Item 8.01. Other Events. Resource Real Estate Opportunity REIT, Inc. (the "Company," "we," "our," or "us") is filing this Current Report on Form 8-K to present risk factor disclosure to be incorporated by reference into the Company's Registration Statement on Form S-3 (File No. 333-160463) for the sale of shares of the Company's common stock pursuant to its distribution reinvestment plan (the "Registration Statement"). Our stockholders or potential investors may be referred to as "you" or "your" in this disclosure. RISK FACTORS An investment in our common stock involves various risks and uncertainties. You should carefully consider the following risk factors in conjunction with the other information contained in the prospectus included in the Registration Statement (the "Prospectus"). The risks discussed below could adversely affect our business, operating results, prospects and financial condition. This could cause the value of our common stock to decline and could cause you to lose all or part of your investment. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. Risks Related to an Investment in Us There is no public trading market for your shares; therefore, it will be difficult for you to sell your shares. There is no current public market for our shares and we currently have no plans to list our shares on a national securities exchange. Our charter limits your ability to transfer or sell your shares unless the prospective stockholder meets the applicable suitability and minimum purchase standards. Our charter also prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from desiring to purchase your shares. Moreover, our share redemption program includes numerous restrictions that limit your ability to sell your shares to us, and our board of directors may amend, suspend or terminate our share redemption program upon 30 days' notice and without stockholder approval. Therefore, it will be difficult for you to sell your shares promptly or at all. If you are able to sell your shares, you would likely have to sell them at a substantial discount to their public offering price. It is also likely that your shares would not be accepted as the primary collateral for a loan. You should purchase our shares only as a long-term investment because of the illiquid nature of the shares. If we are unable to find additional suitable investments, we may not be able to achieve our investment objectives or pay distributions. Our ability to achieve our investment objectives and to pay distributions depends upon the performance of our advisor in the acquisition of our investments, including the determination of any financing arrangements. Competition from competing entities may reduce the number of suitable investment opportunities offered to us or increase the bargaining power of property owners seeking to sell. Additionally, disruptions and dislocations in the credit markets may materially impact the cost and availability of debt to finance real estate acquisitions, which is a key component of our acquisition strategy. This lack of available debt could result in a further reduction of suitable investment opportunities and create a competitive advantage to other entities that have greater financial resources than we do. We are also subject to competition in seeking to acquire real estate-related debt investments. We can give no assurance that our advisor will be successful in obtaining suitable investments on financially attractive terms or that, if our advisor makes investments on our behalf, our objectives will be achieved. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives. Disruptions in the financial markets and sluggish economic conditions nationally and globally could adversely impact our ability to implement our business strategy and generate returns to you. Our business and operations are dependent on the commercial real estate finance industry generally, which in turn is dependent upon broad economic conditions in the United States and abroad. Despite some recent improvements, the U.S. economy is continuing to experience relatively high unemployment and slow growth. In addition, the significant debt in U.S. and European countries is expected to hinder growth in those countries for the foreseeable future. Further, continued instability in certain middle eastern countries could negatively impact the U.S. economy. Finally, future U.S. government regulations with respect to the domestic budget deficit may significantly impact the housing market. -------------------------------------------------------------------------------- Residential real estate markets have been experiencing an uneven recovery. The market for residential mortgages saw significant gains in 2012, but problem loans on bank balance sheets still remain a material challenge for U.S. banks. The slow and steady recovery in the single family home market continues to progress. The Federal Reserve's low interest rate policy has pushed capital into the residential mortgage markets and has helped consumer balance sheets by establishing some stability in home valuations. The global capital markets have begun to improve, but uncertainties still exist and it is unlikely that transaction volumes will return to pre-2007 levels. Central bank interventions in the banking system and the persistence of a highly expansionary monetary policy by a number of government entities have introduced additional complexity and uncertainty to the markets. These conditions are expected to continue, and combined with a challenging macro-economic environment, may interfere with the implementation of our business strategy and/or force us to modify it. We have acquired and intend to continue to acquire a diversified portfolio of real estate and real estate-related assets, some of which have been discounted. Current economic conditions greatly increase the risks of these investments. For instance, the sluggish employment market could contribute to increased rent delinquencies at our rental properties. Further, declining real estate values significantly increase the likelihood that we will incur losses on our loans in the event of a default because the value of our collateral may be insufficient to cover our cost on the loan. In addition, revenues on the properties and other assets underlying any loan investments we may make could decrease, making it more difficult for borrowers to meet their payment obligations to us. More generally, the risks arising from the current financial market and economic conditions are applicable to all of the investments we may make, including commercial real estate-related debt. A protracted economic downturn could have a negative impact on our portfolio. Borrowers often use increases in the value of their existing properties to support the purchase of or investment in additional properties. Although our discount and value-add investment strategies do not rely on precisely the same concepts, if real property or other real estate-related asset values continue to decline after we acquire them, we may have a difficult time making new acquisitions or generating returns on your investment. We have financed, and may in the future finance, some of our investments in part with debt. As a result of the uncertainties in the credit market, we may not be able to obtain future debt financing on attractive terms. As such, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions, reducing the number of investments we would otherwise make. If the debt markets are unfavorable, we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals. If we are unable to invest all of the net proceeds from our initial public offering promptly, our distributions and your investment returns may be lower than they otherwise would. We could suffer from delays in locating suitable investments. Our reliance on our advisor to locate suitable investments for us at times when the management of our advisor is simultaneously seeking to locate suitable investments for other affiliated programs could also delay the investment of the proceeds of our initial public offering that have yet to be invested. Delays we encounter in the selection, acquisition and development of income-producing properties would likely limit our ability to pay distributions to our stockholders and reduce our stockholders' overall returns. We have a limited prior operating history and our sponsor, Resource Real Estate , has only limited experience operating a public company, which makes our future performance difficult to predict. We were incorporated in the State of Maryland on June 3, 2009 and we have a limited operating history. As of December 27, 2013 , we owned 24 multifamily properties and three performing first mortgage loans. You should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by affiliates of our advisor. Our limited operating history and differences from other programs sponsored by Resource America or Resource Real Estate significantly increase the risk and uncertainty you face in making an investment in our shares. -------------------------------------------------------------------------------- Because we are dependent upon our advisor and its affiliates to conduct our operations, any adverse changes in the financial health of our advisor or its affiliates or our relationship with them could hinder our operating performance and the return on our stockholders' investment. We are dependent on our advisor to manage our operations and our portfolio of real estate assets. Our advisor has a limited operating history and it depends largely upon the fees and other compensation that it receives from us in connection with the purchase, management and sale of assets to conduct its operations. Any adverse changes in the financial condition of our advisor or our relationship with our advisor could hinder its ability to successfully manage our operations and our portfolio of investments. Our ability to achieve our investment objectives and to conduct our operations is dependent upon the performance of our advisor, which is a subsidiary of our sponsor and its parent company, Resource America. Our sponsor's business is sensitive to trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment and accompanying credit crisis have negatively impacted the value of commercial real estate assets, contributing to a general slowdown in our sponsor's industry, which our sponsor anticipates will continue during 2014. To the extent that any decline in our sponsor's revenues and operating results impacts the performance of our advisor, our results of operations, and financial condition could also suffer. The SEC staff has informed us that historical pre-acquisition financial statements were required for the properties underlying certain significant non-performing loans we have acquired. To date we have not provided this information. Unless we are able to provide this information or the SEC staff changes its position, the SEC staff could take actions that could adversely affect us. In connection with its review of our Annual Report on Form 10-K for the year ended December 31, 2011 , the SEC staff questioned whether historical pre-acquisition financial statements were required to be filed with respect to certain real estate properties underlying our non-performing loans. We had not provided this information based on our review of the available accounting literature, but the SEC staff has stated that such historical financial information is required for properties underlying the significant non-performing mortgage loans that we have acquired. Although the SEC staff has closed the comment letter, we could be subject to enforcement action by the SEC if the staff's position remains unchanged and we are unable to present the required historical financial statements. Moreover, if historical financial statements are required for certain future loan acquisitions, it could limit our ability to acquire mortgage loans, any of which could adversely affect our performance. Our investment strategy includes investing in non-performing loans and then pursuing various strategies to create value in such investments. As discussed in the risk factor above, to date we have not provided historical pre-acquisition financial statements for the properties underlying certain non-performing loans we have acquired. As a result you will have less information with which to evaluate some of our investments. We have acquired non-performing loans as part of our investment strategy. Our strategy for creating value in such loans includes negotiating with the borrower for a reduced payoff, restructuring the terms of the loan or enforcing our rights as lender under the loan and foreclosing on the property securing the loan. For some of our properties, we have not provided historical pre-acquisition financial statements. As a result you will have less information with which to evaluate our real estate portfolio. The loss of or the inability to hire additional or replacement key real estate and debt finance professionals at Resource Real Estate could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment. Our success depends to a significant degree upon the contributions of Alan Feldman , our Chief Executive Officer, and Kevin Finkel , our President, each of whom would be difficult to replace. Neither we nor our advisor have employment agreements with these individuals. Messrs. Feldman and Finkel may not remain associated with Resource Real Estate . If either of these persons were to cease their association with us, our operating results could suffer. We do not intend to maintain key person life insurance on any person. We believe that our future success depends, in large part, upon Resource Real Estate and its affiliates' ability to retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and Resource Real Estate and its affiliates may be unsuccessful in attracting and retaining such skilled individuals. If -------------------------------------------------------------------------------- Resource Real Estate loses or is unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered and the value of your investment may decline. If we make distributions from sources other than our cash flow from operations, we will have fewer funds available for the acquisition of properties and your overall return may be reduced. As of the date of this Current Report on Form 8-K, we have paid approximately $16.6 million in cash distributions, which have been funded from a combination of cash flow and borrowings. We will declare distributions when our board of directors determines we have sufficient cash flow. We generally expect to fund distributions from interest and rental income on investments, the maturity, payoff or settlement of investments and from strategic sales of loans, debt securities, properties and other assets. However, during the early stages of our operations or beyond, we may set distribution rates at levels we believe we will be able to cover with anticipated future cash flows from operating activities. In order to make these cash distributions, we may be required to use alternative funding sources. Our organizational documents permit us to make distributions from any source. If we fund distributions from borrowings, sales of properties or the net proceeds from our initial public offering, we will have less funds available for the acquisition of real estate and real estate-related assets and your overall return may be reduced. Further, to the extent distributions exceed our cash flow from operations, a stockholder's basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gain. There is no limit on the amount we can fund distributions from sources other than from cash flows from operations. For the year ended December 31, 2012 , we paid aggregate cash distributions of $1.9 million , including $841,000 of distributions paid in cash and $1.1 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the year ended December 31, 2012 was $10.3 million and net cash used in operating activities was $3.5 million . For the nine months ended September 30, 2013 , we paid aggregate distributions of $9.4 million , including $3.2 million of distributions paid in cash and $6.2 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the nine months ended September 30, 2013 was $11.9 million and net cash used in operations was $2.4 million . Our cumulative distributions and net loss from inception through September 30, 2013 are $11.3 million and $31.5 million , respectively. We have funded our cumulative distributions, which includes net cash distributions and distributions reinvested by stockholders, with cash flow from operations and proceeds from debt financing. To the extent that we pay distributions from sources other than our cash flow from operating activities or gains from asset sales, we will have fewer funds available for investment in commercial real estate and real estate-related debt, the overall return to our stockholders may be reduced and subsequent investors may experience dilution. The value of a share of our common stock has been diluted as a result of our payment of stock distributions and will be further diluted if we make additional stock distributions. We have paid stock distributions to our stockholders of record as of the close of business on February 28, 2011 , May 31, 2011 , August 31, 2011 , December 30, 2011 , March 31, 2012 , June 30, 2012 , and September 30, 2012 , each time in the amount of 0.015 shares of our common stock, or 1.5% of the outstanding shares of common stock, for every share held of record on such date. In addition, our board of directors declared two stock distributions of 0.0075 shares, or 0.75%, for each outstanding share of common stock on December 31, 2012 and March 31, 2013 , one stock distribution of 0.00585 shares, or 0.585%, for each outstanding share of common stock on June 28, 2013 , and one stock distribution of 0.005 shares, or 0.5%, for each outstanding share of common stock on September 30, 2013 . We may continue to issue such stock distributions in the future. We seek to purchase assets that may have limited operating cash flows. While our objective is to acquire assets that appreciate in value, there can be no assurance that assets we acquire will appreciate in value. Furthermore, we do not intend to change our per share public offering price until 18 months after the termination of the primary portion of our initial public offering (which occurred in December 2013 ). Therefore, investors who purchase our shares early in this offering, as compared with later investors, may receive more shares for the same cash investment as a result of any stock distributions. Because they own more shares, upon a sale or liquidation of the company, these early investors will receive more sales proceeds or liquidating distributions relative to their invested capital compared to later investors. Furthermore, unless our assets appreciate in an amount sufficient to offset the dilutive effect of the prior stock distributions, the value per share for later investors purchasing our stock will be below the value per share of earlier investors. -------------------------------------------------------------------------------- Future interest rate increases in response to inflation may inhibit our ability to conduct our business and acquire or dispose of real property or real estate-related debt investments at attractive prices and your overall return may be reduced. While we expect a significant amount of our leases to be short-term multifamily leases that will not be affected by inflation, we will be exposed to inflation risk with respect to income from any long-term leases on real property and from related real estate debt investments as these may constitute a source of our cash flows from operations. Although inflation has been generally low in recent years, high inflation may in the future tighten credit and increase prices. Further, if interest rates rise, such as during an inflationary period, the cost of acquisition capital to purchasers may also rise, which could adversely impact our ability to dispose of our assets at attractive sales prices. Should we be required to acquire, hold or dispose of our assets during a period of inflation, our overall return may be reduced. Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses. Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that no independent director shall be liable to us or our stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, you and we may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce our and your recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (as well as by our other directors, officers, employees (if we ever have employees) and agents) in some cases, which would decrease the cash otherwise available for distributions to you. The SEC takes the position that indemnification against liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), is against public policy and unenforceable. We may change our targeted investments, our policies and our operations without stockholder consent. We expect to allocate a majority of our portfolio to investments in multifamily rental properties, which includes student housing and senior residential, and debt secured by multifamily rental properties, but we may also purchase investments in condominium, office, retail, industrial, mixed-use, hospitality and healthcare properties and other real estate asset classes throughout the United States . Also, except as described in the Prospectus, we are not restricted as to the following: • where we may acquire real estate investments; • the percentage of our proceeds that may be invested in properties as compared with the percentage of our proceeds that we may invest in real estate-related debt investments, commercial mortgage-backed securities or mortgage loans, each of which may be leveraged and will have differing risks and profit potential; or • the percentage of our proceeds that may be invested in any one real estate investment (the greater the percentage of our subscription proceeds invested in one asset, the greater the potential adverse effect on us if that asset is unprofitable). Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders, which could result in our making investments that are different from, and possibly riskier than, the investments described in the Prospectus. A change in our targeted investments or investment guidelines could adversely affect the value of our common stock and our ability to make distributions to you. Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board's broad discretion in setting policies and our stockholders' inability to exert control over those policies increases the uncertainty and risks you face as a stockholder. -------------------------------------------------------------------------------- Because the offering price in our distribution reinvestment plan offering exceeds our net tangible book value per share, investors in the offering will experience immediate dilution in the net tangible book value of their shares. We are currently offering shares pursuant to our distribution reinvestment plan at $9.50 per share. Our current offering price exceeds our net tangible book value per share. Our net tangible book value per share is a rough approximation of value calculated as total book value of assets (exclusive of certain intangible items, including deferred financing costs) minus total liabilities, divided by the total number of shares of common stock outstanding. It assumes that the value of real estate assets diminishes predictably over time as shown through the depreciation and amortization of real estate investments. Real estate values have historically risen or fallen with market conditions. Net tangible book value is used generally as a conservative measure of net worth that we do not believe reflects our estimated value per share. It is not intended to reflect the value of our assets upon an orderly liquidation of the company in accordance with our investment objectives. Our net tangible book value reflects dilution in value of our common stock from the issue price as a result of (i) operating losses, which reflect accumulated depreciation and amortization of real estate investments, (ii) fees paid in connection with our initial public offering, including selling commissions and marketing fees re-allowed by our dealer manager to participating broker dealers, and (iii) stock distributions we have made. As of September 30, 2013 , our net tangible book value per share was $7.52 . To the extent we are able to raise substantial proceeds through our distribution reinvestment plan, some of the expenses that cause dilution of the net tangible book value per share are expected to decrease on a per share basis, resulting in increases in the net tangible book value per share. This increase would be partially offset by increases in depreciation and amortization expenses related to our real estate investments. The factors described above with respect to the dilution in the value of our common stock are likely to cause this offering price to be higher than the amount our stockholders would receive per share if we were to liquidate at this time. The actual value of shares that we repurchase under our share redemption program may be substantially less than what we pay. Under our share redemption program, shares currently may be repurchased at varying prices depending on (a) the purchase price paid for the shares and (b) whether the redemptions are sought upon a stockholder's death, "qualifying disability" (as defined in the program), or confinement to a long-term care facility. The current maximum price that may be paid under the program is $10.00 per share. This redemption price is likely to differ from the price at which a stockholder could resell his or her shares for the reasons discussed in the risk factor above. Thus, when we repurchase shares of our common stock at $10.00 per share, the actual value of the shares that we repurchase will be less, and the repurchase will be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of the shares may be substantially less than what we pay and the repurchase may be dilutive to our remaining stockholders. Risks Related to Conflicts of Interest Resource Real Estate Opportunity Advisor and its affiliates, including all of our executive officers, some of our directors and other key real estate . . .
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