BETHEL HOMES REDEVELOPMENT, L.P. (A GEORGIA LIMITED PARTNERSHIP) HUD PROJECT NO PM

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1 Dauby O'Connor & Zaleski, LLC A Limited Liability Company Certified Public Accountants. dba BETHEL CHURCH HOMES APARTMENTS HUD PROJECT NO PM REPORT ON AUDIT OF FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION AND COMPLIANCE AND INTERNAL CONTROL FOR THE YEAR ENDED DECEMBER 31, 2010 Program: Section 221(d)(4) of the National Housing Act accompanied with a Section 8 Housing Assistance Payment Contract SOl Congressional Blvd.. Suite 300 Cannel, Indiana Fax: 3] 78] 56 ]40

2 FOR THE YEAR ENDED DECEMBER 31, 2010 CONTENTS Page Independent auditor's report 12 Financial statements: Balance sheet Statement ofprofit and loss (HUD Form 92410) Statement ofchanges in partners' equity (deficit) Statement ofcash flows Notes to financial statements Accompanying information: Accompanying information required by HUD Computation of surplus cash, distributions and residual receipts (HUD Form 93486) Supplemental information Schedule ofchanges in property and equipment Independent auditor's report on internal control Independent auditor's report on compliance with specific requirements that could have a direct and material effect on each major HUD program Independent auditor's report on compliance with specific requirements applicable to fair housing and nondiscrimination Schedule offindings and questioned costs Auditor's comments on audit resolution matters Management Agent certification Certification ofpartners

3 id! I i 10 1 I.. ' 1 'l"====z]z Danby O'Connor & Zaleski, LLC A Limited Liability Company Certified Public Accountants INDEPENDENT AUDITOR'S REPORT To the Partners of Bethel Homes Redevelopment, L.P. (A Georgia Limited Partnership) We have audited the accompanying balance sheet of Bethel Homes Redevelopment, L.P. as of December 31, 2010, and the related statements of profit and loss, changes in Partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility ofthe Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bethel Homes Redevelopment, L.P. as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued reports dated January 28, 2011, on our consideration of Bethel Homes Redevelopment, L.P.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. SOl Congressional Blvd., Suite 300 Cannel, Indiana Fax:

4 Bethel Homes Redevelopment, L.P. Page Two Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part ofthe basic financial statements ofbethel Homes Redevelopment, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. January 28,2011 Carmel, Indiana J){fT~~ Dauby O'Connor & Zaleski, LLC Certified Public Accountants 2

5 BALANCE SHEET DECEMBER 31,2010 ASSETS Current assets: Cash and cash equivalents Accounts receivable tenants Allowance for doubtful accounts Net tenant accounts receivable Prepaid expenses Accounts and notes receivable entity Total current assets Deposits held in trust funded: Tenant security deposits Restricted deposits and funded reserves: Mortgage escrow deposits Replacement reserve Other reserve Total restricted deposits and funded reserves Property and equipment: Land Buildings Building equipment Less: Accumulated depreciation Net property and equipment Other assets: Unamortized costs, net ofaccumulated amortization $ 59,819 (17,946) $ 9,698 41,873 33, ,736 23,367 74, , , , ,976 10,764, ,063 11,180,080 (2,615,786) 8,564, ,183 Total assets $ 9,403,207 See notes to financial statements 3

6 BALANCE SHEET (CONTINUED) DECEMBER 31, 2010 LIABILITIES AND PARTNERS' DEFICIT Current liabilities: Accounts payable operations Construction payables Accounts payable HUD Accrued management fee payable Accrued wages payable Accrued interest mortgage note payable Prepaid rent Current maturities oflong term liabilities Total current liabilities Deposit liabilities: Tenant security deposits Long term liabilities: Local administrative fee payable Deferred revenue Mortgage note payable, net ofcurrent maturities Flexible subsidy loan payable Accrued interest flexible subsidy loan Due to General Partner and affiliates Total long term liabilities Total liabilities $ 517,190 4,331 3, ,899 6,889 27, , ,110 20,257 32,773 15,992 5,332,554 3,166, , ,291 9,367,873 10,269,240 Partners' deficit Total liabilities and Partners' deficit (866,033) $ 9,403,207 See notes to financial statements 4

7 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing FederalHousing Commissioner ForMonth/Period Project Number Project Name Beginning Ending 01/01/10 12/31/ PM Bethel Church Homes Apartments Part I Description ofaccount Acct. No. Amount" Rent Revenue Gross Potential Tenant Assistance Payments Rent Revenue Stores and Commercial 5140 Garage and Parking Spaces 5170 Rental Flexible Subsidy Revenue 5180 Revenue Miscellaneous Rent Revenue (specify) 5100 Excess Rent Rent Revenue/Insurance 5192 Special Claims Revenue Retained Excess Income Lease Revenue (Nursing Homes) 5195 Total Rent Revenue Potential at 100% Occupancy 5100T $ Apartments Stores and Commercial 5240 Vacancies Rental Concessions Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies 5200T ) Net Rental Revenue Rent Revenue Less Vacancies 5152N $ Nursing Homes/Assisted Living/Board & Care/Other Elderly Care/Coop/and Other Revenues 5300 $. Financial Revenue ProjectOperations Financial Revenue from Investments Residual Receipts 5430 Revenue Revenue from Investments Reserve for Replacement Revenue from Investments Miscellaneous (specify) 5490 Total Financial Revenue 5400T $ 481 Laundry and Vending Tenant Charges Other InterestReduction Payments Revenue 5945 Revenue Miscellaneous Revenue (specify) Total Other Revenue 5900T $ $ Total Revenue Conventions and Meetings 5000T 6203 Management Consultants Advertising and Marketing Other Renting Expenses Office Salaries Office Expenses Administrative Office or Model Apartment Rent 6312 I~ 6310 Expenses Management Fee 6320 ~ /6300 Manager or Superintendent Salaries Administrative Rent Free Unit Legal Expenses(Project) Audit Expenses Bookkeeping Fees/Accounting Services 6351 I 8645 Bad Debts Miscellaneous Administrative Expenses (specify) Total Administrative Expenses 6263T $ Fuel Oil/Coal 6420 Electricity Utilities Water Expense Gas Sewer 6453 I~ Total Utilities Expense 6400T $ "All amounts must De rounaea tothe nearest couar: :l).5u ana age 1 0I2 over, round up $.49 and below, round down See notes to financial statements 5

8 . Payroll 6510 $ Supplies 6515 $ Contracts 6520 $ Operating and Maintenance Rent Free Unit 6521 $ Operating and Garbage and Trash Removal 6525 $ Maintenance Security Payroll/Contract 6530 $ Expenses Security Rent Free Unit 6531 $ 6500 Heating/Cooling Repairs and Maintenance 6546 $ Snow Removal 6548 $ Vehicle and Maintenance Equipment Operation and Repairs 6570 $ Miscellaneous Operating & Maintenance Expenses (specify) 6590 $ Total Operating & Maintenance Expenses 6500T $ Reai Estate Taxes 6710 $ Payroll Taxes (Project's Share) 6711 $ Taxes Property and Liability Insurance (Hazard) 6720 $ and Fidelity Bond Insurance 6721 $ Insurance Workmen's Compensation 6722 $ 4, Health Insurance & Other Employee Benefits 6723 $ Miscellaneous Taxes, Licenses, Permits and Insurance (specify) 6790 $ 3174 Total Taxes and Insurance 6700T $ Interest on Mortgage (or Bonds) Payable 6820 $ Interest on Other Mortgages 6825 $ Interest on Notes Payable (LongTerm) 6830 $ Financial Interest on Notes Pavable (ShortTerm) 6840 $ Expenses Interest on Capital Recovery Payment (M2M) 6845 $ 6800 Mortqage Insurance Premium/Service Charge 6850 $ Miscellaneous Financial Expenses (specify) 6890 $ 750 Total Financial Expenses 6800T $ Elderly & Nursing Homes/Assisted living/board & Care/Other Elderly Care 6900 $ Congregate Total Cost of Operations before Depreciation 6000T $ Service Profit (Loss) before Depreciation 5060T $ ( ) Expenses Depreciation 6600 $ Amortization 6610 $ 15,720 Operating Profit or (Loss) 5060N $ (494304) Entity Revenue 7105 $ Officer Salaries 7110 $ Incentive Performance Fee (M2M) 7115 $ Corporate or tegal Expenses 7120 $ Mortgagor Federal, State, and Other Income Taxes 7130 $ Entity Interest on Notes Payable 7141 $ Expenses Interest on Mortgage Payable 7142 $ 7100 Other Expenses Local administrative fee 7190 $ 5454 Net Entity Expenses 7100T $ 5454 Profit or Loss (Net Income or Loss) 3250 $ ( Part II 1. Totalmortgage (or bond) principal payments required during the audit year [12 monthly payments}. This applies to all direct loans and HUDheJd andfully insured mortgages. 2. Totalof 12 monthly deposits in theaudit year into the Replacement Reserve account, as required bythe Regulatory Agreement, even ifpayments maybe temporarily suspended or reduced. 3. Replacement Reserves, or Residual Receipts and Releases which are included as expenseitems onthis Profit and Loss statement. 4. Project Improvement Reservereleases underthe Flexible Subsidy Program that are included as expense itemsonthis Profit and Loss Statement. Page 2 of 2 $ 76,024 $ 52,776 $ 76,929 $ Form HUD See notes to financial statements 6

9 STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 3I, 20 I0 Class A Class B Special Investor Investor Managing Limited Limited Limited General Partner Partner Partner Partner Bethel Homes Related Centerline Centerline Redevelopment Corporate Corporate Georgia Total Partnership GP, XIX SLP, Partners Investor Limited LLC L.P. XIX, L.P. L.L.C. Partners Total Partners' Equity Balance, ' December 31,2009 $ (335) $ (335) $(1,010,020) $ 644,415 $ (365,940) $ (366,275) Net loss (50) (50) (499,658) (499,708) (499,758) Balance, December 31,2010 $ (385) =$====(~38;,;5.;,) $(1,509,678) $ 644,415 $ (865,648) $ (866,033) Partners' percentage of partnership losses 0.01% 0.01% 99.98% 0.00% 99.99% % See notes to financial statements 7

10 _._ STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2010 Cash flow from operating activities: Revenue: Rental income Financial Other income Expenditures: Administrative Management fee Utilities Salaries and wages Operating and maintenance Real estate taxes Prope~insurance Miscellaneous taxes and insurance Interest mortgage note payable Mortgage insurance premium Miscellaneous financial Tenant security deposits Net cash provided by operating activities Cash flow from investing activities: Purchase ofproperty and equipment Net change in mortgagee escrow deposits Net change in replacement reserve Net cash provided by investing activities Cash flow from financing activities: Principal payments on mortgage note payable Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending $ 1,151, ,936 (67,612) (33,504) (176,980) (21,555) (286,875) (75,111) (56,877) (45,149) (333,295) (27,242) (750) 839 (151,121) (7,719) 182,484 (76,024) $ 1,175,395 (1,124,111 ) 51,284 23,644 (76,024) (1,096) 10,794 $ 9,698 See notes to financial statements 8

11 STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2010 Reconciliation ofnet loss to net cash provided by operating activities: Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation Amortization Loss on disposal offixed assets Mortgagor entity expenses Changes in: Accounts receivable tenant, net Prepaid expenses Tenant security deposits held Accounts payable operations Accounts payable HUD Accrued management fee payable Accrued wages payable Accrued interest mortgage note payable Accrued interest flexible subsidy loan Tenant security deposits liability Prepaid revenue Total adjustments Net cash provided by operating activities $ (499,758) 324,045 15,720 35,448 5,454 (941) 4,222 (23) 122,043 (373) 16, (387) 31, (3,391) 551,042 $ 51,284 See notes to financial statements 9

12 _._ NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Bethel Homes Redevelopment, L.P. (the "Partnership") was recognized by the State of Georgia as a limited partnership as of October 31, The Partnership's purpose is to invest in real estate and the construction, operation, and sale and/or leasing of the Partnership property. The Partnership property consists of a 190unit apartment complex known as Bethel Church Homes Apartments (the "Project") located in Athens, Georgia. Each building ofthe Project has been allocated low income housing credits pursuant to Internal Revenue Service Code Section 42 ("Section42") which regulates the use of the Project as to occupant eligibility and unit gross rent, among other requirements. Each building of the Project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the credits. In addition, the Partnership has allocated state low income housing tax credits. In order to qualify for the credits, the Partnership must maintain compliance with certain requirements. The Project was endorsed for insurance under Section 221 (d) (4) ofthe National Housing Act, with the Secretary ofhousing and Urban Development ("HUD"). The Partnership has executed a Regulatory Agreement and a Housing Assistance Payment Contract ("HAP Contract"), which governs the operation of the Project with the Federal Housing Administration ("FHA") Section of HUD. The HAP Contract expires October 31, In accordance with the Regulatory Agreement, the Partnership, among other items must operate as follows: (I) The rental rates charged to tenants are controlled by BUD. (2) Establish and maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account in a bank which is insured by the Federal Deposit Insurance Corporation and deposit monthly amounts as established by HUD. (3) Owners shall not make, or receive and retain any distribution of assets or any income of the Project except surplus cash, as that term is defined. Surplus cash distributions shall be made only as of and after the end of an annual or semiannual fiscal period. (4) Funds collected as security deposits shall be kept separate from all other funds ofthe Project and in a federally insured account. All of the units qualify for federal rent subsidy pursuant to Section 8 of the U.S. Housing Act of 1937, as amended. 10

13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Organization (continued) The HAP Contract is a rent assistance program for low income families (or persons) as provided by the Section 8 Program of the National Housing Act. Eligible low income tenants pay 30% of their income as rent, while BUD pays the difference between this rental amount and "contract rent" (as defined). The Partnership can request from BUD an amount equal to 80% of contract rent during periods that the unit is vacant ifcertain conditions are met, but not to exceed 60 days. If a unit continues to be vacant after the 60day period, the Partnership may submit a claim and receive additional housing assistance payments on a semiarmua1 basis if certain conditions are met as outlined in the HAP Contract. The following is a summary of significant accounting policies followed in the preparation of these financial statements: Basis of reporting The Partnership has adopted the policy of presenting its financial statements to comply with the financial reporting provisions of the Consolidated Audit Guide for Audits ofhud Programs, IG , issued July 2008 by the U.S. Department ofhousing And Urban Development. Cash and cash equivalents For the statement of cash flows, all unrestricted investments with original maturities of three months or less are cash equivalents. At December 31, 2010, cash and cash equivalents consist of checking, savings, money market, and petty cash accounts. Tenant receivable and bad debt policy Tenant rent charges for the current month are due on the first of the month. Tenants who are evicted or moveout are charged with damages or cleaning fees, if applicable. Tenant receivables consist of amounts due for rental income, security deposit or the charges for damages and cleaning fees. The Partnership does not accrue interest on the tenant receivable balances. The Partnership reviews its outstanding tenant receivables on a regular basis and records an allowance for 30% of the outstanding tenant receivables. As ofdecember 31, 2010, the allowance for doubtful accounts was $17,946. Bad debts expensed for the year ended December 31, 2010 totaled $36,

14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property and eguipment Depreciation is provided using principally the straightline method over the estimated useful lives ofthe assets ranging from 7 years to 40 years. Maintenance and repairs are expensed as incurred; expenditures that result in enhancement of the value ofassets are capitalized. The Partnership is subject to the provisions of the Impairment or Disposal of LongLived Assets topic ofthe FASB Accounting Standards Codification (ASe) Impairment or Disposal of LongLived Assets has no retroactive impact on the Partnership's fmancial statements. The standard requires impairment losses to be recorded on longlived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. In such cases, the carrying value ofassets to be held and used are adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less selling expenses. No impairment losses were recognized during the year ended December 31,2010. Unamortized costs Financing costs of $324,803 were incurred in connection with obtaining the Partnership's mortgage note. Financing costs are amortized over the respective term ofthe mortgage note using the straightline method. Generally accepted accounting principles require that the effective yield method be used to amortize financing costs; however, the effect of using the straightline method is not material to the financial statements for the year ended December 31, In addition, tax credit monitoring fees of $114,000 were incurred. These costs are amortized over a 15 year period. Amortization expense for the year ended December 31, 2010 totaled $15,720, and accumulated amortization at December 31, 2010 totaled $136,620. Estimated amortization expense for each ofthe next five years and thereafter is as follows: 2011 $ 15, , , , ,720 Thereafter 223,583 $

15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Rental income Rental income is recognized as rents become due. Rent payments received in advance are deferred until earned. All leases between the Partnership and the residential tenants of the Proj ect are no longer than one year. Advertising costs Advertising costs are expensed as incurred. December 31,2010. Advertising expense totaled $683 for the year ended Property taxes Property taxes are expensed in the year of the lien on the property such that twelve months of expense are charged to operations each year. Use ofestimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofamerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent events The Partnership adopted the Subsequent Events topic of the FASB Accounting Standards Codification (ASC) 855. The standard reflects the existing principles ofcurrent subsequent event accounting guidance and requires disclosure of the date through which subsequent events have been evaluated and clarifies that the original issuance of financial statement means both "issued" and "available to be issued." Management performed an evaluation of the Partnership's activity through January 28, 2011, the audit report date, and has concluded that there are no significant subsequent events requiring disclosure through the date these financial statements were issued. 13

16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting for uncertainty in income taxes The Partnership adopted the Income Taxes topic of the FASB Accounting Standards Codification (ASC) 740, which provides guidance for how uncertain income tax positions should be recognized, measured, presented and disclosed in the financial statements. The Partnership is required to evaluate the income tax positions taken or expected to be taken to determine whether the positions are "morelikelythannot" to be sustained upon examination by the applicable tax authority. The Partnership has determined that the application ofthe Income Taxes Standard does not impact theoperations ofthe Partnership and that no provision for income tax is required in the Partnership's financial statements. There has been no interest or penalties recognized in the income statement or balance sheet for the year ended December 31, As of December 31, 2010, the following federal and Georgia state tax years remain open December 31,2010,2009, 2008, and Fair value The Partnership adopted the Fair Value Measurement topic of the FASB Accounting Standards Codification (ASe) 820 which provides guidance for assets and liabilities which are required to be measured at fair value and requires expanded disclosure for fair value measurement. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value and does not require any new fair value measurements. The implementation of Fair Value Measurement did not have a material impact on the Partnership's financial statements for the year ended December 31, The standard establishes a fair value hierarchy based on three levels: Level I Quoted prices in active markets for identical assets or liabilities Level 2 Quoted prices for similar assets or liabilities in active markets Level 3 Unobservable inputs for the asset or liability based on the best available information Affordable housing projects operate in a heavily regulated environment which typically includes restrictions such as land use restrictions, rent restrictions, government subsidies in the form of rental assistance through either rent subsidy or tenant vouchers, subsidized mortgage interest rates, and restrictions on selling or transferring the projects. 14

17 _.. NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair value (continued) A summary of the methods and significant assumptions used to estimate the fair values of fmancial instruments is as follows: Shortterm financial instruments The fair value of shortterm financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate the carrying value in the accompanying financial statements due to the short maturity ofsuch instruments. Longterm liabilities The fair value of longterm liabilities approximates the carrying value in the accompanying financial statements based on current borrowing rates. 2. MORTGAGE NOTE PAYABLE The Partnership entered into a mortgage note with Continental Wingate Capital in an original amount of $5,905,000. The mortgage note is insured by the Federal Housing Administration under the provisions of Section 221 (d)(4) of the National Housing Act. The mortgage note agreement provides for, among other things: a. A maturity date ofjanuary I, 2038; b. Monthly payments ofprincipal and interest of $31,440; c. An interest rate of6.11% per annum; and d. Monthly deposits to a reserve fund for replacing assets of the Project and deposits to fund real estate taxes, hazard insurance and mortgage insurance premiums. For the year ended December 31,2010, interest of$332,908 was expensed and $333,295 was paid. At December 31, 2010, accrued interest was $27,563. Flexible subsidy loan payable Upon formation, the Partnership assumed a flexible subsidy residual receipts note dated January , payable to the U.S. Department ofhousing and Urban Development from the former project owner. As ofdecember 31, 2010 the outstanding amount ofthe note was $3,166,956. The loan is secured by the Project and bears interest at I % per annum. For the year ended December 31, 20 I 0, interest of $31,670 was expensed and accrued interest at December 31, 2010 totaled $290,

18 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, MORTGAGE NOTE PAYABLE (CONTINUED) Flexible subsidy loan payable (continued) Principal payments for the next five years and thereafter are approximately as follows: 2011 $ 80, , , , ,107 Thereafter 4,955,282 $ The liability of the Partnership under the mortgage notes is limited to the underlying value of the property and equipment in addition to amounts deposited with the mortgagee. Replacement reserve Pursuant to the terms of the Regulatory Agreement, the Project is required to make monthly deposits to the replacement reserve fund. During the year ended December 31, 20 I0, the required monthly deposit changed from $4,371 to $4,533. The Project must obtain HUD approval to suspend the monthly deposits. This fund is under the control ofhud. Disbursements from such fund may only be made for the purpose of effecting replacement of structural elements and mechanical equipment of the Project and only after receiving the written consent of the Secretary ofhud. At December 31, 2010, these funds amounted to $208,490. Other reserve The Partnership has on deposit $145,596 with the Bank of New York as a required reserve in accordance with a special pay down within the mortgage and trust indenture agreements. 16

19 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, RELATED PARTY TRANSACTIONS Property management The Project is managed by H.J. Russell & Company, Inc. (the "Agent"), an entity related to the General Partner. In accordance with the HUDapproved management agent certification, the Agent is to receive 4.25% of gross rent collected. During the year ended December 31, 2010, the Agent earned and was paid management fees of $49,837 and $33,504, respectively. At December 31,2010, $240,899 remained payable. In accordance with HUD regulations, the Agent is also entitled to be reimbursed for actual costs incurred for frontline management activities performed at the central office (as these activities are defined by HUD). During the year ended December 31, 2010, the Agent earned $8,645, and at December 31, 20 I0, $0 remained payable. The General Partner and affiliates advance funds for operating expenses as the need arises. These advances are to be repaid from surplus cash or with prior approval from HUD. During the year ended December 31, 2010, no amounts were repaid and at December 31, 2010, $141,550 remained payable and is included in Due to General Partner and affiliates on the balance sheet. Annual local administrative fee The Partnership provides for the payment of an annual local administrative fee to the Special Limited Partner for its services in monitoring the.operations ofthe Partnership. The fee is payable beginning in the year during which the admission date occurs. If sufficient cash funds are not available, then the fee shall accrue and be payable out.of available cash flow in subsequent years, or from sale or refinancing proceeds. For the year ended December 31, 2010, an armual local administrative fee of $5,454 was earned and $0 was paid and at December 31, 2010, $32,773 remained payable, all respectively. Supportive services fee The partnership agreement provides for payment, to Bethel Church Homes, Inc., an affiliate ofthe.general Partner, of a noncumulative supervisory management fee of up to 36% of cash flow for management supervisory services. The supervisory management fee will be paid from cash flow, as defined in the partnership agreement. During the year ended December 31, 2010, no amount was earned or paid. 17

20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FORTHE YEAR ENDED DECEMBER 31, RELATED PARTY TRANSACTIONS (CONTINUED) Incentive management fee The partnership agreement provides for payment, to the Agent, of a noncumulative incentive management fee of up to 50% of available cash flow, as defined in the partnership agreement, for its service in maximizing cash flow. During the year ended December 31, 2010, no amount was earned or paid. Development fee payable The Project was developed by Russell New Urban Development, LLC an affiliate of the General Partner, pursuant to a development agreement which provides for a development fee of an amount that will not cause maximum development cost to exceed $1,553,597. As of December , $247,741 ofthe development fee remained payable and is included in Due to General Partner and affiliates on the balance sheet. Lease up fee The partnership agreement allows for any excess development cash flow for the period prior to rental achievement to be paid to the General Partner as a lease up fee. As of December , $140,000 remained payable from previous years and is included in Due to General Partner and affiliates on the balance sheet. During the year ended December 31, 2010, no amounts \vere earned or paid. Partnership guarantees The partnership agreement provides for various agreements between the General Partner and the Limited Partners as follows: a. Operating Deficit Guaranty The General Partner and affiliates of the General Partner will provide funds to the Partnership necessary to pay any operating deficits in the form of a loan to the Partnership. The operating deficit loan shall be interest free and shall be repaid solely as provided in the partnership agreement. The operating deficit guarantee period begins after achievement of the "breakeven date," as defined in the partnership agreement, and ends on the third anniversary of the breakeven date. Breakeven operations occurred during the year ended December 31, Therefore, this requirement ended December 31,

21 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, RELATED PARTY TRANSACTIONS (CONTINUED) Partnership guarantees (continued) b. Recapture Guaranty The General Partner and affiliates ofthe General Partner guarantee they will reimburse the Limited Partners for certain amounts in the event there is a "tax credit recapture event." as defined in the partnership agreement. If the tax credit recapture event is caused by events which are within the control ofthe General Partner and affiliates of the General Partner, then the amounts due shall be paid directly to the Limited Partners. However, ifthe tax credit recapture event is not within the control of the General Partner or affiliates of the General Partner, the Limited Partners shall be compensated from the cash flow, as defmed in the partnership agreement, or from sale or refinancing proceeds. c. Replacement Reserve Guaranty The General Partner and affiliates ofthe General Partner guarantee they will contribute to the Partnership any funds required to ensure that $47,500 per year is funded into a replacement reserve account. The guaranty agreement is limited to the "guaranty period," as defined in the agreement. 4. PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS OF TAXABLE INCOME AND LOSS Effective December 21, 2001, the partnership agreement was amended to admit Centerline Corporate Partners XIX, L.P. as Class A Investor Limited Partner (the "Limited Partner") and Related Corporate XIX SLP, L.P. as Special Limited Partner (the "Special Limited Partner"), and to permit the withdrawal of the existing Class A Limited Partner and Special Limited Partner. Coinciding with this change in Partners, the Partnership also changed the allocations ofprofits and losses and tax credits to reflect the investment contributions of the new Partners as follows: Percentage General Partner Special Limited Partner Class A Investor Limited Partner 0.01% 0.01% 99.98% Capital contributions The partnership agreement requires that the Limited Partner provide capital contributions totaling $3,504,000, subject to adjustment based on the amount oflow income housing tax credits allocated to the Partnership. As of December 31, 2010, the Limited Partner has provided capital contributions of $2,978,

22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS OF TAXABLE INCOME AND LOSS (CONTINUED) Distribution ofcash flow Cash flow, which means the excess of cash receipts over cash expenditures as determined for each fiscal year or portion thereof, shall be distributed in the following order of priority as defined in the partnership agreement as follows: a. First, to pay any accrued but unpaid management fees (described in Section 8.I.B of the Amended and Restated Agreement oflimited Partnership); b. To the Partners, an amount or amounts equal to the unpaid balance of any voluntary loan made by them; c. To the Special Limited Partner, an amount equal to any accrued annual local administrative fees (described in Section 6.3 of the Amended and Restated Agreement of Limited Partnership); d. To pay the difference, if positive, between the deferred developer fee and any accrued and unpaid credit reduction payments; e. To the extent 75% of remaining cash flow, to the guarantor, to pay the difference, ifpositive, between an amount or amounts equal to the unpaid balance of any operating loan made by it; f. To the extent 50% of the remaining cash flow, to the Agent, to pay the incentive management fee; g. To Bethel Church Homes, Inc. a supportive services fee equal to 360/0 of remaining cash flows, and h. The balance, 44.99% to the Class A Investor Limited Partner, 55% to the General Partner and 0.01% to the Special Limited Partner. 5. CONTINGENCIES HAP contract As disclosed in Note I, the HAP Contract expires October 31, The rental income from the HAP Contract totaled $1,066,280 in 2010, or 89% of the net rental revenue. As ofthe date of our report, it is uncertain whether the HAP Contract will be extended. BUD is contemplating several changes, which may have a significant financial impact on the Partnership. Management cannot reasonably estimate the ramifications, ifany, ofthese uncertainties. 20

23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 2010 S. CONTINGENCIES (CONTINUED) Cash flow The Partnership has been dependent upon the deferral ofmanagement fees and salaries and related costs in order to meet other financial obligations. It is possible that the Partnership will continue to require the deferral ofthese costs in the future to meet its fmancial obligations. Concentration ofcredit risk The Partnership deposits its cash in fmancial institutions. At times, deposits may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership's operations are concentrated in the multifamily real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations ofthe Partnership are subj ect to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of Congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, ifany, to comply with a change. 6. LOSS ON DISPOSAL OF ASSETS During the year ended December 31, 20 I0, the Partnership disposed of property and equipment with estimated original cost of $94,175 and accumulated depreciation of $58,727, resulting in a loss on disposal of$35,448, which is included in Miscellaneous Operating and Maintenance on the StatementofProfit and Loss. 7. DEFERRED CABLE CONTRACT During the year ended December 31, 2009, the Partnership entered into a contract with Charter Communications, Inc. ("Charter") in which Charter paid the Partnership $19,000 to provide the Project cable services for ten years. The Partnership will recognize the revenue over the ten (l0) year term ofthe contract. At December 31,2010, the deferred cable contract totaled $15,

24 . NOTES TO FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, LOW INCOME HOUSING TAX CREDITS (UNAUDITED) The Partnership received tax credit reservations from the Georgia Department of Community Affairs in an annual amount of $3,388,320 over a 10year period. Through December 31, 2010, tax credits totaling approximately $2,873,382 have been claimed. As ofdecember 31, 2010, the expected availability of the remaining tax credits is as follows: Amount $ 338, ,106 $ The Partnership has entered into a Land Use Restriction Agreement which restricts the use of the Project to low income and very low income.families, as defined. 22

25 ACCOMPANYING INFORMAnON REQUIRED BY HUD FOR THE YEAR ENDED DECEMBER 31,2010 Reserve for replacements: In accordance with provisions of the Regulatory Agreement, restricted cash is held by Continental Wingate Capital, to be used for replacement of property with the approval of HUD, as follows: Balance, December 31, 2009 Monthly deposits ($4,371 x 10) ($4,533 x 2) Interest Withdrawals Balance, December 31, 2010 $ 390,974 52, (235,718) $ 208,490 23

26 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner FiscalPeriodEnded: Project Number 12/31/ PM 1. Cash $ 33, Tenant subsidy due for period covered by financial statement $ 3. Other $ (a) Total Cash (Add Lines 1, 2, and 3) $ 33,065 Current Obllqations 4. Accrued mortgage (or bond) interest payable $ 27, Delinquent mortgage (or bond) principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $ 520, Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued expenses (not escrowed) $ 247, Prepaid Revenue $ Tenant/Patient deposits held in trust $ 20, Other current obligations $ (b) Less Total Current Obligations (Add Lines 4 through 13) $ 816,235 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ (783,170) PART B Compute Distributions to Owners and Required Deposit to Residual Receipts 1. Surplus Cash Limited Dividend Projects 2a. Annual Distribution Earned During Fiscal Period Covered by the Statement $ o 2b. Distributions Accrued and Unpaid as of the End of the Prior Fiscal Period $ ~ 2c. Distributions and Entity Expenses Paid During Fiscal Period Covered $ 3. Distribution Earned but Unpaid (Line 2a plus 2b minus 2c) $ 4. Amount Available for Distribution During Next Fiscal Period $ Markto Market Projects 5. Incentive Performance Fee Payable $ 0 6. Percentage Surplus Cash Split 0% 7. Surplus Cash Available for Second Mortgage Payments $ 0 8. Surplus Cash Available for Distribution $ 0 9. Deposit Due Residual Receipts $ 24

27 BALANCE SHEET DATA SUPPLEMENTAL INFORMATION Organization Name Bethel Homes Redevelopment, LP Fer Year Ending December 31, 2010 Acct No. Description of Account ASSETS FHA/Contract Number See cover page 1120 Cash Operations 9, Construction Cash Account 1125 Cash Entity 1130 TenanUMember Accounts Receivable (Coops) 59, Allowance for Doubtful Accounts 17, N Net Tenant Accounts Receivable 41, Accounts Receivable HUD 1137 Medicare/Medicaid/Other Insurance Receivable Allowance for Doubtful Accounts (Medicare/Medicaid/Other Insurance 1138 Receivable) 1137N Net Medicare/Medicaid/Other Insurance Receivable 1140 Accounts and Notes Receivable Operations 1145 Accounts and Notes Receivable Entity Accounts Receivable Interest 1165 Interest Reduction Payment Receivable 1170 Short Term Investments Operations 1175 Short Term Investments Entity 1180 Inventory 1190 Miscellaneous Current Assets 1200 Prepaid Expenses 33, T Total Current Assets 84, Tenant/Patient Deposits Held in Trust 23, Escrow Deposits 74, Replacement Reserve 208, Other Reserves 145, Residual Receipts Reserve 1355 Bond Reserves Sinking Fund 1381 Management Improvement and Operating Plan 1300T Total Deposits 428, Land 255, Buildings 10,764, Building Equipment (Portabie) 160, Furniture for ProjectlTenant Use 1460 Furnishings 1465 Office Furniture and Equipment 1470 Maintenance Equipment 1480 Motor Vehicles Miscellaneous Fixed Assets 1400T Total Fixed Assets 11,180, Accumulated Depreciation 2,615, N Net Fixed Assets 8,564, Investments Operations 1515 Investments Entity 1520 Deferred Financing Costs 302, Miscellaneous Other Assets 1500T Total Other Assets 302, T Total Assets $ 9,403,207 25

28 LIABILITIES 2105 Bank Overdraft Operations 2110 Accounts Payable Operations 517, Accounts Payable Construction/Development 4, Accounts Payable Project Improvement Items 2113 Accounts Payable Entity 2114 Incentive Performance Fee Payable 2115 Accounts Payable 236 Excess Income due HUD 2116 Accouhts Payable Section 8 & Other 3, Accrued Wages Payable 6, Accrued Payroll Taxes Payable 2123 Accrued Management Fee Payable 240, Accrued Lease Payments Payable 2130 Accrued Interest Payable Section Accrued Interest Payable First Mortgage (or Bonds) 27, Accrued Interest Payable Other Mortgages 2133 Accrued Interest Payable Other Loans and Notes (Surplus Cash) 2134 Accrued Interest Payable OtherLoans and Notes 2135 Accrued Interest Payable Flexible Subsidy Loan 2136 Accrued Interest Payable Capital Improvements Loan LI"( IAccruea mterest ayadle Operatinq oss oan <1'" IAccrue I Interest I'ayable Capita Kecovery Payrnent 2150 IAccruea Property axes 2160 Notes Payable (Shortterm) 2170 Mortgage (or Bonds) Payable First Mortgage (Bonds) (Short Term) 80, Other Mortgages Payable (Short Term) 2173 other Loans and Notes Payable Surplus Cash (Short Term) 2174 Other Loans and Notes (Short Term) 2175 Flexible Subsidy Loan Payable (Short Term) 2176 Capital Improvement Loan Payable (Short Term) 2177 Operating Loss Loan Payable (Short Term) 2179 Capita! Recovery Payment Payable (Short Term) 2180 Utility Allowances 2190 Miscellaneous CurrentLiabilities 2210 Prepaid Revenue T Total Current Liabilities 881, Tenant/Patient Deposits Held In Trust (Contra) 20, Accounts Payable Entity (Long Term) 32, Accrued Lease PaymentsPayable Long Term 2310 Notes Payable (LongTerm) 2311 Notes Payable Surplus Cash 2320 Mortgage (or Bonds) Payable First Mortgage (or Bonds) 5,332, Other Mortgages Payable (Long Term) <,23 Other Loans and Notes Payable Surplus Cash 2324 Other Loans and Notes Payable 2325 Flexible Subsidy Loan Payable 3,166, Capital Improvement Loan Payable 2327 Operating Loss Loan Payable 2329 Capital Recovery Payment Payable 2330 Intereston Loans or Notes Payable (Long Term) 290, Accrued Interest OtherMortgages Payable (Long Term) <,jo! Accrue nterest Notes Payable (surp us as ong errn) 2390 Miscellaneous Long Term Liabilities 545, T Total Long Term Liabilities 9,367, T Total Liabilities ~ 10,269,240 EQUITY DATA ENTITIES OTHERTHAN CORPORATIONS 3130 ITotal Equity I I (866,033)1 2033T [Total Liabilities and Equity I I I 9,40,,207 EQUITY DATA CORPORATIONS 310 icornmon ;::,tock tvorpora Ions, OL j rat IIn surp us orporatlons " ij 1Retained E:arnrngs ~ Corporancns ~,O4 ut er qulty Corporations,,0U otal Equity (corporations 2036T Total Liabilities and EqUity/Retained Earnings (Corporations) s. 26

29 PROFIT AND LOSS DATA SUPPLEMENTAL INFORMATION Organization Name Bethel Homes Redevelopment, LP For Year Ending December 31, 2010 Acet No. Description of Account FHA/Contract Number See cover page Rent Revenue 5120 Rent Revenue Gross Potential L52, Tenant Assistance Payments 1,06_, Rent Revenue Stores and Commercial 5170 Garage and Parking Spaces 5180 Flexible Subsidy Revenue 5190 Miscellaneous Rent Revenue 5191 Excess Rent, 5192 Rent Revenue/Insurance 5193 Special Claims Revenue 5194 Retained Excess Income 5195 Lease Revenue (Nursing Home or Section 232 B&C or AL) 5100T Total Rent Revenue,319,224 ecancres 5220 Apartments 20, Stores and Commercial 5250 Rental Concessions 5270 Garage and Parking Space 5290 Miscellaneous 5200T Total Vacancies 120, N Net Rental Revenue (Rent Revenue Less Vacancies) 1,198, evenue 5300 NursIng Homes/ Assisted Living/Board & Care/Other Elderly Care/Caapi and Other Revenues I. rnancrar Revenue 5410 Financial Revenue Project Operation Revenue from Investments Residua! Receipts 5440 Revenue from Investments Replacement Reserve Revenue from Investments Miscellaneous 5400T Total Financial Revenue 48 Other Revenue 5910 Laundry and Vendina Revenue L, Tenant Charges "'_, Interest Reduction Payments Revenue 5990 Miscellaneous Revenue L,n9 5900T Total Other Revenue 24, T Total Revenue 1,223,598 Administrative Expenses 6203 Conventions and Meetings 6204 Management Consultants 6210 Advertising and Marketing Other Renting Expenses 6310 Office Salaries 29, Office Expenses 2,jU~ 6312 Office or Model Apartment Rent 6320 Management Fee 49, Manager or Superintendent Salaries 3, Administrative Rent Free Unit 6, Legal Expense Project Audit Expense 5, Bookkeeping Fees/Accounting Services 8, Bad Debts 30,_7~ 6390 Miscellaneous Administrative Expenses 30, T Total Administrative Expenses 225,505 Utilities Expenses 6420 Fuel Oil/Coal 6450 Electricity 36, Water 1~,j2~ 6452 Gas 11, Sewer 44, T Total Utilities Expense 170,632 27

30 peratmg & Mamtenance Expenses 6510 Payroll 98, Supplies 32, Contracts 208, Operatlnq and Maintenance Rent Free Unit 6525 Garbage and Trash Removal 28, Security Payroll/Contract 6531 Security Rent Free Unit 6546 Heating/Cooling Repairs and Maintenance 6548 Snow Ret.ovat 6570 Vehicle and Maintenance Equipment Operation and Repairs 6580 Lease Expense 6590 Miscellaneous Operating and Maintenance Expenses 40, T Total Operating and Maintenance Expense 408,071 axes & Insurance 6710 Real Estate Taxes 75, Payroll Taxes (Project's Share) 14, Property & Liability Insurance (Hazard) 61, Fidelity Bond Insurance 6722 Workmen's Compensation 4, Health Insurance and Other Employee Benefits 23, Miscellaneous Taxes, Licenses, Permits and Insurance 3, T Total Taxes and Insurance 181,359 rnancrar expenses 6820 Interest on First Mortgage (or Bonds) Payable 332, Interest on Other Mortgages 6830 Interest on Notes Payable (Long Term) 31, Interest on Notes Payable (Short Term) 6845 Interest on Capital Recovery Payment 6850 Mortgage Insurance Premium/ Service Charge 27, Miscellaneous Financial Expenses T Total Financial Expenses 392,570 6~uu xpenses 6900 Nursing Homes/Assisted Living/ Board & Care/Other Elderly Care Expenses. peratmg esu ts 6000T Total Cost of Operations before Depreciation 1,378, T Profit {Loss) before Depreciation (154, Depreciation Expenses 324, Amortization Expense 15,720 'UbUN [Operatlnp ro It or oss 14~4,~U4J [corporate or Mortgagor «evenue xpenses 7105 Erttlty Revenue 7110 Officer's Salaries 7115 Incentive Performance Fee 7120 Legal Expenses 7130 Federal, State, and Other Income Taxes 7141 Interest on Notes Payable 7142 Interest on Mortgage Payable 7190 Other Expenses 5, T Net Entity Expenses 5,454 ro It or oss 3250 Profit or Loss (Net Income or Loss) I $ (499,758 art " Total first mortgage(or bond)principal paymentsrequired duringthe audit period (usually 12months).This appliesto all S direct loans, HUDheld and HUDinsured first mortgages. $ 76,024 The total of all monthlyreservefor replacementdeposits(usually12months) required during the audit period even if S deposits have beentemporarily waivedor suspended. $ 52,776 ReplacementReserves, or Residual Receiptsand Releases which are includedas expense items onthis Profitand Loss S statement. $ 76,929 Project improvementreserve releases underthe Flexible SubsidyProgramthat are included as expenseitems on this S Profit and Loss statement. $ 28