)	$	62,490
Prepaid expenses and other assets		(341	)		(155	)
Issuance of common stock		—			—			1,999		283		—		—		20		3		—		—		21,995			—			—			22,018
Due to related parties		(1,901	)		(408	)
Offering costs		—			—			—		—		—		—		—		—		—		—		(2,474	)		—			—			(2,474	)
Accounts payable and accrued expenses		37			645
Cash distributions declared		—			—			—		—		—		—		—		—		—		—		—			—			(2,611	)		(2,611	)
Tenant prepayments		(37	)		53
Common stock issued through distribution reinvestment plan		6			16			113		1		—		—		1		—		—		—		1,243			—			—			1,244
Security deposits		22			1
Other comprehensive income		—			—			—		—		—		—		—		—		—		—		—						—			—
Net cash used in operating activities		(1,861	)		(255	)
Net loss		—			—			—		—		—		—		—		—		—		—		—			—			(5,387	)		(5,387	)
Cash flows from investing activities:
Share redemptions		(17	)		(28	)		—		—		—						—		—		—		(388	)		—			—			(388	)
Proceeds from disposal of properties, net of closing costs		1,340			—
Balance, at June 30, 2019		623			1,099			9,294		614	$	6	$	11	$	93	$	6		50	$	1	$	98,272		$	(40	)	$	(23,457	)	$	74,892
Property acquisition		—			(7,286	)
Capital expenditures		(1,904	)		(1,130	)
Net cash used in investing activities		(564	)		(8,416	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		—			15,894
Redemptions of common stock		(101	)		—
Payments on borrowings		(105	)		(9	)
Payment of deferred financing costs		—			(269	)
Distributions paid on common stock		(761	)		(493	)
Net cash (used in) provided by financing activities		(967	)		15,123
Net (decrease) increase in cash and restricted cash		(3,392	)		6,452
Cash and restricted cash at beginning of period		30,346			33,711
Cash and restricted cash at end of period	$	26,954		$	40,163
Reconciliation to consolidated balance sheets:
Cash	$	25,193		$	38,702
Restricted Cash		1,761			1,461
Cash and restricted cash at end of period	$	26,954		$	40,163

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

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RESOURCE APARTMENT REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(3,606	)	$	(5,387	)
Adjustment to reconcile net loss to net cash used in operating activities:
Loss on disposal of assets		202			218
Depreciation and amortization		4,595			4,453
Amortization of deferred financing costs		147			117
Net gain on disposition of property		(530	)		—
Realized loss on change in fair value of interest rate cap		13			3
Changes in operating assets and liabilities:
Tenant receivables, net		(63	)		(9	)
Due from related parties		—			8
Prepaid expenses and other assets		(271	)		(218	)
Due to related parties		(2,934	)		(700	)
Accounts payable and accrued expenses		367			1,165
Tenant prepayments		(62	)		(75	)
Security deposits		57			5
Net cash used in operating activities		(2,085	)		(420	)

Cash flows from investing activities:
Proceeds from disposal of properties, net of closing costs		1,340			—
Property acquisition		—			(17,335	)
Capital expenditures		(2,701	)		(2,812	)
Net cash used in investing activities		(1,361	)		(20,147	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		—			21,768
Redemptions of common stock		(151	)		(388	)
Payments on borrowings		(219	)		(18	)
Payment of deferred financing costs		—			(715	)
Distributions paid on common stock		(761	)		(1,089	)
Net cash (used in) provided by financing activities		(1,131	)		19,558

Net decrease in cash and restricted cash		(4,577	)		(1,009	)
Cash and restricted cash at beginning of period		30,346			33,711
Cash and restricted cash at end of period	$	25,769		$	32,702

Reconciliation of cash and restricted cash
Cash	$	23,845		$	30,338
Restricted Cash		1,924			2,364
Cash and restricted cash at end of period	$	25,769		$	32,702

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 1 - NATURE OF BUSINESS AND OPERATIONS

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

Through July 2, 2017, the Company offered shares of Class A and Class T common stock in the primary and DRIP offering. As of July 3, 2017, the Company ceased offering shares of Class A and Class T common stock in its primary offering and commenced offering shares of Class R and Class I common stock in both the primary and DRIP offering.

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

As of ~~March~~June 3130, 2020, the Company has raised aggregate gross primary offering proceeds of approximately $111.4 million from the sale of 601,207 Class A shares, 1,049,996 Class T shares, 9,356,067 Class R shares and 624,325 Class I shares of common stock.

On June 27, 2018, March 21, 2019, and March 19, 2020, the board of directors of the Company determined an estimated net asset value (“NAV”) per share of the common stock of $9.05, $9.12, and $9.01, respectively, based on the estimated market value of the portfolio of investments of the Company as of March 31, 2018, December 31, 2018, and December 31, 2019, respectively. Based on the estimated NAV per share, the board of directors established updated offering prices for shares of Class R and Class I common stock to be sold in the primary portion of the initial public offering by adding certain offering costs to the estimated NAV per share. Pursuant to the terms of the DRIP, following the establishment of an estimated NAV per share, shares of common stock are sold at the most recent estimated NAV per share.

The prices per share for each class of shares of the Company's common stock through ~~March~~June 3130, 2020 were as follows:

	Class A		Class T		Class R		Class I
Primary Offering Price
Inception through July 2, 2017	$	10.00	$	9.47	n/a		n/a
July 3, 2017 through July 1, 2018	n/a		n/a		$	9.52	$	9.13
July 2, 2018 through March 24, 2019	n/a		n/a		$	9.68	$	9.28
March 25, 2019 through October 31, 2019	n/a		n/a		$	9.75	$	9.35
Offering Price under the DRIP
Inception through July 2, 2017	$	9.60	$	9.09	n/a		n/a
July 3, 2017 through July 1, 2018	$	9.60	$	9.09	$	9.14	$	8.90
July 2, 2018 through March 24, 2019 (1)	$	9.05	$	9.05	$	9.05	$	9.05
March 25, 2019 through March 30, 2020 (1)	$	9.12	$	9.12	$	9.12	$	9.12
March 31, 2020 (1)	$	9.01	$	9.01	n/a		$	9.01
March 31, 2020 through June 30, 2020 (1)	$	9.01	$	9.01	n/a		$	9.01

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

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

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

910

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

The Company’s objective is to take advantage of the multifamily investing and lending platforms of Resource Real Estate, LLC (its "Sponsor") to invest in apartment communities in order to provide the investor with growing cash flow and increasing asset values. The Company has acquired underperforming apartments which it will renovate and stabilize in order to increase rents.

The Company elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes under the provisions of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ending December 31, 2017. As such, to maintain its REIT qualification for U.S. federal income tax purposes, the Company is generally required to distribute at least 90% of its net income (excluding net capital gains) to its stockholders as well as comply with certain other requirements. Accordingly, the Company generally will not be subject to U.S. federal income taxes to the extent that it annually distributes all of its REIT taxable income to its stockholders. The Company also operates its business in a manner that will permit it to maintain its exemption from registration under the Investment Company Act of 1940, as amended.

The consolidated financial statements and the information and tables contained in the notes thereto are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"), pertaining to interim financial statements in Form 10-Q. However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements as of and for the year ended, December 31, 2019. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the ~~three~~six months ended ~~March~~June 3130, 2020 may not necessarily be indicative of the results of operations for the full year ending December 31, 2020.

COVID-19 Pandemic

~~Currently,~~One ~~one~~ of the most significant risks and uncertainties facing the Company and the real estate industry generally iscontinues ~~the~~to ~~potential~~be ~~adverse~~the effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. The ~~extent~~Company continues to ~~which~~closely monitor the impact of the COVID-19 pandemic ~~impacts~~on ~~the~~all ~~Company’s~~aspects ~~operations~~of ~~and~~its ~~those~~business, ofincluding how the pandemic is impacting its tenants. ~~will~~The ~~depend~~Company ondid ~~future~~not ~~developments,~~incur ~~which~~significant ~~are~~disruptions ~~highly~~from ~~uncertain~~the ~~and~~COVID-19 ~~cannot~~pandemic beduring ~~predicted~~the ~~with~~six ~~confidence,~~months ~~including~~ended ~~the~~June ~~scope~~30, ~~severity~~2020; ~~and~~however, ~~duration~~a small percentage of ~~the~~its ~~pandemic,~~tenants ~~the~~have ~~actions~~requested ~~taken~~rent todeferral ~~contain~~as a result of the pandemic. The orCompany ~~mitigate~~is ~~its~~evaluating ~~impact,~~each ~~and~~tenant ~~the~~rent ~~direct~~relief ~~and~~request ~~indirect~~on ~~economic~~an ~~effects~~individual basis, considering a number of ~~the~~factors. ~~pandemic~~Not ~~and~~all ~~containment~~tenant ~~measures~~requests will ultimately result in modified agreements, ~~among~~nor ~~others~~is the Company forgoing its contractual rights under its lease agreements. ~~See~~Executed ~~Note~~short-term 15rent relief plans that are outstanding at June 30, ~~“Subsequent~~2020 ~~Events”~~are ~~for~~not asignificant ~~further~~in ~~discussion~~terms onof ~~the~~either ~~COVID-19~~number ~~pandemic~~of requests or dollar value.

10The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants depends on future developments, which cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures.

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation

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

Principles of Consolidation

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

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

N/A - Not applicable

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

All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

The Company does not evaluate performance on a relationship-specific or transactional basis and does not distinguish its principal business or group its operations on a geographical basis for purposes of measuring performance. Accordingly, the Company believes it has a single operating segment for reporting purposes in accordance with GAAP.

Concentration of Risk

At ~~March~~June 3130, 2020, the Company's real estate investments in Florida, Georgia, and Virginia represented 28%, 22%, and 19%, respectively, of the net book value of its rental property assets. Any adverse economic or real estate developments in these markets, such as the impact of the COVID-19 pandemic, business layoffs or downsizing, industry slowdowns, relocations of businesses, adverse weather events, changing demographics and other factors, or any decrease in demand for multifamily rentals resulting from the local business climate, could adversely affect the Company's operating results and its ability to make distributions to stockholders.

1112

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

Use of Estimates

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

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 "Financial Instruments - Credit Losses", which requires measurement and recognition of expected credit losses for financial assets held. On January 1, 2020, the Company adopted ASU No. 2016-13 and the adoption had no impact on its consolidated financial statements and disclosures since the Company did not have instruments subject to this guidance at the adoption or at ~~March~~June 3130, 2020.

In January 2017, FASB issued ASU No. 2017-04, "Intangibles- Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment", which alters the current goodwill impairment testing procedures. On January 1, 2020, the Company adopted ASU No. 2017-04 and the adoption did not have a significant impact on its consolidated financial statements due to the fact that the Company did not have any goodwill subject to this guidance at the adoption or at ~~March~~June 3130, 2020.

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

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

In March 2020, FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the ~~three~~six months ended ~~March 31~~June 30, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

~~Real~~On ~~Estate~~April ~~Investments~~10, 2020, FASB issued a Staff Q&A to respond to some frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 pandemic. Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance to those leases. Entities may make the elections for any lessor-provided concessions related to the effects of the COVID-19 pandemic (e.g., deferrals of lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. The Company has not elected to apply the lease modification guidance to our leases. To date, the impact of lease concessions granted has not had a material effect on the financial statements. The Company will continue to evaluate the impact of lease concessions and the appropriate accounting for those concessions.

~~The~~13 Company records acquired real estate at fair value on their respective acquisition dates. The Company considers the period of future benefit of an asset to determine its appropriate useful life and depreciates the asset using the straight line method. The Company anticipates the estimated useful lives of its assets by class as follows:

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

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

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

Improvements and replacements in excess of $1,000 are capitalized when they have a useful life greater than or equal to one year. Construction management fees are capitalized along with the related asset. Costs of repairs and maintenance are expensed as incurred.

Impairment of Long Lived Assets

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

If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income. As of ~~March 31~~June 30, 2020, the Company evaluated whether the global economic disruption caused by the COVID-19 pandemic was an impairment indicator. The Company examined a number of factors and concluded that there was no indication that the carrying value of the Company’s investments in real estate might not be recoverable as of ~~March 31~~June 30, 2020. There were no impairment losses recorded on long lived assets during the three and six months ended ~~March~~June 3130, 2020 and 2019.

Allocation of Purchase Price of Acquired Assets

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

~~Upon~~14 the acquisition of real properties, the Company allocates the purchase price to tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

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

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

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

~~commissions~~Upon ~~and~~the ~~legal~~acquisition ~~and~~of ~~other~~real ~~related~~properties, ~~expenses~~the toCompany allocates the ~~extent~~purchase ~~that~~price ~~such~~to ~~costs~~tangible ~~have~~assets, ~~not~~consisting ~~already~~of ~~been~~land, ~~incurred~~building, infixtures ~~connection~~and ~~with~~improvements, aand ~~new~~identified intangible lease ~~origination~~assets asand ~~part~~liabilities, consisting of the ~~transaction~~value of above-market and below-market leases, as applicable, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

The Company also considers information obtained about each property as a result of its pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.

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

The Company amortizes the value of in-place leases to expense over the weighted average remaining term of the underlying leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building.

The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the fair value of these assets and liabilities, which could impact the amount of the Company’s reported net income.

Revenue Recognition

The Company recognizes minimum rent, including rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease. The future minimum rental payments to be received from noncancelable operating leases for residential rental properties are ~~approximately~~ $1012.85 million and approximately $~~530~~488,000 for the 12 month periods ending ~~March~~June 3130, 2021 and 2022, respectively, and none thereafter.

Revenue is primarily derived from the rental of residential housing units for which the Company receives minimum rents and utility reimbursements pursuant to underlying tenant lease agreements. The Company also receives other ancillary fees for administration of leases, late payments, amenities, and revenue sharing arrangements for cable income from contracts with cable providers at the Company's properties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company records the utility reimbursement income and ancillary charges in the period when the performance obligation is completed, either at a point in time or on a monthly basis as the service is utilized.

~~Tenant~~15 ~~Receivables~~

Tenant receivables are stated in the consolidated financial statements as amounts due from tenants net of an allowance for uncollectible receivables. Payment terms vary and receivables outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Company’s previous loss history, the tenants’ current ability to pay their obligations to the Company, and the condition of the general economy and the industry as a whole. The Company writes off receivables when they become uncollectible. At March 31, 2020 and December 31, 2019, the Company recorded $1,501 and $3,927 of allowances for uncollectible receivables, respectively.

Income Taxes

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

~~The~~Tenant ~~Company~~receivables ~~may~~are ~~elect~~stated toin ~~treat~~the ~~certain~~consolidated offinancial ~~its~~statements ~~subsidiaries~~ as aamounts ~~taxable~~due ~~REIT~~from ~~subsidiary~~tenants ~~("TRS").~~net Inof ~~general,~~an aallowance ~~TRS~~for ~~may~~uncollectible ~~hold~~receivables. ~~assets~~Payment terms vary and ~~engage~~receivables inoutstanding ~~activities~~longer ~~that~~than the payment terms are considered past due. The Company ~~cannot~~determines ~~hold~~its orallowance ~~engage~~by inconsidering ~~directly~~a ~~and~~number ~~generally~~of ~~may~~factors, ~~engage~~including inthe ~~any~~length ~~real~~of ~~estate~~time orreceivables ~~non-real~~are ~~estate-related~~past ~~business.~~due, Asecurity ~~TRS~~deposits isheld, ~~subject~~the Company’s previous loss history, the tenants’ current ability to ~~U.S.~~pay ~~federal~~their obligations to the Company, ~~state~~and the condition of the general economy and ~~local~~the ~~corporate~~industry ~~income~~as ~~taxes~~a whole. AtThe ~~March~~Company 31writes off receivables when they become uncollectible. At June 30, 2020 and December 31, 2019, the Company ~~did~~recorded ~~not~~$4,123 ~~treat~~and ~~any~~$3,927 of ~~its~~allowances ~~subsidiaries~~for asuncollectible areceivables, ~~TRS~~respectively.

Income Taxes

The dividends paid deduction of a REIT for qualifying dividends to its stockholders is computed using the Company’s taxable income as opposed to net income reported on the financial statements. Taxable income, generally, differs from net income reported on the financial statements because the determination of taxable income is based on tax provisions and not financial accounting principles.

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

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

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

Earnings Per Share

Basic earnings per share are computed by dividing net income (loss) attributable to common stockholders for each period by the weighted-average common shares outstanding during the period for each share class. Diluted net income (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted to common stock. None of the 50,000 shares of convertible stock (discussed in Note 10) are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of ~~March~~June 3130, 2020 (were such date to represent the end of the contingency period). For the purposes of calculating earnings per share, all common shares and per share information in the financial statements have been retroactively adjusted for the effect of any stock dividends and stock splits. For the three and six months ended ~~March~~June 3130, 2020 and 2019, common shares potentially issuable to settle distributions payable are excluded from the calculation of diluted earnings per share calculations, as their inclusion would be anti-dilutive.

In accordance with ASC 260-10-45, "Earnings Per Share", the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on their relative percentage of each class of shares to the total number of outstanding shares. The Company did not have any participating securities outstanding other than Class A common stock, Class T common stock, Class R common stock and Class I common stock during the periods presented (see Note 10).

~~Organization~~16 ~~and Offering Costs~~

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

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

The Advisory Agreement provides that the Company is not responsible for the repayment of any unreimbursed organization and offering expenses or operational expenses incurred by the Advisor on the Company’s behalf through March 31, 2018 until after the termination of the primary portion of the Company’s ongoing initial public offering. Additionally, such unreimbursed organization and offering expenses or operational expenses incurred or paid by the Advisor on the Company’s behalf through March 31, 2018 are required to be reimbursed ratably starting after the termination of the primary portion of the Company’s ongoing initial public offering through April 30, 2021 for organization and offering expenses and through April 30, 2020 for operating expenses. These payments began on November 1, 2019. During the three months ended March 31, 2020, the Company repaid $1.9 million to the Advisor for both deferred organization and offering and operational expenses.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

Organization costs, which included all expenses incurred by the Company in connection with its formation, including but not limited to legal fees and other costs to incorporate, were expensed as incurred. Prior to the Company breaking escrow, the Advisor incurred approximately $104,000 of formation and other operating expenses on the Company's behalf, which will not be reimbursed to the Advisor.

Outstanding Class T shares issued in the Company's primary offering were subject to an annual distribution and shareholder servicing fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018) for up to five years from the date on which such share is issued. Effective November 1, 2019, the Company ceased accruing the distribution and shareholder servicing fee on each Class T share as the Company had reached certain underwriting compensation limits.

Outstanding Class R shares issued in the Company's primary offering were also subject to an annual distribution and shareholder servicing fee in the amount of 1% of the estimated NAV of the share (1% of purchase price prior to June 29, 2018). Effective November 1, 2019, following the termination of the initial public offering, each of the outstanding Class R shares of common stock automatically converted into a Class I share of common stock pursuant to the terms of the Articles Supplementary for the Class R shares and the Company ceased accruing the distribution and shareholder servicing fee with respect to Class R shares as the Company no longer had any Class R shares outstanding.

The Company initially recorded distribution and shareholder servicing fees as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum fees payable in relation to the Class T and Class R shares on the date the shares were issued. The liability was relieved over time, as the fees were paid to the Dealer Manager. Upon termination of the offering, the fees were no longer payable as described above and the liability was adjusted accordingly.

~~NOTE~~17 ~~3 - SUPPLEMENTAL CASH FLOW INFORMATION~~

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

	Three Months Ended March 31,
	2020		2019
Non-cash operating, financing and investing activities:
Offering costs payable to related parties	$	—	$	324
Distribution and shareholder servicing fee payable to related parties		—		240
Cash distributions on common stock declared but not yet paid		—		1,225
Stock issued from distribution reinvestment plan		857		577
Subscriptions receivable		—		262
Escrow deposits funded directly by mortgage notes payable		—		350
Non-cash activity related to acquisitions:
Mortgage notes payable used to acquire real properties		—		18,060
Non-cash activity related to sales:
Mortgage notes payable settled directly with proceeds from sale of rental property		1,519		—
Cash paid during the period for:
Interest	$	1,476	$	1,133

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION

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

	Six Months Ended June 30,
	2020		2019
Non-cash operating, financing and investing activities:
Offering costs payable to related parties	$	—	$	629
Distribution and shareholder servicing fee payable to related parties		—		95
Cash distributions on common stock declared but not yet paid		—		1,316
Stock issued from distribution reinvestment plan		857		1,244
Subscriptions receivable		—		110
Escrow deposits funded directly by mortgage notes payable		—		798

Non-cash activity related to acquisitions:
Mortgage notes payable used to acquire real properties		—		45,192

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

Cash paid during the period for:
Interest	$	2,848	$	2,481

NOTE 4 - RESTRICTED CASH

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

	March 31, 2020		December 31, 2019
	June 30, 2020		December 31, 2019
Real estate taxes	$	~~944~~1,428	$	979
Insurance		~~151~~113		179
Capital improvements		~~666~~383		758
Total	$	1,~~761~~924	$	1,916

In addition, the Company designated unrestricted cash for capital expenditures of $7.40 million and $8.1 million at ~~March~~June 3130, 2020 and December 31, 2019, respectively.

NOTE 5 - RENTAL PROPERTIES, NET

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

	March 31, 2020			December 31, 2019
	June 30, 2020			December 31, 2019
Land	$	29,800		$	31,220
Building and improvements		~~171~~172,~~458~~007			171,265
Furniture, fixtures, and equipment		4,~~420~~622			4,014
Construction in progress		~~340~~60			1,205
		206,018			207,704
		206,489			207,704
Less: accumulated depreciation		(1315,~~206~~412	)		(11,221	)
Total rental property, net	$	~~192~~191,~~812~~077		$	196,483

~~Depreciation~~18 ~~expense for the three months ended March 31, 2020 and 2019 was $2.2 million and $1.6 million respectively.~~

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

NOTE 6 – DISPOSITION OF PROPERTY

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

Multifamily Community		Location		Sale Date		Contract Sales Price				Net Gain on Disposition				Revenue Attributable to Property Sold				Net Income Attributable to Property Sold (1)
Payne Place		Alexandria, Virginia		March 5, 2020		$	3,100			$	530			$	32			$	3

(1) Excludes net gain on disposition.

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

Depreciation expense for the three and six months ended June 30, 2020 was $2.2 million and $4.4 million respectively. Depreciation expense for the three and six months ended June 30, 2019 was $1.7 million and $3.3 million, respectively.

Loss on disposal of assets: During the three and six months ended June 30, 2020, the Company recorded losses on the disposal of assets of approximately $73,000 and $202,000, respectively. During the three and six months ended June 30, 2019, the Company recorded losses on the disposal of assets of approximately $131,000 and $218,000, respectively. The Company’s losses on disposals were primarily due to the replacement of appliances at its rental properties in conjunction with unit upgrades.

NOTE 6 – DISPOSITION OF PROPERTY

The following table presents the Company’s disposition activity during the six months ended June 30, 2020 (in thousands):

Net Gain on Disposition

Multifamily Community

Location

Sale Date

Contract Sales

Price

Three months ended June 30, 2020

Six months ended June 30, 2020

Payne Place

Alexandria, Virginia

March 5, 2020

3,100

—

530

The following table presents the Company’s revenue and net income/(loss) attributable to the property sold, excluding gain on sale, during the three and six months ended June 30, 2020 (in thousands):

	Revenue Attributable to Property Sold				Net Income/(Loss) Attributable to Property Sold
Multifamily Community	Three months ended June 30, 2020		Six months ended June 30, 2020		Three months ended June 30, 2020			Six months ended June 30, 2020
Payne Place	$	—	$	32	$	(1	)	$	2

NOTE 7 - IDENTIFIED INTANGIBLE ASSETS, NET

Identified intangible assets, net, consist of acquired in-place rental leases. The net carrying value of the leases at ~~March~~June 3130, 2020 and December 31, 2019 was $0 and approximately $173,000, respectively, net of the accumulated amortization of $4.6 million and $4.4 million, respectively. At ~~March~~June 3130, 2020, intangible assets were fully amortized.

Amortization for the three and six months ended ~~March 31~~June 30, 2020 was $0 and approximately $173,000, respectively. Amortization for the three and six months ended June 30, 2019 was approximately $~~173~~469,000 and $~~639~~1.1 million,~~000,~~ respectively.

~~NOTE~~19 ~~8 - MORTGAGE NOTES PAYABLE~~

The following table presents a summary of the Company's mortgage notes payable, net (in thousands):

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 8 - MORTGAGE NOTES PAYABLE

The following table presents a summary of the Company's mortgage notes payable, net (in thousands):

	June 30, 2020							December 31, 2019
Collateral	Outstanding Borrowings		Deferred Financing Costs, net			Carrying Value		Outstanding borrowings		Deferred Financing Costs, net			Carrying Value
Payne Place	$	—	$	—		$	—	$	1,525	$	(28	)	$	1,497
Bay Club		21,184		(184	)		21,000		21,398		(208	)		21,190
Tramore Village		32,625		(274	)		32,351		32,625		(304	)		32,321
Matthews Reserve		23,850		(243	)		23,607		23,850		(267	)		23,583
The Park at Kensington		21,760		(236	)		21,524		21,760		(260	)		21,500
Wimbledon Oaks		18,410		(216	)		18,194		18,410		(235	)		18,175
Summit		27,580		(316	)		27,264		27,580		(343	)		27,237
Total	$	145,409	$	(1,469	)	$	143,940	$	147,148	$	(1,645	)	$	145,503

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

Collateral	Maturity Date	Annual Interest Rate				Average Monthly Debt Service		Average Monthly Escrow
Bay Club	8/1/2024		2.8603	%	(1)(4)	$	8979	$	56
Tramore Village	4/1/2025		21.7996	%	(2)(5)		7765		8459
Matthews Reserve	9/1/2025		4.47	%	(3)(5)		90		2043
The Park at Kensington	10/1/2025		4.36	%	(3)(5)		80		53
Wimbledon Oaks	3/1/2026		4.33	%	(3)(5)		67		6463
Summit	7/1/2026		3.84	%	(3)(5)		89		43

(1) Variable rate based on one-month LIBOR of 0.9916% (at ~~March~~June 3130, 2020) plus 1.87%, with a maximum interest rate of 5.75%.

(2) Variable rate based on one-month LIBOR of 0.9916% (at ~~March~~June 3130, 2020) plus 1.80%, with a maximum interest rate of 6.25%.

(3)	Fixed rate.

(4)	Monthly payment of principal and interest required.

(5)	Monthly interest-only payment currently required.

All of the mortgage notes are collateralized by a first mortgage lien on the assets of the respective property named in the table above. The amount outstanding on the mortgages may be prepaid in full during the entire term with a prepayment penalty for a portion of the term.

The following table presents the Company's annual principal payments on outstanding borrowings for each of the next five years ending ~~March~~June 3130, and thereafter (in thousands):

2021	$	~~452~~648
2022		1,~~446~~922
2023		2,~~574~~871
2024		2,~~822~~994
2025		2150,~~843~~774
Thereafter		~~116~~86,~~386~~200
	$	145,~~523~~409

~~Deferred~~20 financing costs incurred to obtain financing are amortized over the term of the related debt. During the three months ended March 31, 2020 and 2019, amortization of deferred financing costs of approximately $74,000 and $59,000, respectively, was included in interest expense. Accumulated amortization at March 31, 2020 and December 31, 2019 was approximately $483,000 and $415,000, respectively.

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

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

Deferred financing costs incurred to obtain financing are amortized over the term of the related debt. During the three and six months ended June 30, 2020, amortization of deferred financing costs of approximately $73,000 and $147,000, respectively, was included in interest expense. During the three and six months ended June 30, 2019, amortization of deferred financing costs of approximately $58,000 and $117,000, respectively, was included in interest expense. Accumulated amortization at June 30, 2020 and December 31, 2019 was approximately $556,000 and $415,000, respectively.

The following table presents the Company's estimated amortization of the existing deferred financing costs for the next five years ending June 30, and thereafter (in thousands):

2021	$	294
2022		291
2023		287
2024		282
2025		223
Thereafter		92
	$	1,469

NOTE 9 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Relationship with the Advisor

The Company is externally managed and advised by the Advisor. Pursuant to the terms of the Advisory Agreement, the Advisor provides the Company with its management team, including its officers, along with appropriate support personnel. The Advisor will be reimbursed for the Company’s allocable share of costs for Advisor personnel, including allocable personnel salaries and benefits. Each of the Company’s officers is an employee of the Sponsor or one of its affiliates. The Company does not expect to have any employees. The Advisor is not obligated to dedicate any specific portion of its time or its employees' time to the Company’s business. The Advisor and any employees of the Sponsor or its affiliates acting on behalf of the Advisor, are at all times subject to the supervision and oversight of the Company’s board of directors and have only such functions and authority as the Company delegates to it. Effective April 28, 2020, the Company renewed the Advisory Agreement with the Advisor through April 27, 2021.

During the course of the offering, the Advisor provided offering-related services to the Company and advanced funds to the Company for both operating costs and organization and offering costs. These amounts were to be reimbursed to the Advisor from the proceeds from the offering, subject to the aforementioned limits on organization and offering expense reimbursements. As of ~~March~~June 3130, 2020, the Company incurred a total of $9.2 million of organization and offering costs, of which the Advisor advanced $9.0 million on a cumulative basis on behalf of the Company. The Company paid the remaining amount of approximately $249,000 of these costs directly. The maximum liability of the Company was $4.4 million based on the limit on organization and offering expenses payable by the Company included in the Advisory Agreement, which was comprised of the $249,000 initially paid by the Company and $4.2 million of the advance from the Advisor. An adjustment was made during the year ended December 31, 2019 to relieve the Company from the remaining $4.8 million liability due to the Advisor. As of ~~March~~June 3130, 2020, the Company has ~~reimbursed~~repaid $12.73 million to the Advisor for deferred organization and offering costs and $1.9 million of deferred organization and offering costs remain in related party payables.

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

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

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

~~Disposition~~21 fees. The Advisor earns a disposition fee in connection with the sale of a property equal to the lesser of one-half of the aggregate brokerage commission paid, or if none is paid, 2.0% of the contract sales price.

Debt financing fees. The Advisor will earn a debt financing fee equal to 0.5% of the amount available under any debt financing obtained.

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

Debt financing fees. The Advisor will earn a debt financing fee equal to 0.5% of the amount available under any debt financing obtained.

On April 13, 2018, the board of directors approved an amendment to the Advisory Agreement that provides that the Company is not responsible for the reimbursement of any unreimbursed organization and offering expenses or operational expenses incurred by the Advisor on the Company’s behalf through March 31, 2018 until after the termination of the primary portion of the Company’s ongoing initial public offering. Additionally, the amendment provides that such unreimbursed organization and offering expenses or operational expenses incurred or paid by the Advisor on the Company’s behalf through March 31, 2018 will be reimbursed ratably starting after the termination of the primary portion of the Company’s ongoing initial public offering through April 30, 2021 for organization and offering expenses and through April 30, 2020 for operating expenses. The payments commenced on November 1, 2019.

Relationship with the Manager

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

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

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

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

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

Relationship with Resource Securities

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

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

2122

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

generally paid Resource Securities a dealer manager fee of up to 1.5% of gross offering proceeds from the sale of the Class I shares. Resource Securities allowed all selling commissions earned and a portion of the dealer manager fee as a marketing fee to participating broker-dealers. No selling commissions or dealer manager fees were earned by Resource Securities in connection with sales under the distribution reinvestment plan. Additionally, the Company may reimburse Resource Securities for bona fide due diligence expenses.

Distribution and shareholder servicing fee. Resource Securities was paid an annual fee of 1.0% of the NAV (purchase price prior to June 29, 2018) per share of Class T common stock sold in the primary offering for up to five years from the date on which each share was issued. Resource Securities was also paid an annual fee of 1.0% of the NAV (purchase price prior to June 29, 2018) per share of Class R common stock sold in the primary offering subject to the terms of the Class R shares as included in the Articles Supplementary. Effective November 1, 2019, pursuant to the terms of the Class T and Class R shares, no further distribution and shareholder servicing fees were payable to Resource Securities so the Company ceased to accrue the distribution and shareholder servicing fee.

Relationship with RAI and C-III

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

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

General liability ~~coverage~~loss policy. The Company ~~also~~(with other properties directly managed by RAI) has an insured and dedicated limit for the general liability of $1.0 million per occurrence. Total claims are limited to $2.0 million per premium year. In excess of these limits, the Company participates (with other properties directly ~~and~~or indirectly managed by RAI and C-III) in a ~~general~~$50.0 ~~liability~~million ~~policy.~~per ~~The~~occurrence ~~insured~~excess ~~limit~~liability ~~for~~program. Therefore, the ~~general~~total ~~liability~~insured ~~policy~~limit per occurrence is $7651.0 million infor ~~total~~the ~~claims~~general and excess liability program, after a $25,000 deductible per incident.

Internal audit fees. RAI performs internal audit services for the Company.

Directors and officers liability insurance. The Company participates in a liability insurance program for directors and officers coverage with other C-III managed entities and subsidiaries for coverage up to $100.0 million.

22The following table presents the Company's amounts payable to such related parties (in thousands):

(Back to Index)

	June 30, 2020		December 31, 2019
Advisor:
Organization and offering costs	$	1,923	$	3,076
Operating expense reimbursements (including prepaid expenses)		3		1,778
		1,926		4,854

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

	$	2,004	$	4,938

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

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

	March 31, 2020		December 31, 2019
Due from related parties:
Advisor	$	2	$	—
	$	2	$	—
Due to related parties:
Advisor:
Organization and offering costs	$	2,499	$	3,076
Operating expense reimbursements (including prepaid expenses)		447		1,778
		2,946		4,854
Manager:
Property management fees		78		81
Operating expense reimbursements		—		3
		78		84
Other:
Resource Real Estate Opportunity REIT I deposited check	12			—
	$	3,036	$	4,938

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Fees earned / expenses incurred:
Advisor:
Acquisition fees and acquisition related reimbursements (1)	$	—	$	~~610~~846	$	—	$	1,456
Asset management fees (2)		~~555~~566		~~415~~459		1,121		874
Disposition fees (10)		62—		—		62		—
Debt financing fees (3)		—		92138		—		230
Organization and offering costs (4)		—		~~324~~305		—		629
Operating expense reimbursement (5)(9)		64		~~405~~361		10		766
Manager:
Property management fees (2)	$	~~225~~227	$	~~159~~171	$	452	$	330
Construction management fees (1)		~~130~~35		4272		165		114
Operating expense reimbursements (6)		—		308		—		38
RAI:
Internal audit fee (5)	$	—	$	1213	$	—	$	25
Resource Securities:
Selling commissions and dealer-manager fees (7)	$	—	$	~~820~~278	$	—	$	1,098
Distribution and shareholder servicing fee (7)(8)		—		~~424~~71		—		495
Other:
The Planning & Zoning Resource Company (1)	$	—	$	12	$	—	$	3

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

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

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

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

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

(6)	Included in Rental operating expenses on the consolidated statements of operations and comprehensive loss.

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

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

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

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 10 - EARNINGS PER SHARE

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

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net loss	$	(1,~~670~~936	)	$	(2,~~785~~602	)	$	(3,606	)	$	(5,387	)
Less: Class A common stock cash distributions declared		—			8584			—			169
Less: Class T common stock cash distributions declared		27—			~~123~~122			27			244
Less: Class R common stock cash distributions declared		—			~~988~~1,048			—			2,035
Less: Class I common stock cash distributions declared		4—			6299			4			162
Undistributed net loss attributable to common stockholders	$	(1,~~701~~936	)	$	(43,~~043~~955	)	$	(3,637	)	$	(7,997	)
Class A common stock:
Undistributed net loss attributable to Class A common stockholders	$	(88100	)	$	(~~255~~222	)	$	(188	)	$	(475	)
Class A common stock cash distributions declared		—			8584			—			169
Net loss attributable to Class A common stockholders	$	(88100	)	$	(~~170~~138	)	$	(188	)	$	(306	)
Net loss per Class A common share, basic and diluted	$	(0.1416	)	$	(0.2722	)	$	(0.30	)	$	(0.48	)
Weighted-average number of Class A common shares outstanding, basic and diluted (1)		~~629~~626			~~635~~636			627			636
Class T common stock:
Undistributed net loss attributable to Class T common stockholders	$	(~~157~~178	)	$	(~~448~~391	)	$	(336	)	$	(835	)
Class T common stock cash distributions declared		27—			~~123~~122			27			244
Net loss attributable to Class T common stockholders	$	(~~130~~178	)	$	(~~325~~269	)	$	(309	)	$	(591	)
Net loss per Class T common share, basic and diluted	$	(0.1216	)	$	(0.2924	)	$	(0.28	)	$	(0.53	)
Weighted-average number of Class T common shares outstanding, basic and diluted		1,~~118~~122			1,~~114~~118			1,120			1,116
Class R common stock:
Undistributed net loss attributable to Class R common stockholders	$	—		$	(3,~~188~~137	)	$	—		$	(6,326	)
Class R common stock cash distributions declared		—			~~988~~1,048			—			2,035
Net loss attributable to Class R common stockholders	$	—		$	(2,~~200~~089	)	$	—		$	(4,291	)
Net loss per Class R common share, basic and diluted	$	—		$	(0.2823	)	$	—		$	(0.51	)
Weighted-average number of Class R common shares outstanding, basic and diluted		—			78,~~937~~969			—			8,456
Class I common stock:
Undistributed net loss attributable to Class I common stockholders	$	(1,~~456~~658	)	$	(~~152~~205	)	$	(3,113	)	$	(361	)
Class I common stock cash distributions declared		4—			6299			4			162
Net loss attributable to Class I common stockholders	$	(1,~~452~~658	)	$	(90106	)	$	(3,109	)	$	(199	)
Net loss per Class I common share, basic and diluted	$	(0.1416	)	$	(0.2418	)	$	(0.30	)	$	(0.41	)
Weighted-average number of Class I common shares outstanding, basic and diluted		10,~~355~~406			~~380~~586			10,381			484

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

NOTE 11 - EQUITY

Preferred Stock

The Company’s charter authorizes the Company to issue 10 million shares of its $0.01 par value preferred stock. As of ~~March~~both June 3130, 2020 and December 31, 2019, no shares of preferred stock were issued or outstanding.

Convertible Stock

The Company’s charter authorizes the Company to issue 50,000 shares of its $0.01 par value convertible stock. On August 5, 2016, the Company's board of directors approved the issuance of 50,000 convertible shares in exchange for 5,000 shares of Class A common stock. As of ~~March~~June 3130, 2020, the Company had 50,000 shares of $0.01 par value convertible stock outstanding, which are owned by the Advisor. The convertible stock will convert into shares of the Company’s Class A common stock upon the occurrence of (a) the Company having paid distributions to common stockholders that in the aggregate equal 100% of the price at which the Company originally sold the shares plus an amount sufficient to produce a 6% cumulative, non-compounded annual return on the shares at that price; or (b) if the Company lists its common stock on a national securities exchange or the Company consummates a merger pursuant to which consideration received by the stockholders is securities of another issuer that are listed on a national securities exchange.

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

(A)

15% of the amount, if any, by which

(1)

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

(2)

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

(B)

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

No triggering events have occurred or were considered probable to occur as of ~~March~~June 3130, 2020.

Common Stock

The Company’s charter authorizes the issuance of 1 billion shares of common stock with a par value of $0.01 per share, of which, the Company has allocated 750 million shares as Class R common stock; 75 million shares as Class I common stock; 25 million shares as Class A common stock; and 25 million shares as Class T common stock. 125 million shares of common stock remain undesignated. As of July 3, 2017, the Company ceased offering shares of Class A and Class T common stock and commenced the offering of Class R and Class I common stock in its primary offering. The Company ceased offering Class R and Class I shares in the primary offering on October 31, 2019 and ceased processing subscriptions in the offering on November 15, 2019. The Company continues to offer shares of Class A, Class T, and Class I common stock pursuant to the DRIP.

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

At ~~March~~June 3130, 2020, shares of the Company's $0.01 par value Class A, Class T, Class R, and Class I common stock have been issued as follows (dollars in thousands):

	Class A					Class T					Class R					Class I
	Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds		Shares Issued			Gross Proceeds
Shared issued through primary offering (1)		586,207		$	5,601		1,049,996		$	9,943		9,356,068		$	89,917		624,325		$	5,760
Shares issued through stock dividends		12,860			—		15,495			—		—			—		—			—
Shares issued through distribution reinvestment plan		34,179			318		91,763			834		356,453			3,244		115,513			1,050
Shares issued in conjunction with the Advisor's initial investment, net of 5,000 share conversion		15,000			200		—			—		—			—		—			—
Total		648,246		$	6,119		1,157,254		$	10,777		9,712,521		$	93,161		739,838		$	6,810
Shares redeemed and retired		(22,398	)				(35,615	)				(32,122	)				(1318,~~415~~914	)
Class R share conversion (2)		—					—					(9,680,399	)				9,680,399
Total shares issued and outstanding at March 31, 2020		625,848					1,121,639					—					10,406,822
Total shares issued and outstanding at June 30, 2020		625,848					1,121,639					—					10,401,323

(1)

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

(2)

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

Share Redemption Program

During the ~~three~~six months ended ~~March~~June 3130, 2020, the Company redeemed shares of its outstanding Class A, Class T, and Class I common stock, as follows:

	~~Class A~~	Class A				~~Class T~~		Class T			~~Class I~~						Class I
Period	Total Number of Shares Redeemed			Average Price Paid per Share		Total Number of Shares Redeemed		~~Average Price Paid per Share~~			~~Total Number of Shares Redeemed~~	Average Price Paid per Share		~~Average Price Paid per Share~~		Total Number of Shares Redeemed			Average Price Paid per Share
January 2020		—	—		—		—		—	—		—	—		—			—		—
February 2020		—	—		—		—		—	—		—	—		—			—		—
March 2020		~~5,484~~	5,484	$	8.89		~~3,587~~	$	~~8.89~~	3,587		~~2,416~~$	8.89	$	~~8.44~~			2,416	$	8.44
		5,484					3,587					2,416
April 2020			—		—					—			—					—		—
May 2020			—		—					—			—					—		—
June 2020			—		—					—			—					5,499	$	9.01
			5,484							3,587								7,915

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

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

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

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

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

All redemption requests tendered related to a stockholder’s death, qualifying disability or confinement to a long-term care facility were honored during the three months ended June 30, 2020.

Distributions

During the year ended December 31, 2019, the Company’s board of directors declared cash distributions on the outstanding shares of all classes of its common stock based on daily record dates for the period from December 31, 2019 through March 30, 2020 which were paid on January 31, 2020, February 28, 2020, and March 31, 2020.

The distributions were calculated based on the stockholders of record each day during the period at a rate of $0.001469178 per share per day.

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

The Company announced on March 30, 2020 that it was suspending distributions as of April 1, 2020 in order to preserve cash and offset any impact to the Company’s liquidity that may occur as a result of the COVID-19 pandemic on its operations. There were no distributions declared during the ~~three~~six months ended ~~March~~June 3130, 2020.

The following table presents information regarding the Company's distributions paid to stockholders during the ~~three~~six months ended ~~March~~June 3130, 2020 (in thousands):

	Three Months Ended March 31, 2020
	Six Months Ended June 30, 2020
	Class A		Class T		Class R		Class I		Total
True-up of prior year cash distributions declared	$	—	$	27	$	—	$	4	$	31
Distributions reinvested in shares of common stock paid	$	24	$	89	$	—	$	744	$	857
Cash distributions paid		60		61		—		640		761
Total distributions paid	$	84	$	150	$	—	$	1,384	$	1,618

NOTE 12 - FAIR VALUE MEASURES AND DISCLOSURES

In analyzing the fair value of its financial investments accounted for on a fair value basis, the Company follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The fair value of cash, restricted cash, tenant receivables and accounts payable, approximate their carrying value due to their short nature. The hierarchy followed defines three levels of inputs that may be used to measure fair value:

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

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

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

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

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

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

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

	Level 1		Level 2		Level 3		Total
March 31, 2020
June 30, 2020
Assets:
Interest rate caps	$	—	$	1—	$	—	$	1—
December 31, 2019
Assets:
Interest rate caps	$	—	$	—	$	—	$	—

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

March 31, 2020

December 31, 2019

June 30, 2020

December 31, 2019

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Mortgage notes payable- outstanding borrowings

145,~~523~~409

~~144~~149,~~927~~808

147,148

144,902

The carrying amount of the mortgage notes payable presented above is the outstanding borrowings excluding premium or discount and deferred finance costs, net. At ~~March~~June 3130, 2020, the fair value of mortgage notes payable was estimated using a discounted cash flow model and rates available to the Company for debt with similar terms and remaining maturity.

NOTE 13 - DERIVATIVES AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

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

(Back to Index)

RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

~~MARCH~~JUNE 3130, 2020

(unaudited)

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended ~~March~~June 3130, 2020, such derivatives were used to hedge the variable cash flows, indexed to USD-LIBOR, associated with existing variable-rate loan agreements. The ineffective portion of the change in fair value of the derivatives will be recognized directly in earnings. During the three and six months ended ~~March~~June 3130, 2020, the Company recorded $7,518 and $13,177, respectively, of hedge ineffectiveness in earnings. During the three and six months ended June 30, 2019, the Company recorded $52,~~659~~109 and $~~853~~2,962, respectively, of hedge ineffectiveness in earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. At ~~March~~June 3130, 2020, the Company estimates that an additional $2619,~~756~~238 will be reclassified as an increase to interest expense over the next 12 months.

The following table presents the Company's outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk at ~~March~~June 3130, 2020 and December 31, 2019 (dollars in thousands):

	Interest Rate Derivative	Number of Instruments	Notional Amount		Maturity Dates
March 31, 2020	Interest rate caps	2	$	54,145	August 1, 2020 and April 1, 2021
June 30, 2020	Interest rate caps	2	$	54,145	August 1, 2020 and April 1, 2021
December 31, 2019	Interest rate caps	2	$	54,145	August 1, 2020 and April 1, 2021

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

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets at ~~March~~June 3130, 2020 and December 31, 2019 (in thousands):

Asset Derivatives

Liability Derivatives

March 31, 2020

December 31, 2019

March 31, 2020

December 31, 2019

June 30, 2020

December 31, 2019

June 30, 2020

December 31, 2019

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Balance Sheet

Fair Value

Prepaid expenses and other assets

$ 1—

Prepaid expenses and other assets

$ —

—

$ —

—

$ —

NOTE 14 - OPERATING EXPENSE LIMITATION

Under its charter, the Company must limit its total operating expenses to the greater of 2% of its average invested assets or 25% of its net income for the four most recently completed fiscal quarters, unless the Conflicts Committee of the Company’s board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended ~~March~~June 3130, 2020 were in compliance with the charter imposed limitation.

NOTE 15 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events ~~through the filing of this report~~ and determined that ~~there~~no events have ~~not~~occurred, ~~been~~other ~~any~~than ~~events~~elsewhere ~~that~~in ~~have~~the ~~occurred~~financial ~~that~~statements, which would require ~~adjustments~~an adjustment to or ~~disclosures~~additional disclosure in the consolidated financial statements~~, except for the following:~~.

Renewal of Advisory Agreement

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

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RESOURCE APARTMENT REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

MARCH 31, 2020

(unaudited)

COVID-19 Pandemic

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

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

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

(Back to Index)

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

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

Overview

Resource Apartment REIT III, Inc. is a Maryland corporation that intends to take advantage of its sponsor's multifamily investing and lending platforms to invest in apartment communities in order to provide stockholders with growing cash flow and increasing asset values. We have acquired underperforming apartments which we will renovate and stabilize in order to increase rents. Our primary public offering stage terminated as of October 31, 2019 having raised substantially less than the maximum offering amount. Therefore, we do not expect to be able to invest in as diverse a portfolio of properties as we otherwise would. We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego a good investment because it does not precisely fit our expected portfolio composition. Thus, to the extent that Resource REIT Advisor, LLC (our "Advisor") presents us with attractive investment opportunities that allow us to meet the real estate investment trust ("REIT") requirements under the Internal Revenue Code of 1986, as amended, our portfolio composition may vary from what we initially expect.

COVID-19 Pandemic and Portfolio Outlook

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

InMany ~~the near term many~~ of our tenants ~~may~~have ~~suffer~~suffered difficulties with their personal financial situations as a result of job loss or reduced income and, depending upon the duration of ~~quarantines~~the measures put in place to mitigate or contain the spread of the virus and the corresponding economic slowdown, some of our tenants have or will seek rent deferrals or become unable to pay their rent. AsDuring ofthe ~~April~~three months ended June 30, 2020, we had received April, May and June rent payments equal to approximately 97.3% ~~of the monthly rent for April~~, ~~which is a reduction in the rate of collections of approximately 0~~96.92% ~~from our rent collections in March 2020. In addition~~, weand ~~have approved short-term rent relief requests, most often in the form of rent deferral requests, or requests for further discussion, from approximately 0~~96.1% ~~of our tenants~~, ~~equal to approximately 0.1% of our monthly rent for April. Not all tenant requests will ultimately result in modified agreements~~respectively, ~~nor are we forgoing our contractual rights under our lease agreements. April collections and rent relief requests to-date may not be indicative~~ of ~~collections or requests in any future period. The impact of~~ the ~~COVID-19~~ ~~pandemic~~billed ~~on our~~ rental ~~revenue~~income for the ~~second~~period ~~quarter~~as ofcompared ~~2020 and thereafter cannot however, be determined at present. In addition, we expect the economic disruptions caused by the COVID-19 pandemic will cause elevated credit losses and impede our ability~~ to ~~increase~~March ~~rental~~2020 ~~rates~~collections or lease vacant units, in particular if our current tenants default on their leases and vacate. We are temporarily waiving late fees, halting evictions, and offering a payment deferral plan to residents who have been adversely financially impacted by the COVID-19 pandemic. To help mitigate the impact on our operating results of ~~the COVID-19 pandemic, we have initiated various operational cost saving initiatives across our portfolio~~98. ~~In addition, we have taken measures to preserve cash and offset any impact to our liquidity that may occur as a result of the COVID-19 pandemic~~3%. ~~These~~ ~~measures~~As ~~included the suspension~~ of ~~distributions~~July ~~as of April 1~~31, 2020, ~~as well as the partial suspension of~~ our ~~share~~July ~~redemption~~collections ~~program~~are ~~effective~~approximately ~~April 29, 2020~~96.8% ~~Additionally, most~~ of ~~our~~the ~~value-add~~billed ~~rehabilitation~~rental ~~projects~~income ~~will~~for bethe ~~deferred temporarily~~period.

~~The~~In ~~COVID~~addition, we have approved short-19term ~~pandemic~~rent relief requests, most often in the form of rent deferral requests, or arequests ~~future~~for ~~pandemic~~further discussion. Executed short-term rent relief plans that are outstanding at June 30, ~~epidemic~~2020 orare ~~outbreak~~not significant in terms of ~~infectious~~either ~~disease~~number ~~affecting~~of ~~states~~requests or ~~regions~~dollar value. Not all tenant requests will ultimately result in ~~which~~modified agreements, nor are we ~~operate~~forgoing ~~and~~our contractual rights under our ~~multifamily~~lease ~~tenants~~agreements. ~~reside~~Collections and ~~work~~rent ~~could~~relief requests to-date may not be indicative of collections or requests in any future period. During the three months ended June 30, 2020, tenant receivables have ~~material~~increased ~~and~~by ~~adverse~~approximately ~~effects~~$56,000 from March 31, 2020. In particular, many of our tenants may be the recipients of unemployment benefits or other economic stimulus under the CARES Act which will have aided in the payment of rent due. The extent to which these benefits will be available going forward is uncertain. To the extent our tenants do not have access to additional federal or state relief to mitigate the impact of the COVID-19 pandemic on their personal finances our ~~business,~~ability to collect rent and our operations would be adversely affected.

32The impact of the COVID-19 pandemic on our rental revenue for the remainder of 2020 and thereafter cannot however, be determined at present. In addition, we expect the economic disruptions caused by the COVID-19 pandemic will cause elevated credit losses and impede our ability to increase rental rates or lease vacant units, in particular if our current tenants default on their leases and vacate. We continue to waive late fees, halt evictions, and offer a payment deferral plan to residents who have been adversely financially impacted by the COVID-19 pandemic. To help mitigate the impact on our operating results of the COVID-19 pandemic, we have initiated various operational cost saving initiatives across our portfolio.

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~~financial~~In ~~condition~~addition, ~~results~~we ofhave ~~operations~~taken ~~and~~measures ~~cash flows due~~ to, ~~among~~preserve ~~other~~cash ~~factors:~~and ~~reduced~~offset ~~economic~~any ~~activity,~~impact ~~general~~to ~~economic decline or recession, which may result in job loss or bankruptcy for residents at~~ our ~~properties~~liquidity ~~and~~that may ~~cause~~occur ~~our~~as ~~residents~~a toresult ~~be unable to make rent payments to us timely, or at all, or to otherwise seek modifications~~ of ~~lease~~the ~~obligations;~~COVID-19 ~~health~~pandemic. These ormeasures ~~other~~included ~~government authorities requiring~~ the ~~closure~~suspension of ~~offices~~distributions ~~or other businesses or instituting quarantines of personnel~~ as ~~the result~~ of, orApril ~~in order to avoid~~1, ~~exposure~~2020 toas awell ~~contagious~~as disease; disruption in supply and delivery chains; a general decline in business activity and demand for real estate; difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the ~~global~~partial ~~financial~~suspension ~~markets~~of orour ~~deteriorations~~share inredemption ~~credit~~program ~~and~~effective ~~financing~~April ~~conditions~~29, ~~which~~2020. ~~may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and the potential negative impact on the health of personnel of our advisor~~Additionally, ~~particularly~~most ~~if a significant number~~ of our ~~advisor’s~~value-add ~~employees~~rehabilitation projects are ~~impacted,~~being ~~which~~deferred ~~would result in a deterioration in our ability to ensure business continuity and maintain our properties during a disruption~~temporarily.

The ~~extent to which the~~ COVID-19 pandemic or ~~any~~a ~~other~~future pandemic, epidemic or outbreak of infectious disease ~~impacts~~affecting ~~our~~states ~~operations~~or ~~and~~regions ~~those~~in ofwhich ~~our~~we ~~tenants~~operate ~~will~~and ~~depend~~our onmultifamily ~~future~~tenants ~~developments,~~reside ~~which~~and ~~are~~work ~~highly~~could ~~uncertain~~have ~~and~~material ~~cannot~~adverse beeffects ~~predicted~~on ~~with~~our ~~confidence~~business, ~~including~~financial ~~the scope~~condition, ~~severity~~results of operations and ~~duration~~cash offlows ~~the~~due ~~pandemic~~to, ~~the~~among ~~actions~~other ~~taken~~factors: toreduced ~~contain~~economic ~~the~~activity, ~~pandemic~~general oreconomic ~~mitigate~~decline ~~its~~or ~~impact~~recession, ~~and~~which ~~the~~may ~~direct~~result ~~and~~in ~~indirect~~job ~~economic~~loss ~~effects~~or ofbankruptcy ~~the~~for ~~pandemic~~residents ~~and~~at ~~containment~~our ~~measures,~~properties ~~among~~and ~~others.~~may ~~However,~~cause ~~notwithstanding~~our ~~the~~residents ~~challenging~~to ~~economic~~be ~~circumstances~~unable ~~created~~to bymake ~~the~~rent ~~COVID-19~~payments ~~pandemic~~to us timely, weor ~~believe~~at ~~our~~all, ~~focus~~or onto ~~multifamily~~otherwise ~~assets~~seek ~~makes~~modifications usof ~~better~~lease ~~positioned~~obligations; ~~relative~~health toor other ~~classes~~government authorities requiring the closure of ~~real~~offices ~~estate~~or toother ~~withstand~~businesses ~~many~~or instituting quarantines of ~~the~~personnel ~~adverse~~as ~~impacts~~the result of, ~~the~~or ~~COVID-19~~in ~~pandemic~~order asto ~~housing~~avoid, isexposure to a ~~basic~~contagious ~~need,~~disease; ~~rather~~disruption ~~than~~in supply and delivery chains; a ~~discretionary~~general ~~expense. In~~decline ~~addition~~in business activity and demand for real estate; difficulty accessing debt and equity capital on attractive terms, asor ~~noted~~at ~~above~~all, weand ~~have~~a ~~taken~~severe ~~several~~disruption ~~steps~~and toinstability ~~offset~~in ~~any~~the ~~disruptions~~global financial markets or deteriorations in ~~rent~~credit ~~that~~and financing conditions, which may ~~occur~~affect asour aaccess ~~result~~to ofcapital ~~the~~necessary ~~COVIC-19~~to ~~pandemic. Further,~~fund webusiness ~~have~~operations noor ~~debt~~address maturing ~~until~~liabilities ~~August~~on ~~2024~~a timely basis; and ~~are~~the ~~conservatively~~potential ~~leveraged~~negative ~~with~~impact anon ~~aggregate~~the ~~portfolio~~health ~~leverage~~of personnel of ~~66%. Nevertheless~~our Advisor, ~~the~~particularly ~~COVID-19~~if ~~pandemic~~a ~~(or~~significant anumber ~~future~~of ~~pandemic,~~our ~~epidemic~~Advisor’s oremployees ~~disease)~~are ~~presents~~impacted, ~~material~~which ~~uncertainty~~would ~~and~~result ~~risk~~in ~~with~~a ~~respect~~deterioration toin our ability to ensure business, ~~financial~~continuity ~~condition,~~and ~~results~~maintain ofour ~~operations~~properties ~~and~~during ~~cash~~a ~~flows~~disruption.

The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants remain uncertain and cannot be predicted with confidence and will depend on the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. However, notwithstanding the challenging economic circumstances created by the COVID-19 pandemic, we believe our focus on multifamily assets makes us better positioned relative to other classes of real estate to withstand many of the adverse impacts of the COVID-19 pandemic as housing is a basic need, rather than a discretionary expense. In addition, as noted above, we have taken several steps to offset any disruptions in rent that may occur as a result of the COVIC-19 pandemic. Further, we have no debt maturing until August 2024 with an aggregate portfolio leverage of 67%. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows.

Results of Operations

We were formed on July 15, 2015. We commenced active real estate operations on August 19, 2016 with the acquisition of our first multifamily property. Since our inception, we have acquired interests in seven multifamily properties. At ~~March~~June 3130, 2020, we owned six multifamily properties.

~~Although~~Through June 30, 2020, the COVID-19 pandemic ~~did~~has not significantly ~~impact~~impacted our operating results; ~~for~~however, we have experienced some reductions in revenue during the quarter ~~ending~~as ~~March~~a ~~31,~~result ~~2020,~~of wewaiving late fees and the suspension of evictions at our properties. We expect, however, that as the impact of COVID-19 continues to be felt, the COVID-19 outbreak will adversely affect our business, financial condition, results of operations and cash flows going forward, including but not limited to, rental revenues and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are outside of our control, as discussed above.

3332

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Three Months Ended ~~March~~June 3130, 2020 Compared to the Three Months Ended ~~March~~June 3130, 2019

The following table sets forth the results of our operations:

	Three Months Ended March 31,
	Three Months Ended June 30,
	2020			2019
Revenues:
Rental income	$	5,~~089~~132		$	34,~~723~~091
Total revenues		5,~~089~~132			34,~~723~~091
Expenses:
Rental operating - expenses		~~869~~1,049			~~682~~810
Rental operating - payroll		~~489~~491			~~371~~412
Rental operating - real estate taxes		~~730~~705			~~497~~579
Subtotal- rental operating		2,~~088~~245			1,~~550~~801
Property management fees		—			23
Management fees - related parties		~~780~~793			~~574~~631
General and administrative		~~416~~355			~~860~~602
Loss on disposal of assets		~~129~~73			87131
Depreciation and amortization expense		2,~~360~~235			2,~~237~~216
Total expenses		5,~~773~~701			5,~~310~~384
Loss before net gains on dispositions		(~~684~~569	)		(1,~~587~~293	)
Net gain on disposition of property		~~530~~—			—
Loss before other income (expense)		(~~154~~569	)		(1,~~587~~293	)
Other income (expense):
Interest income		279			7083
Interest expense		(1,~~543~~376	)		(1,~~268~~392	)
Total other income (expense)		(1,~~516~~367	)		(1,~~198~~309	)
Net loss	$	(1,~~670~~936	)	$	(2,~~785~~602	)

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

	Three Months Ended June 30, 2020												Three Months Ended June 30, 2019
	Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total			Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total
Revenues:
Rental income	$	4,286		$	846		$	—		$	5,132		$	3,974		$	117		$	—		$	4,091
Total revenues		4,286			846			—			5,132			3,974			117			—			4,091

Expenses:
Rental operating –expenses		880			169			—			1,049			799			11			—			810
Rental operating - payroll		410			81			—			491			412			—			—			412
Rental operating - real estate taxes		618			87			—			705			565			14			—			579
Subtotal- rental operating		1,908			337			—			2,245			1,776			25			—			1,801
Property management fees		—			—			—			—			—			3			—			3
Management fees - related parties		189			38			566			793			172			—			459			631
General and administrative ⁽¹⁾		116			36			203			355			76			—			526			602
Loss on disposal of assets		69			4			—			73			131			—			—			131
Depreciation and amortization expense		1,931			304			—			2,235			2,181			35			—			2,216
Total expenses		4,213			719			769			5,701			4,336			63			985			5,384
Loss before other income (expense)		73			127			(769	)		(569	)		(362	)		54			(985	)		(1,293	)

Other income (expense):
Interest income		2			—			7			9			—			—			83			83
Interest expense		(1,095	)		(281	)		—			(1,376	)		(1,358	)		(34	)		—			(1,392	)
Total other income (expense)		(1,093	)		(281	)		7			(1,367	)		(1,358	)		(34	)		83			(1,309	)
Net loss	$	(1,020	)	$	(154	)	$	(762	)	$	(1,936	)	$	(1,720	)	$	20		$	(902	)	$	(2,602	)

(1)Includes approximately $13,000 in COVID-19 related expenses for three months ended June 30, 2020.

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	Three Months Ended March 31, 2020												Three Months Ended March 31, 2019
	Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total			Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total
Revenues:
Rental income	$	3,446		$	1,643		$	—		$	5,089		$	3,251		$	472		$	—		$	3,723
Total revenues		3,446			1,643			—			5,089			3,251			472			—			3,723
Expenses:
Rental operating -expenses		477			392			—			869			636			46			—			682
Rental operating - payroll		320			169			—			489			318			53			—			371
Rental operating - real estate taxes		371			359			—			730			390			107			—			497
Subtotal- rental operating		1,168			920			—			2,088			1,344			206			—			1,550
Property management fees		—			—			—			—			—			2			—			2
Management fees - related parties		153			72			555			780			144			15			415			574
General and administrative		99			54			263			416			156			20			684			860
Loss on disposal of assets		98			31			—			129			87			—			—			87
Depreciation and amortization expense		1,571			789			—			2,360			1,915			322			—			2,237
Total expenses		3,089			1,866			818			5,773			3,646			565			1,099			5,310
Loss before net gains on dispositions		357			(223	)		(818	)		(684	)		(395	)		(93	)		(1,099	)		(1,587	)
Net gain on disposition of property		—			530			—			530			—			—			—			—
Loss before other income (expense)		357			307			(818	)		(154	)		(395	)		(93	)		(1,099	)		(1,587	)
Other income (expense):
Interest income		5			1			21			27			—			—			70			70
Interest expense		(1,039	)		(504	)		—			(1,543	)		(1,144	)		(124	)		—			(1,268	)
Total other income (expense)		(1,034	)		(503	)		21			(1,516	)		(1,144	)		(124	)		70			(1,198	)
Net loss	$	(677	)	$	(196	)	$	(797	)	$	(1,670	)	$	(1,539	)	$	(217	)	$	(1,029	)	$	(2,785	)

Total revenues

Total revenues for the three months ended ~~March~~June 3130, 2020 increased by $1.40 million as compared to the three months ended ~~March~~June 3130, 2019 primarily due to ~~six~~the ~~properties~~purchase ~~comprised~~ of 1Summit Apartments on June 24,~~349~~ ~~units~~2019. ~~owned~~Revenue for ~~the~~this ~~entire~~property was approximately $846,000 for the quarter ended ~~March~~June 3130, 2020 as compared to ~~only~~approximately ~~five~~$58,000 ~~properties comprised of 971 units owned~~ for the ~~entire~~ quarter ended ~~March~~June 3130, 2019. In addition, the increase also reflects the implementation of our investment strategy to increase monthly rental income after renovating and stabilizing operations.

Rental operating - expenses, payroll, and real estate taxes

Rental operating - expenses, payroll, and real estate taxes for the three months ended ~~March~~June 3130, 2020 increased by approximately $~~538~~444,000 as compared to the three months ended ~~March~~June 3130, 2019 primarily due to ~~six~~the ~~properties~~purchase ~~comprised~~ of 1Summit Apartments on June 24,~~349~~ ~~units~~2019. ~~owned~~Rental operating expenses for ~~the~~this ~~entire~~property were approximately $337,000 for the quarter ended ~~March~~June 3130, 2020 as compared to ~~only~~approximately ~~five~~$11,000 ~~properties comprised of 971 units owned~~ for the ~~entire~~ quarter ended ~~March~~June 3130, 2019.

Management fees - related parties

Management fees - related parties expense for the three months ended June 30, 2020 increased by approximately $162,000 as compared to the three months ended June 30, 2019 due to an increase in asset management fees due to the purchase of Summit during the quarter ended June 30, 2019.

General and administrative

General and administrative expense for the three months ended June 30, 2020 decreased by approximately $247,000 as compared to the three months ended June 30, 2019 due to a decrease in allocated expenses effective July 1, 2019.

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~~Management~~Six ~~fees~~Months -Ended ~~related parties expense for the three months ended March~~June 3130, 2020 ~~increased~~Compared ~~by approximately $206,000 as compared~~ to the ~~three~~Six ~~months~~Months ~~ended~~Ended ~~March~~June 3130, 2019 due to an increase in property management fees and asset management fees due to six properties comprised of 1,349 units owned for the entire quarter ended March 31, 2020 as compared to only five properties comprised of 971 units owned for the entire quarter ended March 31, 2019.

	Six Months Ended June 30,
	2020			2019
Revenues:
Rental income	$	10,221		$	7,747
Total revenues		10,221			7,747

Expenses:
Rental operating - expenses		1,918			1,492
Rental operating - payroll		980			783
Rental operating - real estate taxes		1,435			1,076
Subtotal- rental operating		4,333			3,351
Property management fees		—			5
Management fees - related parties		1,573			1,205
General and administrative		771			1,395
Loss on disposal of assets		202			218
Depreciation and amortization expense		4,595			4,453
Total expenses		11,474			10,627
Loss before net gains on dispositions		(1,253	)		(2,880	)
Net gain on disposition of property		530			—
Loss before other income (expense)		(723	)		(2,880	)

Other income (expense):
Interest income		36			153
Interest expense		(2,919	)		(2,660	)
Total other income (expense)		(2,883	)		(2,507	)
Net loss	$	(3,606	)	$	(5,387	)

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

	Six Months Ended June 30, 2020												Six Months Ended June 30, 2019
	Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total			Properties owned both periods			Properties purchased/sold during either period			Company level activity			Total
Revenues:
Rental income	$	6,937		$	3,284		$	—		$	10,221		$	6,441		$	1,306		$	—		$	7,747
Total revenues		6,937			3,284			—			10,221			6,441			1,306			—			7,747

Expenses:
Rental operating –expenses		1,195			723			—			1,918			1,241			250			—			1,491
Rental operating - payroll		649			331			—			980			645			138			—			783
Rental operating - real estate taxes		807			628			—			1,435			787			290			—			1,077
Subtotal- rental operating		2,651			1,682			—			4,333			2,673			678			—			3,351
Property management fees		—			—			—			—			—			5			—			5
Management fees - related parties		308			144			1,121			1,573			285			46			874			1,205
General and administrative ⁽¹⁾		190			115			466			771			147			29			1,219			1,395
Loss on disposal of assets		135			67			—			202			192			26			—			218
Depreciation and amortization expense		3,164			1,431			—			4,595			3,574			879			—			4,453
Total expenses		6,448			3,439			1,587			11,474			6,871			1,663			2,093			10,627
Loss before net gains on dispositions		489			(155	)		(1,587	)		(1,253	)		(430	)		(357	)		(2,093	)		(2,880	)
Net gain on disposition of property		—			530			—			530			—			—			—			—
Loss before other income (expense)		489			375			(1,587	)		(723	)		(430	)		(357	)		(2,093	)		(2,880	)

Other income (expense):
Interest income		7			1			28			36			—			1			152			153
Interest expense		(3,915	)		996			—			(2,919	)		(2,290	)		(370	)		—			(2,660	)
Total other income (expense)		(3,908	)		997			28			(2,883	)		(2,290

Filing Compare · Resource Apartment REIT III, Inc.