Sunbelt Rental Investments II, LLC. Charlotte, North Carolina. Financial Statements

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1 Sunbelt Rental Investments II, LLC Charlotte, North Carolina Financial Statements Year Ended

2 TABLE OF CONTENTS Page Independent Auditor's Report 2-3 Financial Statements: Statement of Assets, Liabilities, and Members' Equity - Income Tax Basis 4 Statement of Revenue and Expenses - Income Tax Basis 5 Statement of Changes in Members' Equity - Income Tax Basis 6 Statement of Cash Flows - Income Tax Basis 7 Notes to Financial Statements 8-15

3 Independent Auditor's Report To the Members Sunbelt Rental Investments II, LLC Charlotte, North Carolina We have audited the accompanying financial statements of Sunbelt Rental Investments II, LLC, (the Entity) which comprise the statement of assets, liabilities, and members' equity - income tax basis as of, and the related statements of revenue and expenses - income tax basis, changes in members' equity - income tax basis, and cash flows - income tax basis for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting the Entity uses for income tax purposes; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility 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. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

4 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and members' equity of Sunbelt Rental Investments II, LLC as of December 31, 2016, and its revenue and expenses, changes in members' equity and its cash flows for the year then ended in accordance with the basis of accounting the Entity uses for income tax purposes. Basis of Accounting We draw attention to Note 2 of the financial statements, which describes the basis of accounting. The financial statements are prepared on the basis of accounting the Entity uses for income tax purposes, which is a basis of accounting other that accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Charlotte, North Carolina March 1, 2017

5 STATEMENT OF ASSETS, LIABILITIES, AND MEMBERS' EQUITY - INCOME TAX BASIS ASSETS Cash and cash equivalents $ 162,691 Trade receivables, net of allowance for doubtful accounts 3,661 Rental properties, net 652,086 Syndication costs 49,000 Intangible assets, net of accumulated amortization 21,151 $ 888,589 LIABILITIES AND MEMBERS' EQUITY Liabilities Accounts payable $ - Total liabilities - Members' equity Members' equity 888,589 Total members' equity 888,589 $ 888,589 See notes to financial statements. 4

6 STATEMENT OF REVENUE AND EXPENSES - INCOME TAX BASIS For the year ended Revenues Revenue $ 99,653 Other revenue 7,413 Net gain from sale of rental property 100,292 Total revenues 207,358 Expenses Property management fees 10,282 Property administration fees 2,651 Amortization expense 1,811 Repairs and maintenance expense 17,419 Professional fees 16,307 Bank charges 258 Licenses and permits 450 Depreciation expense 30,812 Leasing fees 450 HOA fees 1,065 Management fees (56,000) Insurance 6,185 Postage and delivery expense 31 Property tax expense 24,446 Utilities 4,517 Other general and administrative 263 Total expenses 60,947 Excess of revenue over expenses - income tax basis 146,411 Income attributable to Class I members 113,179 Income attributable to Class M member $ 33,232 See notes to financial statements. 5

7 STATEMENT OF CHANGES IN MEMBERS' EQUITY - INCOME TAX BASIS For the year ended Class M Class I Member Members Total Members' equity, beginning of year $ 428,937 $ 1,053,241 $ 1,482,178 Distributions (228,985) (511,015) (740,000) Excess of revenue over expenses 33, , ,411 Members' equity, end of year $ 233,184 $ 655,405 $ 888,589 See notes to financial statements. 6

8 STATEMENT OF CASH FLOWS - INCOME TAX BASIS For the year ended Cash flows from operating activities Excess of revenues over expenses $ 146,411 Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities: Depreciation 30,812 Amortization 1,811 Net gain from sale of rental property (100,292) (Increase) decrease in: Accounts receivable 7,109 Increase (decrease) in: Accounts payable (2,400) Net cash provided by operating activities 83,451 Cash flows from financing activities Member distributions (740,000) Net cash used in financing activities (740,000) Cash flows from investing activities Proceeds from disposition of rental property 408,620 Net cash provided by investing activities 408,620 Net decrease in cash and cash equivalents (247,929) Cash and cash equivalents, beginning of year 410,620 Cash and cash equivalents, end of year $ 162,691 See notes to financial statements. 7

9 NOTES TO FINANCIAL STATEMENTS NOTE 1 NATURE OF ORGANIZATION Nature of business and organization Sunbelt Rental Investments II, LLC (the Entity) was formed on May 20, 2013 under the laws of the State of Delaware, in order to acquire, refurbish, rent out, hold for investment and appreciation in value, and sell or otherwise dispose of single-family residences. The term of the Entity shall continue until the close of business on the fifth anniversary of the Initial Closing date. Management may, upon the written consent or approval of a majority in interest of the Class M Members, elect to extend the term of the Entity for a one-year period and may, upon the written consent or approval of a super majority in interest, extend the term of the Entity for an additional one-year period. Net income shall be allocated as follows: 1. First, to the Members in proportion to and to the extent of their respective amounts of the excess, if any, of (A) the aggregate amount of net loss previously allocated, for the current and all previous periods, pursuant to net loss allocations number 5, over (B) the aggregate amount of net income previously allocated for the current and all previous periods. 2. Next, to the Members in proportion to, and to the extent of their respective amounts of the excess, if any, of (A) the aggregate amount of net loss previously allocated, for the current and all previous periods, pursuant to net loss allocations number 4, over (B) the aggregate amount of net income previously allocated for the current and all previous periods. 3. Next, net income will be allocated to and among the holders of Class I units with respect to which management fees, syndication fees, or organizational fees have been previously allocated in proportion to and to the extent of the excess, if any, of (A) the aggregate amount of such management fee, syndication fee, or organizational fee expenses previously allocated with respect to their units, over (B) the aggregate amount of net income previously allocated for the current and previous periods. 8

10 NOTES TO FINANCIAL STATEMENTS NOTE 1 NATURE OF ORGANIZATION (continued) 4. Next, net income will be allocated to and among all holders of units in proportion to and to the extent of their units respective amounts of excess, if any, of (A) the aggregate accrued preferred return with respect to such holders units as of and through the date of determination, over (B) the aggregate amount of net income previously allocated with respect to such units. 5. Next, net income will be allocated to the holders of Class M Units in such aggregate amount as is necessary for the total allocation of net income to equal one third of the total allocations of net income pursuant to number 4 above through the date of determination. 6. Thereafter, any remaining net income shall be allocated to and among holders of Class I Units and Class M Units in proportion to their respective profit percentages. Net loss shall be allocated as follows: 1. First, to the Members in proportion to and to the extent of their respective amounts of the excess, if any, of (A) the aggregate amount of net income previously allocated, for the current and all previous periods, over (B) the aggregate amount of net loss previously allocated for the current and all previous periods. 2. Next, net loss will be allocated to and among the holders of Class M Units in proportion to and to the extent of their respective amounts of the excess, if any, of (A) the aggregate amount of net income previously allocated for the current and all previous periods, with respect to such units, over (B) the aggregate amount of net loss previously allocated for the current and all previous periods. 3. Next, net loss will be allocated to and among all holders of units in proportion to and to the extent of their units respective amounts of the excess, if any, of (A) the aggregate amount of net income previously allocated, for the current and all previous periods, with respect to such units, over (B) the aggregate amount of net loss previously allocated for the current and all previous periods. 9

11 NOTES TO FINANCIAL STATEMENTS NOTE 1 NATURE OF ORGANIZATION (continued) 4. Next, net loss will be allocated to and among all holders of units (A) first, as necessary so that, to the greatest extent and as quickly as possible, the net of the target amount with respect to each member s units minus the aggregate amounts of net loss allocated to such units are in proportion to the aggregate amounts of capital contributions made with respect to such units, and (B) thereafter, in proportion to the aggregate capital contributions made with respect to such holder s units until and so that the aggregate amount of net loss allocated to each holder s units equals, but does not exceed, the target amount with respect to such units. Target amount means, with respect to each member, the net of (A) the aggregate amount of capital contribution made with respect to such units, plus (B) in the case of Class I Units, the aggregate amount of allocation of net income made with respect to such Class I Units, minus (C) in the case of Class I Units, the aggregate amount of management fees, syndication fees, and organizational fees allocated, for the current and all previous periods with respect to Class I Units. 5. Thereafter, any remaining net loss shall be allocated to and among holders of Class I Units and Class M Units in proportion to their respective profit percentages. Distributions shall be allocated among the members as follows: Cash from operations 1. First, to members in proportion to and in an amount equal to their respective unit s excess, if any, of (A) the aggregate accrued preferred return with respect to such members as of and through the date of such distribution, over (B) the total amount of prior distributions made with respect to such members. 2. Next, to holders of Class M Units, in proportion to their respective numbers of Class M Units, in such aggregate amount as is necessary for the total distributions with respect to Class M Units to equal one third of the total distributions made through the date of distribution of preferred return. 3. Thereafter, any remaining amounts to and among the holders of Class I Units and Class M Units in proportion to their respective profit percentages. 10

12 NOTES TO FINANCIAL STATEMENTS NOTE 1 NATURE OF ORGANIZATION (continued) Cash from capital transactions 1. First, to members in proportion to and in an amount equal to their respective unit s excess, if any, of (A) the aggregate accrued preferred return with respect to such members as of and through the date of such distribution, over (B) the total amount of prior distributions made with respect to such members. 2. Next, to members to the extent of and in proportion to their unit s respective unreturned capital contribution, until the unreturned capital contribution amount with respect to the member is zero. 3. Next, to Class M Members, in proportion to their respective Class M Units, in such aggregate amount as is necessary for the total distributions with respect to Class M Units to equal one third of the total distributions made through the date of distribution of preferred return. 4. Thereafter, any remaining amounts to and among the holders of Class I Units and Class M Units in proportion to their respective profit percentages. NOTE 2 SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The Entity prepares its financial statements on the accounting basis used by the Entity for income tax reporting purposes, which incorporates the accrual method of accounting. Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) would differ from the accompanying financial statements generally with respect to (a) start-up and organizational costs are capitalized and amortized over 15 years rather than charged to operations under GAAP, (b) certain expenses resulting from intercompany transactions that would be recognized as liabilities under GAAP are not recognized until paid under the tax basis, (c) impairments on long-lived assets that would be recognized under GAAP are not considered under the tax basis, and (d) consolidation of investment in an affiliate that would be required under GAAP is not required under the tax basis. 11

13 NOTES TO FINANCIAL STATEMENTS NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition Rent income attributable to leases is recorded when due from tenants and is recognized monthly as it is earned. Concentration of credit risk The Entity maintains cash deposits with one financial institution which at times exceeded the federally insured limits. At, cash held by the financial institution did not exceed FDIC insurance. The Entity believes there is no significant risk with respect to these deposits. Organizational costs Organizational costs totaled $32,160, of which, $5,000 was expensed and $27,160 was capitalized as an asset. The capitalized amount is being amortized on a straight-line basis over 15 years. Amortization expense for the year was $1,811 and accumulated amortization amounted to $6,009 at. Syndication costs Syndication costs totaled $49,000 and were capitalized when paid. These costs are guaranteed payments and will be expensed when the Entity is terminated. Income taxes The taxable income or loss of the Entity is included in the income tax returns of the members; accordingly, no provision for income tax expense or benefit is reflected in the accompanying financial statements. The Entity s tax returns and the amount of allocable profits or losses are subject to examination by federal and state taxing authorities. The tax liability of the partners could be modified if such an examination resulted in changes to the Entity s profits or losses. 12

14 NOTES TO FINANCIAL STATEMENTS NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (continued) Use of estimates The preparation of financial statements in conformity with the income tax basis of accounting 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Because many types of transactions are susceptible to varying interpretations under federal (and state) income tax laws and regulations, the amounts reported in the accompanying financial statements may be subject to change at a later date upon final determination by the taxing authorities. NOTE 3 LEASING ACTIVITIES The Company leases residential property to others under operating lease arrangements with twelve month terms. Minimum future rentals on noncancelable operating leases with original terms of one year or longer totaled $19,485 at. NOTE 4 MEMBERS' EQUITY CONTRIBUTIONS Pursuant to the Entity s Subscription Agreement, prospective investors were offered the opportunity to purchase limited membership interests after the Entity received a minimum of $1,000,000 in capital commitments. The Class M Member agreed to invest, at all times during the term of the Entity, an amount equal to or greater than 10% of the first $5,000,000 in aggregate capital commitments of all the members subject to the terms of the operating agreement. Total capital contributions as of were $1,700,000. NOTE 5 RELATED PARTY TRANSACTIONS Preferred return The investors of the Entity are entitled to receive a preferred return of 8% per annum on their Unrecovered Capital Balance as defined by the partnership agreement. The preferred return is cumulative from period to period to the extent not paid currently, but is not compounded. As of, the amount of preferred return earned and not paid was approximately $23,

15 NOTES TO FINANCIAL STATEMENTS NOTE 5 RELATED PARTY TRANSACTIONS (continued) Management fee As defined by the operating agreement, Management is entitled to a quarterly management fee, equal to ½% of the total unreturned capital contributions to date of the Class I Members that are fee members with respect to the management fees. The management company refunded all management fees paid in prior years and did not charge a management fee during the year. Total fees refunded from prior years equaled $56,000. Syndication fee Pursuant to the operating agreement, on the date of initial closing and any subsequent closings thereafter, the Entity will generally pay management a syndication fee equal to 7% of the aggregate capital commitments newly pledged and agreed to be made at such closing by all Class I Members to the Entity. Syndication costs totaling $49,000 were capitalized during Acquisition fee As defined in the operating agreement, an affiliate of the Class M member is paid a 2% acquisition fee for all residences acquired by the Entity. During the period ended December 31, 2016, acquisition fees incurred totaled $0. NOTE 6 RENTAL PROPERTIES During 2016, the Entity sold four rental houses in South Carolina with a total cost of $332,815. Remaining rental properties were comprised of the following at : Residences: Land $ 125,442 Equipment 3,500 Building 585, ,265 Less accumulated depreciation (62,179) $ 652,086 Depreciation is based on the straight-line method over a 27.5 year useful life for buildings and a 7 year useful life for equipment. 14

16 NOTES TO FINANCIAL STATEMENTS NOTE 7 SUBSEQUENT EVENTS The Entity has evaluated all events subsequent to the balance sheet date of through March 1, 2017, which is the date these financial statements were issued, and have determined that there are no subsequent events that require disclosure except as noted below. Subsequent to, the Entity sold a rental property. 15

COMBINED FINANCIAL STATEMENTS SARASOTA CONVENTION AND VISITORS BUREAU, INC. AND AFFILIATE D/B/A VISIT SARASOTA COUNTY. September 30, 2016 and 2015

COMBINED FINANCIAL STATEMENTS SARASOTA CONVENTION AND VISITORS BUREAU, INC. AND AFFILIATE C O N T E N T S P A G E Independent Auditor s Report ----------------------------------------------------------------------