ANNUAL REPORT TO INVESTORS HARBOUR EQUITY JV DEVELOPMENT FUND II LP

Transcription

1 ANNUAL REPORT TO INVESTORS HARBOUR EQUITY JV DEVELOPMENT FUND II LP For the year ended December 31, 2016

2 FORWARD-LOOKING STATEMENTS The terms, the Fund, we, us and our in the following report refer to Harbour Equity JV Development Fund II Limited Partnership (the Fund ). This report may contain forward-looking statements relating to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future events. These statements are typically identified by expressions like believe, expects, anticipates, could, may, intends, projected, in our opinion and other similar expressions. By their very nature, these forward-looking statements require us to make assumptions which include, among other things, that (i) the Fund will have sufficient capital under management to effect its investment strategies, (ii) the investment strategies will produce the results intended by the Fund, (iii) the markets will react and perform in a manner consistent with the investment strategies and (iv) the Fund is able to invest in development projects of a quality that will generate returns that meet and/or exceed the Fund s targeted investment returns. Forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will prove inaccurate. Readers of this report are cautioned not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements for a variety of reasons, including but not limited to, general market conditions, interest rates, regulatory and statutory developments, the effects of competition in areas that the Fund may invest in and the risks detailed from time to time in the Fund s reports to investors. Readers are cautioned that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well as other uncertainties and potential events. Due to the potential impact of these factors, the Fund and Harbour Equity Capital Corp. (the Manager ) do not undertake, and specifically disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. This report is dated March 20, Information contained in this report is current to that date, unless otherwise noted. RESPONSIBILITY OF MANAGEMENT This report to investors in the Harbour Equity JV Development Fund II Limited Partnership should be read in conjunction with the audited financial statements for the year ended December 31, Investment in the Fund is subject to certain risks and uncertainties described in the Fund s Offering Memorandum, which should be read in conjunction with this report to investors. These documents are available upon request to the Manager s Investor Relations Department. Management is responsible for the information disclosed in this report to investors. The Fund has in place appropriate procedures, systems and controls to ensure such information is materially complete and reliable. In addition, the Fund s Managers have reviewed and approved this report and the financial statements for the year ended December 31, 2016.

3 Contents Fund Overview 1 Manager s Letter Year-to-date Financial Highlights 2 Portfolio Highlights 2 Commentary and Outlook 4 Financial Portfolio Summary 6 Corporate Directory 7 Audited Financial Statements 8 Appendices A. Investment Project Updates B. Project Financial Statements

4 FUND OVERVIEW The Fund is a joint venture development fund which was established in 2015 and is in the business of providing equity capital to developers on a joint venture basis. The Fund invests in development projects selected and determined by the Manager to be of high quality, and likely to provide above-average returns on a risk-adjusted basis. The development projects are located in major urban markets across a range of property types and asset classes with investment horizons in the range of 2 to 4 years. The Fund s share of profit and losses from the joint ventures flow through the Fund to investors. The fundamental investment objectives of the Fund are to: Protect capital; Create capital growth; Provide investors with superior risk-adjusted returns. Overview Unitholders 98 Total capital commitment $ 35,825,000 First closing date February 12, 2015 Second (final) closing date May 1, 2015 Exempt market dealer Belco Private Capital Inc. As of the date of this report, the Fund was capitalized as follows: Per $100,000 Total Fund $ 35,825,000 $ 100,000 Limited Partner capital drawn to December 31, 2016 (84.0%) $ 30,093,000 $ 84,000 Limited Partner capital drawn subsequent to year end (0.0%) $ 0 $ 0 Remaining Limited Partner capital to be drawn (16.0%) $ 5,732,000 $ 16,000 Limited Partner Capitalization Per $100,000 Limited Partner capital drawn to date (84.0%) $ 30,093,000 $ 84,000 Limited Partner capital returned to December 31, 2016 $ (2,328,625) $ (7,738) Limited Partner capital returned subsequent to year end $ 0 $ 0 Net Limited Partner capital $ 27,764,375 $ 76,262 Capital returned to date as % of capital committed: 6.5% Capital returned to date as % of capital drawn: 7.7% 1

5 MANAGER S LETTER Dear Investors: We are pleased to present you with the 2016 year end update of Harbour Equity JV Development Fund II LP (the Fund ). The Fund has ten development projects with all Fund capital allocated to these investments. The portfolio includes investments in Nova Scotia, Ontario, Alberta, and British Columbia Year-to-date Financial Highlights Unitholders advanced capital of $30.09 million, or 84.0% of total Fund commitments, as of December 31, The investment portfolio consists of ten active developments with total committed capital of $34.36 million. The Bradford investment, closed in July 2016, represents the Fund s final investment. The remaining $1.47 million (4% of Fund capital) has been and will continue to be used to finance Fund operations and for project contingency amounts. In addition to the Bradford closing during 2016, the Fund closed on the GTA Student Housing project, the Evolve condominium project, the DCR Fernbank housing project, and the Gorsebrook Park condominium project in Capital calls totaling $13.61 million, or 38.0% of total Fund commitments, were called in 2016 to fund these project closings. A total of $30.09 million, or 84.0% of total Fund commitments, have been drawn as of the date of this report. We expect that the majority of remaining Unitholder capital will be called over the course of the next 9 months to fund the remaining project commitments. Based on the current market assumptions, the Fund is projecting an annualized return of approximately 21% after all fees and General Partner participation. Portfolio Highlights The Morningside condominium project consists of developing a six-storey condominium building and stacked townhouse project in Toronto. Our partner has completed several entry level developments in the Scarborough market. The co-ownership closed on the property during the second quarter of 2015 with zoning already in place. Site plan approvals are expected by Q and will provide for 143 condominium units and a separate building with 18 stacked townhouse units. Sales to agents began in October 2015, followed by a second sales launch to investment focused buyers in April As of the date of this report, there are 133 firm sales in the condominium building (93%) and all 18 townhouses have been sold. With current sales numbers, sufficient pre-sales are in place to obtain a construction loan. The developer has received a Term Sheet for construction financing from RBC. Construction is scheduled to begin in Q The Danmor condominium project consists of an eightstorey mid-rise condominium building on Danforth Avenue in Toronto. The Property has substantial frontage on a section of Danforth Avenue that has seen extensive commercial and residential development take place over the last few years. The building will be 170 units, including live-work units at grade. We are pleased to say that the project received zoning approval by Toronto East York Community Council on September 9, 2016 and that applications for Site Plan Approval have been submitted and are expected to be approved by Q Construction of the sales centre commenced in the second quarter and was completed in late September. Sales for the project launched on October 1, 2016 under the name Canvas Condominiums. As of the date of this report 132 units have sold (129 firm and 3 conditional), representing 78% of the total project units. Construction of the building is scheduled to start in summer The developer has begun discussions with Scotiabank about a construction loan (Scotiabank provided the land loan on acquisition). The Fort Saskatchewan apartment project is comprised of three residential apartment buildings, totaling 144 units, on a 3.94 acre parcel of land in Fort Saskatchewan, AB (northeast of Edmonton) and a 2.57 acre parcel which is approved for an additional two buildings with 48 residential units each. The project is comprised of three phases, with construction of Phase I (Building 1 and 2) completed in early 2016 and Phase II (Building 3) completed in July As of the date of this report, the project is 92% leased. The construction of Phase III (Buildings 4 and 5) on the recently added 2.57 acres will be dependent on market conditions. 2

6 Given the slowdown of the Alberta investment sales market in 2016, and to take advantage of extremely competitive interest rates and favourable valuations, the co-ownership secured take-out financing with RBC for both Phase I and Phase II buildings. The Phase I loan was funded in October 2016, at which point the Fund received $1.024 million of net proceeds. The Phase II loan was funded in December 2016, and the Fund received $1.6M of proceeds. The Fund has now received all of its equity investment in the project. Despite the relatively challenging investment market, the co-ownership has kept the project listed for sale with CBRE during the fourth quarter in order to test the market and complete a disposition if an acceptable purchase offer is received. Townhomes of Canals is an entry level townhouse project in Airdrie, AB (just north of Calgary). The project originally envisioned a total of 355 units, of which 264 were traditional townhouses and 91 were stacked-townhouse units. In the process of securing the development permit in Q3 2016, the project changed slightly in order to appease the Airdrie planning staff. The project now includes 232 traditional townhouses and one six-storey condominium building with 123 units. The project received the deep servicing permit in Q1 2017, and will service the first phase of the site and build a sales trailer so that marketing of the site can commence in Q The DCR Rental project comprises the construction of two rental apartment projects in and around Ottawa. The Fund provided $1.7 million in preferred equity to an established developer in the Ottawa market with a term of 25 months for these developments. The projects are currently at various stages with the first one (60 units), in Nepean, almost complete and the second (52 units) in Orleans having just begun construction. First occupancy at the first building is scheduled for Q Evolve is the fourth phase of a master-planned community located within the City Centre area of Surrey, British Columbia. The project consists of a 35- storey high rise tower with 407 condo units as well as an adjoining three-storey commercial building of approximately 15,000 square feet. Pre-sales of condo units are currently at 89%. The Fund provided the developer with Preferred Equity of $5,500,000 in April 2016 for a term of 30 months, for the construction and sale of the project. Laurentian Bank is providing a $64 million construction loan for the project, with an additional $13.5 million loan being provided by Kingsett Capital. Construction is proceeding on schedule and in line with budget. A five-level underground parking garage has been completed and an above-grade building permit was issued in early February The GTA Student Housing Project is a development of two buildings being undertaken by a successful student housing development team and operator. The Fund committed $3 million of capital by way of mezzanine debt to assist with the completion of this project. The Fund provided the $3 million loan in Q Construction of the project commenced in early As of the end of the fourth quarter, both buildings have been fully erected with windows and exterior cladding near completion. Pre-leasing of the building has commenced and 21% has been leased to-date. Substantial completion of the project is expected in the middle of 2017, with occupancy expected for September The DCR Fernbank II project is a 52 lot housing project located in Kanata, Ontario. The Fund provided participating debt of $1.476 million to an established developer in the Ottawa market for a term of 36 months in April The proceeds of the loan were used by the developer to acquire 48 of the project s 52 lots. The remaining $124 thousand was funded in October 2016 when the new lot widths on the four remaining lots were approved by the City. Repayment of the $1.6 million loan, along with a portion of the developer s profits, will be provided as homes are sold and closed. The amount of profit participation will vary depending on when houses are closed, with the Fund entitled to $13,500 in profit per home closed within the first 24 months compared to profits just under $20,000 for houses closed after 24 months. Harbour provided the developer with participating debt on a previous phase of the Fernbank development in the first JV Development Fund. A total of 27 homes in the development have been sold to date, with closings scheduled throughout 2017 and into early The Gorsebrook Park condominium project consists of developing two conjoined towers in two phases, totaling 164 units, in Halifax s South End. This is the second project undertaken with this developer in Halifax, giving the project the advantage of an established reputation for quality design in the marketplace. The co-ownership closed on the property in April 2016 with zoning in place, and 3

7 submitted a development agreement to finalize the building design shortly thereafter. The development agreement was approved by Halifax Community Council in Q and official registration of the development agreement was completed in Q The Fund is committed to providing $3.13 million of equity to the project. A total of $2.63 million in equity was provided in order to close on the land, build the sales centre, and move forward on the marketing of the project. Subsequent to year-end, the Fund advanced an additional $375 thousand to the project. The project s Phase I launch was in June A total of 37 units have been sold since the launch at prices above proforma, representing 49% of the 76 units available in Phase I. The co-ownership expects presales to near 60% by Q2 2017, at which point discussions with a construction lender will commence, with construction scheduled to begin shortly thereafter in Q The Bradford Towns townhouse project will include three-storey traditional townhouses in the growing community of Bradford, Ontario. The project is being undertaken by an established GTA low rise home builder, and represents the Fund Manager s third joint venture with this developer (the other two were low-rise single family development sites in Brampton). The Fund manager committed to provide $2.45 million in equity to the project for a 42.5% interest. The Fund is responsible for 60% of the committed equity amount ($1.47 million), whereas Harbour Equity JV Fund III will be providing the balance of the committed equity amount ($980 thousand). The site is an assembly of three properties totaling acres, with a land cost of $5.84 million. The land is currently zoned for future development and is designated for residential use under the Bradford Official Plan. Zoning, sales, and construction of the project is expected to take four years. The Bradford community (approximately 45 minutes from Toronto) continues to experience rapid growth as buyers who have been priced out of homes in more southern GTA communities continue to look north for ground oriented residential options. Commentary and Outlook The Fund has now committed 96% of the Fund s capital to ten development projects. The remaining 4% of Fund capital has been, and will continue to be used to finance Fund operations and for project contingency amounts. Six of the investments made by the Fund are with new development partners, which speaks to the credibility Harbour Equity has achieved in the market over the last few years and the relationships we have been able to build with high-quality development groups across Canada. While we continue to remain bullish on residential opportunities in and around primary markets (both the for-sale and purpose-built rental markets), we are very mindful of the many concerns that have been raised from domestic and international economists about an overheated residential real estate market in Canada. In the last eight months we have seen two notable government regulations aimed at cooling the housing market, and it is possible that the government will continue to initiate new regulations in the future. The first government regulation was the 15% foreign buyers tax in Metro Vancouver that was introduced by B.C. s Provincial government in August The second government regulation was the introduction of the new Canadian Mortgage rules by the Federal government in October 2016 that was aimed primarily at new home buyers (in the under $1 million threshold with less than 20% down payment) across Canada. Approximately 56% of the Fund s existing and committed investments are in Ontario, with 16% in British Columbia and 9% in Nova Scotia. The residential real estate outlook in all three provinces remains stable and we have not yet seen any impact on our projects from the new regulations although we continue to monitor their impact on the market. The Fund also has two investments in Alberta, representing 18% of the Fund s total capital allocation. Despite challenges in the Alberta market over the last two years, we have received our initial capital back through refinancing proceeds in the first investment. This will allow the Fund the patience to optimally exit that project and maximize our profit. The second project is also well positioned in the Calgary suburb of Airdrie which has continued to see positive absorption in the midst of a very challenging residential sales market. The last six months has seen good sales growth in the Calgary market overall, with Airdrie continuing to be a very strong sub-market, and we are still expecting to achieve our projected profits on this development. We feel very comfortable with these two Alberta projects, and the fact that our exposure in Alberta now sits below 12% of the overall Fund. 4

8 With regard to asset-type, the existing Fund portfolio includes two Toronto midrise and one Halifax midrise multi-family condominium projects. The Fund was attracted to these three deals for the following reasons: (1) our development partners have extensive experience with the proposed product type and sub-markets in which the projects are located; (2) the projects are approximately 170 units or less, making them a very manageable size from a construction and sales perspective; and (3) the land parcels were acquired at reasonable pricing on a buildable square foot basis that will allow for a successful project selling condo units at or below condo pricing in place today at similar locations. In 2016 we also invested in our first high-rise development in a preferred equity position on a building that was 73% pre-sold at the time of our investment. The preferred position allows the Fund to be repaid on its invested capital and profit immediately after all lenders are repaid before the developer is repaid any of its funds invested in the project. We view this type of investment as a safer way to participate in high-rise projects, where the Fund s upside is limited to a set amount of profit but where payment is secure so long as the project creates proceeds in excess of its cost. We continue to actively manage the Fund s development projects with our various partners. Overall we are confident about the development opportunities and their risk-adjusted returns that we are seeing across the country. On behalf of the Harbour team, we thank you for your continued support. Respectfully submitted, Harbour Equity Capital Corp. Ari Silverberg, Alan Winer, Paul Schachter Principals, Manager of the Fund 5

9 FINANCIAL PORTFOLIO SUMMARY Project Name Location Description Capital Committed % of Fund Projected Profit 2 Morningside Toronto, ON Condominium $ 5,200, % $ 3,918,786 9,118,786 Total Projected Capital Out Annualized Original Est. Multiple of Estimated Proceeds (Months) 1 Return 1 Return 1 Capital Completion $ % 36.4% 1.75x Q Danmor Toronto, ON Condominium $ 6,000, % $ 4,433,361 $ 10,433, % 27.7% 1.74x Q Fort Saskatchewan Edmonton, AB Rental Apartments $ 2,560, % $ 3,093,218 $ 5,653, % 78.3% 2.21x Q Townhomes of Canals Airdrie, AB Townhouses $ 3,900, % $ 6,355,285 $ 10,255, % 33.6% 2.63x Q DCR Rental Ottawa, ON Rental Apartments $ 2,000, % $ 1,100,000 $ 3,100, % 30.0% 1.55x Q Evolve Surrey, BC Condominium $ 5,500, % $ 3,666,667 $ 9,166, % 26.7% 1.67x Q GTA Student Housing Toronto, ON Student Housing $ 3,000, % $ 1,771,769 $ 4,771, % 33.7% 1.59x Q Fernbank II Ottawa, ON Detached Houses $ 1,600, % $ 817,000 $ 2,417, % 23.5% 1.51x Q Gorsebrook Park Halifax, NS Condominium $ 3,125, % $ 3,481,398 $ 6,606, % 35.9% 2.11x Q Bradford Bradford, ON Townhouses $ 1,470, % $ 2,193,543 $ 3,663, % 43.7% 2.49x Q Estimated Fund Costs and Reserve $ 1,470,000 $ - $ - 82 Total Projects $ 35,825,000 $ 30,831,027 $ 65,186, % 1.82x The annualized return is calculated over the weighted average number of months project capital is outstanding. The timing for the Project has been increased due to a longer than expected sales cycle. The timing for the Project has been updated to reflect actual sales to-date and expected timing of construction. Profit has been updated to reflect the refinancing proceeds received during the quarter for building 3. The Annualized return is calculated on a weighted capital basis, and would equate to an IRR of 40%. The timing of capital outstanding has been extended by 12 months as result of market conditions. The profit and timing for the Project has been updated to reflect actual sales to-date. Projected Returns Total Projected Proceeds, Fund $ 65,186,027 Total Capital Invested $ (35,825,000) Total Additional Costs, Fund $ (1,389,465) Total Projected Profit, Fund $ 27,971,563 Investor Preferred Return $ 8,451,878 Investor Share of Excess $ 13,925,372 Total Investor Profit 80% $ 22,377,250 Harbour Share of Excess 20% $ 5,594,313 Total Profit projected to be received by Investors $ 22,377,250 Total Projected Return to Investors 62.5% Weighted months, Capital outstanding 35.3 Annualized Projected Return to Investors 21.2% 6

10 CORPORATE DIRECTORY MANAGEMENT Harbour Equity Capital Corp. Ari Silverberg Alan Winer Paul Schachter ADVISORY COMMITTEE The Advisory Committee continues to meet quarterly. CORPORATE ADDRESS Requests for the Fund s reports, investment information or other corporate communications should be directed to: Ann Hawley Director, Investor Relations Harbour Equity Capital Corp. 36 Toronto Street, Suite 500 Toronto ON M5C 2C x243 AUDITORS MNP LLP LEGAL COUNSEL Torkin Manes LLP WEBSITE 7

11 Harbour Equity JV Development Fund II Limited Partnership Non-Consolidated Financial Statements December 31,

12 Independent Auditors Report To the Partners of Harbour Equity JV Development Fund II Limited Partnership: We have audited the accompanying non-consolidated financial statements of Harbour Equity JV Development Fund II Limited Partnership, which comprise the non-consolidated balance sheet as at December 31, 2016, and the non-consolidated statements of earnings, partners capital and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Non-Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these non-consolidated financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of non-consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these non-consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the non-consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the non-consolidated 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the non-consolidated financial statements. 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 non-consolidated financial statements present fairly, in all material respects, the financial position of Harbour Equity JV Development Fund II Limited Partnership as at December 31, 2016 and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises. Toronto, Ontario Chartered Professional Accountants March 30, 2017 Licensed Public Accountants SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G T: F: MNP.ca 9

13 Harbour Equity JV Development Fund II Limited Partnership Non-Consolidated Balance Sheet As at December 31, Assets Cash and cash equivalents 434,852 6,839,727 Accounts receivable 278, ,489 Loans receivable (Note 3) 6,700,298 1,950,000 Investments (Note 4) 21,210,957 6,319,046 Liabilities 28,624,635 15,568,262 Accounts payables and accrued liabilities 60,283 45,419 Loan payable to related party (Note 5) 2,581,552 - Commitments (Note 6) Partners' capital 25,982,800 15,522,843 Approved on behalf of the Partners 28,624,635 15,568,262 The accompanying notes are an integral part of these financial statements 1 10

14 Harbour Equity JV Development Fund II Limited Partnership Non-Consolidated Statement of Earnings For the year ended December 31, 2016 Revenue Interest 674,141 15,246 Expenses Investment management fees (Note 5) 537, ,234 Professional fees 91, ,335 Other 10,479 85, , ,248 Income before the undernoted item 35,196 (636,002) Share of net loss from investments (860,114) (173,929) Net loss (824,918) (809,931) The accompanying notes are an integral part of these financial statements 2 11

15 Harbour Equity JV Development Fund II Limited Partnership Non-Consolidated Statement of Partners' Capital For the year ended December 31, Contributions Distributions Share of net loss 2016 Limited partners 15,522,844 13,613,500 (2,328,625) (824,910) 25,982,809 Harbour Equity JV II Corp., as general (1) - - (8) (9) partner 15,522,843 13,613,500 (2,328,625) (824,918) 25,982, Contributions Unit issuance cost (Note 8) Share of net loss 2015 Limited partners - 16,479,500 (146,726) (809,930) 15,522,844 Harbour Equity JV II Corp., as general (1) (1) partner - 16,479,500 (146,726) (809,931) 15,522,843 The accompanying notes are an integral part of these financial statements 3 12

16 Harbour Equity JV Development Fund II Limited Partnership Non-Consolidated Statement of Cash Flows For the year ended December 31, Cash provided by (used for) the following activities Operating activities Net loss (824,918) (809,931) Share of net loss from investments 860, ,929 35,196 (636,002) Changes in working capital accounts Accounts receivables 180,961 (459,489) Accounts payable and accrued liabilities 14,864 45, ,021 (1,050,072) Financing activities Contributions from limited partners 13,613,500 16,479,500 Distributions to limited partners (2,328,625) - Unit issuance costs - (146,726) 11,284,875 16,332,774 Investing activities Contributions to investments (15,752,025) (6,492,975) Loan payable to related party 2,581,552 - Additions to loans receivable (4,750,298) (1,950,000) (17,920,771) (8,442,975) (Decrease) increase in cash and cash equivalents (6,404,875) 6,839,727 Cash and cash equivalents, beginning of year 6,839,727 - Cash and cash equivalents, end of year 434,852 6,839,727 The accompanying notes are an integral part of these financial statements 4 13

17 Harbour Equity JV Development Fund II Limited Partnership Notes to the Non-Consolidated Financial Statements For the year ended December 31, General Harbour Equity JV Development Fund II Limited Partnership (the "Partnership") is an unincorporated limited partnership established by Harbour Equity JV II Corp., the general partner, under the laws of the Province of Ontario and became active on January 1, The purpose of the Partnership is to provide equity capital to mid-sized real estate developers on a joint venture basis for new 'ground-up' developments and for investments in existing properties where a significant redevelopment or value enhancement opportunity exists. The Partnership has a committed investment from unitholders for a total of $35,825,000 (7,165 units at $5,000 per unit). As at December 31, 2016, the remaining committed contributions to be received from unitholders is $5,732,000 ( $19,345,500). The Partnership will only require contributions from its partners when necessary to meet investment financing demands. The partners and their respective interests are as follows: Limited partners % Harbour Equity JV II Corp., as general partner 0.001% Pursuant to the limited partnership agreement, the net earnings or loss of the Partnership will be allocated to the partners based upon their relative investment percentage. The general partner's income allocation is increased to 20% once the limited partners' capital is returned and the limited partners have earned a preferred return of 8% per annum. 2. Significant accounting policies These non-consolidated financial statements have been prepared in accordance with Canadian accounting standards for private enterprises and include the following significant accounting policies: Basis of presentation These non-consolidated financial statements present the financial position, results of operations and cash flows of the Partnership and accordingly, do not include all the assets, liabilities, revenue and expenses of the partners. No provision has been made in these non-consolidated financial statements for any income taxes. Revenue recognition Revenue from investments represents the Partnership's share of net earning or loss from the underlying investments. Those investments recognize revenue from the sale of properties once all significant conditions have been met and collection of the proceeds from sale is reasonably assured. Participation fees and interest income are recognized as revenue when earned and collectibility thereof is reasonably assured. Cash and cash equivalents Cash and cash equivalents include balances with banks and short term investments with maturities of three months or less. Loans receivable Loans are initially recorded at fair value and subsequently measured at their amortized cost less impairment. Amortized cost is calculated as the loans principal amount plus unamortized loan participation fees, less any allowance for anticipated losses, plus accrued interest. 5 14

18 Harbour Equity JV Development Fund II Limited Partnership Notes to the Non-Consolidated Financial Statements For the year ended December 31, Significant accounting policies (Continued from previous page) Investments The Partnership records its investments using the equity method. Under this method, the investments are initially recorded at cost and are subsequently adjusted for the Partnership's share of net earnings/loss, contributions and distributions. Investments are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of the undiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Any impairment is included in net earnings/loss for the year. Financial instruments The Partnership recognizes its financial instruments when the Partnership becomes party to the contractual provisions of the financial instrument. All financial instruments are initially recorded at their fair value, including financial assets and liabilities originated and issued in a related party transaction with management. Financial assets and liabilities originated and issued in all other related party transactions are initially measured at their carrying or exchange amount in accordance with Section 3840 Related Party Transactions. At initial recognition, the Partnership may irrevocably elect to subsequently measure any financial instrument at fair value. The Partnership has not made such an election during the year. All financial assets and liabilities are subsequently measured at amortized cost. Transaction costs and financing fees are added to the carrying amount for those financial instruments subsequently measured at cost or amortized cost. Financial asset impairment The Partnership assesses impairment of all its financial assets measured at cost or amortized cost. The Partnership reduces the carrying amount of any impaired financial assets to the highest of: the present value of cash flows expected to be generated by holding the assets; the amount that could be realized by selling the assets; and the amount expected to be realized by exercising any rights to collateral held against those assets. Any impairment, which is not considered temporary, is included in current year net loss. The Partnership reverses impairment losses on financial assets when there is a decrease in impairment and the decrease can be objectively related to an event occurring after the impairment loss was recognized. The amount of the reversal is recognized in net loss in the year the reversal occurs. Measurement uncertainty The preparation of financial statements in conformity with Canadian accounting standards for private enterprises 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. Management's significant estimates relates to the valuation of investments and loans receivable. These estimates and assumptions are reviewed periodically and, as adjustments become necessary they are reported in net loss in the years in which they become known. 6 15

19 Harbour Equity JV Development Fund II Limited Partnership Notes to the Non-Consolidated Financial Statements For the year ended December 31, Loans receivable a) On July 17, 2015, the Partnership advanced $1,700,000 to finance a real estate development project. The loan is noninterest bearing for the first 27 months and thereafter bears interest at 15% per annum. The principal is due on maturity on July 1, An exit fee in the amount of $935,000 is payable along with any accrued interest by the borrower on maturity of the loan. b) On March 14, 2016, the Partnership advanced $3,000,000 to finance a real estate development project. The loan bears interest at 27.75% per annum, of which a portion of interest is payable annually on the 15th of January and the remainder of interest due is payable with the principal on maturity at March 14, c) During 2016 the Partnership advanced $1,600,000 to finance a real estate development project of 52 residential lots. The loan is non-interest bearing for the first 36 months until April 19, 2019, and thereafter bears interest at 18% per annum until April 19, 2020 when any outstanding principal is due. As the residential lots are sold, the borrower is required to repay a specified amount of principal plus a participation fee, the amount of which varies in accordance with the terms of the loan. The total of the participation fee is in the range of approximately $700,000 to $820,000 depending on the timing of the sales of the lots. The loans are secured by mortgages on the above noted real estate, which is subordinated to the borrowers' primary lenders, general security agreements over all the assets of the borrowers and an unlimited guarantee from one of the shareholders of the borrowers. 7 16

20 Harbour Equity JV Development Fund II Limited Partnership Notes to the Non-Consolidated Financial Statements For the year ended December 31, Investments The Partnership invests in real estate development projects that are held through limited partnership and/or co-tenancy structures. The Partnership's investments consist of the following: % interest in Harbour Fort Sask Limited Partnership, which in turn holds a 50% interest in the Windsor Apartment Fort Sask Co-tenancy; 50% interest in Danmor Limited Partnership; % interest in Harbour Morningside Limited Partnership, which in turn holds a 50% interest in the Your Home Developments (West Hill) Co-tenancy; and % interest in Townhomes of Canals Limited Partnership; % interest in UV Developments Four Limited Partnership; % interest in Harbour Wellington Limited Partnership, which in turn holds a 50% interest in Gorsebrook Park Cotenancy; and 60% interest in Harbour Bradford Limited Partnership, which in turn holds a 42.5% interest in Cachet Harbour (Bradford) Co-tenancy. The Partnership holds the following investments at carrying value: 2015 Contributions Distributions Share of net loss 2016 Harbour Fort Sask LP 2,516, ,980 2,670,877 Danmor LP 2,000,000 3,000,000 - (487,937) 4,512,063 Harbour Morningside LP 913, ,125 - (416,149) 1,005,216 Townhomes of Canals LP 888,909 3,008,900 - (18,304) 3,879,505 UV Developments Four LP - 5,500, ,500,000 Harbour Wellington LP - 2,625,000 - (91,704) 2,533,296 Harbour Bradford LP - 1,110, ,110,000 6,319,046 15,752,025 - (860,114) 21,210, Contributions Distributions Share of net loss 2015 Harbour Fort Sask LP - 2,560,000 - (43,103) 2,516,897 Danmor LP - 2,000, ,000,000 Harbour Morningside LP - 1,041,875 - (128,635) 913,240 Townhomes of Canals LP - 891,100 - (2,191) 888,909-6,492,975 - (173,929) 6,319,

21 Harbour Equity JV Development Fund II Limited Partnership Notes to the Non-Consolidated Financial Statements For the year ended December 31, Related party transactions and balances During the year, Harbour Equity Capital Corp., a company related to the general partner of the Partnership through common control and a partner of the Partnership, charged an investment management fee of 1.5% on the total committed contributions to the Partnership. The Partnership and Harbour Equity JV Development Fund III Limited Partnership, an entity related through common control, comprise the two limited partners in Harbour Bradford Limited Partnership. Net proceeds from the refinancing of real estate by the Windsor Apartment Fort Sask Co-tenancy, in which Harbour Fort Sask Limited Partnership is a co-tenant, were advanced to the Partnership and accordingly have been recorded as a loan payable to related party as at December 31, The loan is unsecured, non-interest bearing and has no specified terms of repayment. These transactions occurred in the normal course of operations and have been recorded in these non-consolidated financial statements at the exchange amount which is the amount of consideration established and agreed to by the related parties. 6. Commitments The Partnership has committed to advancing further funds to certain investments in its existing portfolio subject to their continued compliance with the terms of the investments. As at December 31, 2016, these committments amounted to approximately $5,810, Financial instruments The Partnership, as part of its operations, carries a number of financial instruments. It is management's opinion that the Partnership is not exposed to significant credit, currency, liquidity or other price risks arising from these financial instruments except as otherwise disclosed. Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk. The Partnership is exposed to interest rate cash flow risk with respect to investments it has made, which rely on financing subject to variable interest rates. 8. Unit issuance costs During the prior year, the Partnership incurred costs of $146,726 for the issuance of partnership units which has been recorded as a reduction to partners' capital. 9 18

22 Appendix A Investment Project Updates 19

23 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: Your Home Developments (West Hill) Inc. Your Home Developments ( Your Home ) A proposed six-storey, 143-unit condominium and 18-unit stacked townhouse development in Scarborough, Ontario to be rezoned, developed and sold. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 5,200,000 $ 5,200,000 $ 5,200,000 Harbour LP Profit $ 3,918,786 $ 3,918,786 $ 3,918,786 Capital Outstanding (Time) 25 months 30 months 1 30 months Gross Return 75.4% 75.4% 75.4% Annualized Return 36.3% 30.1% % Funding Date May 2015 Projected Completion Date Q Q Q The timing for the project was previously increased due to a longer than expected sales cycle. PROJECT UPDATE The project consists of a six-storey midrise condominium building on Kingston Road with 143 units, and 18 stacked-townhouse units. The project will be built with two levels of underground parking. Typical unit sizes for the condos are 770 sq. ft. and the townhomes average 1,150 sq. ft. Upon completion, the condo prices are expected to average $320,000 (the average price of the sold units is $313,000) and the townhomes have sold out at an average price of $471,000. The Property is located along a city-designated Avenue and is already supported by the existing zoning by-law which carries a 2003 staff report for development along Kingston Road. The co-ownership made a submission for Site Plan Approval during the third quarter of 2015 and zoning has been approved. Sales to agents began in October 2015, followed by a second sales launch to investment focused buyers in April As of the date of this report, 133 condo units have been sold (133 firm), representing approximately 93% of total condo units. As well, as at the date of this report all 18 townhouses have been sold. With the current sales numbers, sufficient pre-sales are in place to obtain a construction loan and construction is targeted to start in the spring. Your Home Developments has received a Term Sheet for construction financing from RBC. PARTNERSHIP CAPITALIZATION The Fund had advanced $1,550,000 at December 31, The capitalization of the project is as follows: Committed Advanced Balance Your Home, common equity (20%) $ 1,300,000 $ 1,300,000 $ - The Fund, common equity (20%) $ 1,300,000 $ 1,300,000 $ - The Fund, disproportionate equity (60%) $ 3,900,000 $ 250,000 $ 3,650,000 Total Capitalization $ 6,500,000 $ 2,850,000 $ 3,650,000 20

24 PROJECT FINANCING Your Home negotiated a Vendor Takeback Mortgage in the amount of $1,950,000. Terms of the VTB are as follows: Lender Vendor Loan Amount $1,950,000 Term 48 Months Maturity September 7, 2018 Interest Rate 5% per annum Payments Interest only, payable quarterly Prepayment At any time; without notice, bonus or penalty The co-ownership has received a term sheet for construction financing from RBC. Terms are as follows: Lender RBC Loan Amount $34,565,000 Maturity September 30, 2019 Interest Rate RBC prime + 1% The Term Sheet also includes a second segment of the loan which is a $5M non-revolving demand facility which is available as security (in the form of a Letter of Credit) to the City or other services for obligations of the Project. The interest rate is 1.25% per annum. PROJECT TIMELINE The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q Co-ownership closes on land Complete Q Submit Site Plan applications Complete Q Launch unit sales In Progress Q Zoning Approved Complete Q Development approvals received Complete Q Site servicing to commence Building Permits and construction financing anticipated Q Construction to commence Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

25 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: Danmor Limited Partnership Marlin Spring Investments Limited ( Marlin Spring ) A proposed eight-storey, 170-unit condominium development in Toronto (East York), Ontario to be rezoned, developed and sold. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 6,000,000 $ 6,000,000 $ 6,000,000 Harbour LP Profit $ 4,433,361 $ 4,433,361 $ 4,433,361 Capital Outstanding (Time) 32 months 36 months 36 months Gross Return 73.9% 73.9% 73.9% Annualized Return 27.7% 24.6% 24.6% Funding Date June 2015 Projected Completion Date Q Q Q PROJECT UPDATE The project site consists of 0.64 acres across 2 properties at Danforth Avenue, in the Danforth Village neighbourhood of Toronto. The design for the project consists of an eight-storey building with 156 condominium units, and 14 rental replacement units. The condo units will average approximately 700 sq. ft. Upon completion, the condo prices are projected to average $365,000 per unit with additional revenue earned through the sale of parking stalls and storage lockers. On September 9, 2016 the Limited Partnership received zoning approval from Toronto East York Community Council for the Project. Following the zoning approval, applications were submitted for site plan approval and should be satisfied by the spring of Demolition and excavation permits are expected by early summer 2017, at which point construction will commence. As a result of achieving an approval, sales launched on October 1, 2016 under the name Canvas Condominiums. As of the date of this report, 132 units have sold (85%) at an average of $601 psf. This is approximately 9% above proforma ($550 psf). As well, 128 lockers and 79 parking stalls have been sold at $2700 per locker and $36,000 per parking stall. PARTNERSHIP CAPITALIZATION The Fund had advanced $5,000,000 at December 31, 2016, which includes $1,000,000 that was funded on December 15th. The capitalization on the date of this report is as follows: Committed Drawn to Date Capital to Draw Marlin Spring, common equity (25%) $ 2,000,000 $ 2,000,000 $ - The Fund, common equity (25%) $ 2,000,000 $ 2,000,000 $ - The Fund, disproportionate equity (50%) $ 4,000,000 $ 3,000,000 $ 1,000,000 Total Capitalization $ 8,000,000 $ 7,000,000 $ 1,000,000 22

26 PROJECT FINANCING The Bank of Nova Scotia has provided the project with a land acquisition loan for 60% of the purchase price. Terms of the loan are as follows: Lender Bank of Nova Scotia Loan Amount $5,000,000 ($4,500,000 toward land acquisition and $500,000 toward project soft costs) Term 30 Months Maturity Date December 31, 2017 Interest Rate Prime + 1% per annum Payments Interest only Prepayment At any time; without notice, bonus or penalty Guarantor Corporate guarantee provided by affiliates of Marlin Spring The land loan will be repaid from proceeds of the construction loan. The construction loan will be with Scotia bank. PROJECT TIMELINE The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q Co-ownership closes on land Complete Q Submit Rezoning and Site Plan applications Complete Q Development approvals projected to be received Complete Q Unit sales to commence In Progress Q Site Plan Approval received, Site servicing to commence Q Building Permits anticipated to be obtained, construction to commence Q Initial unit closings Q Condo registration, balance of unit closings Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

27 SUMMARY Project Co-ownership/LP: Development Partner Project: Investment Structure: Windsor Apartments Fort Sask Inc. P.K. Developments Construction Corp. 6.51acre parcel in Fort Saskatchewan, AB to develop, lease-up, and sell a 5-building rental apartment complex. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 2,000,000 $ 2,560,000 1 $ 2,560,000 Harbour LP Profit $ 1,826,609 $ 3,105,555 $ 3,093,218 3 Capital Outstanding (Time) 14 months 19 months 17 months 2 Gross Return 91.3% 121.2% 120.8% Annualized Return 78.3% 76.6% 85.3% 3 Funding Date May 2015 Projected Completion Date Q Q Q The equity invested in the project has increased as the Partnership acquired an additional 2.57 acres, adjacent to the current site, with the potential to build an additional two buildings; profit and gross returns have been updated accordingly. 2 The timing has increased as the first two buildings did not sell upon completion and stabilization as originally anticipated. It is expected that the first three buildings will be sold for $175,000 per unit in Q The profit has been updated to reflect the refinancing proceeds received from Building 1&2 in October 2016 and from Building 3 in December PROJECT UPDATE Phase I (Building 1 & 2): The first phase of the project is comprised of two 48 unit (96 units total), four storey, wood-frame apartment buildings. The two buildings are now complete and as at year-end 75% of the units (72 units) were occupied. Gross lease rates range between $1,275 and $1,495 per month depending on unit type and floor level. Rental incentives are monitored on a weekly basis and range from one month free rent to discounts applied to monthly rent for up to the first three months of the lease term. Current economic conditions have not supported a sale of the asset therefore term financing of $14,540,000 for Phase I was secured and funded in October 2016 (see Project Financing below). Phase II (Building 3): The second phase is a third identical 48 unit, four storey, wood frame apartment building. Occupancy commenced in August 2016 and 90% of the units (43 units) were leased as at December 31 at the same rates as Phase I. Term financing of $7,060,000 from RBC was secured and funded in December. Harbour received $1,557,412 of the gross refinancing proceeds. With the refinancing, Harbour was able to secure all of its disproportionate equity in the deal and only has $251,000 of common equity that was not repaid with the refinancing. Phase III (Building 4 & 5): On closing, the Fund acquired an option to purchase an additional 2.57 acres adjacent to the site where Buildings 1-3 are being constructed. This option was exercised at the end of 2015 based on the attractive cost of the land ($515,000 per acre). Two more identical buildings, Buildings 4 and 5, can be built on this land. Timing as to when these two buildings will be constructed will be dependent on the ability to sell the first three buildings as well as market conditions at the time. Each building will have 48 units comprised of 13 x 1 bedroom and 35 x 2 bedroom units, for a total of 96 units and an average unit size of 838 sf. 24

28 PARTNERSHIP CAPITALIZATION A summary of the co-ownership capital at December 31 is as follows: PK, Common Equity (20%) The Fund, Common Equity (20%) Committed Drawn to Date Capital to Draw $ 640,000 $ 640,000 $ 640,000 $ 640,000 $ - $ - The Fund, Disproportionate Equity (60%) $ 1,920,000 $ 1,920,000 $ - Total Capitalization $ 3,200,000 $ 3,200,000 $ - As noted above, Buildings 1 and 2 (Phase 1) were re-financed in October 2016 and with the new refinancing proceeds in place, the capitalization of the co-ownership is revised as follows: Advanced Repaid Balance PK, Common Equity (20%) $ 640,000 $ 388,730 $ 251,270 The Fund, Common Equity (20%) $ 640,000 $ 388,730 $ 251,270 The Fund, Disproportionate Equity (60%) 4 $ 1,920,000 $ 1,920,000 $ - Total Capitalization $ 3,200,000 $ 2,697,460 $ 502,540 1 In addition to the repatriation of equity, The Fund received its preferred return to December 2016 ($16,572) on its outstanding disproportionate equity as well as a coupon on its common equity ($71,954) PROJECT FINANCING Phase I Building 1 and 2 The construction loan was refinanced on October 10, 2016 with Servus Credit Union under the following terms: Lender Servus Credit Union Loan balance at Dec.31, 2016 $14,510,000 Interest Rate 3.20% Debt Service (P&I) $70,345 payable monthly Guarantees Dave Taylor and P.K. Developments Construction Corp. Maturity 5 years / October 2021 Phase II Building 3 Lender RBC Loan balance Dec.31, 2016 $7,060,000 Interest Rate 2.98% Debt Service (P&I) $33,338 Guarantees Dave Taylor and P.K. Developments Construction Corp. Maturity February 1,

29 Phase III Land for Buildings 4 and 5 Land Loan $910,000 Lender Laurentian Bank of Canada Loan balance Dec.31, 2016 $910,000 Interest Rate Greater of Prime % and 3.95% Debt Service Interest only Guarantees Personal guarantee from the Developer principal and corporate guarantee of Alberta Ltd. Maturity June 1, 2017 PROJECT TIMELINE The following schedule outlines the significant development milestones achieved and anticipated for the Project: Date Milestone Status Q Commence construction of Phase II/Building 3 Complete Q Phase I building completion & lease-up Complete Q Refinancing of Phase I (Buildings 1 and 2) Complete Q Phase II/Building 3 substantial completion & lease-up Complete Q Refinancing of Phase II/Building 3 Complete Q Sale of Buildings 1, 2 and 3 Q Commence construction of Building 4 Q Commence construction of Building 5 Q Sale of Buildings 4 and 5 STABILIZED OPERATING INCOME Occupancy of Phase I commenced in October 2015 and July 2016 for Phase II, therefore, there is no comparable data from 2015 for the same period. As well, there was no budget for phase II for 2016 leading to large variances between budget and actual figures. 12 months ended Dec 2016 Dec 2016 Dec 2015 Budget Actual Actual Rent Revenue, annual gross $ 1,276,814 $ 1,431,530 N/A Interest Income $ 396 $ - Net Revenue $ 1,277,114 $ 1,431,530 Operating Expenses $ (367,053) $ (633,004) Net Operating Income (NOI) $ 910,061 $ 798,526 Interest on Mortgage $ (490,000) $ (637,491) Cash Flow before Principal payments $ 420,061 $ 218,758 Principal on Mortgage $ (63,173) $ (63,173) Cash Flow from Operations $ 356,888 $ 97,862 Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

30 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: Townhomes of Canals LP Slokker Projects Limited Partnership ( Slokker ) Townhouse development on acres in West Airdrie, Alberta to be rezoned, developed and sold. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 4,900,000 $ 3,900,000 1 $ 3,900,000 Harbour LP Profit $ 6,782,935 $ 6,355,285 2 $ 6,355,285 Capital Outstanding (Time) 50 months 62 months 62 months Gross Return 138.4% 163.0% % Annualized Return 33.6% 31.5% % Funding Date July 2015 Projected Completion Date Q Q Q The adjusted Fund Equity reflects the reduced investment amount from $4.9 million to $3.9 million, as detailed below. 2 The profit projection and return has been amended to reflect the change in built-form (from stacked townhouse to condo) and the increase in the capital outstanding (time) as a result in a delay in obtaining a development permit for the site. PROJECT UPDATE The site, located just north of Calgary in Airdrie, has been approved as a townhouse and multi-residential development which will consist of 232 townhouse units and up to 123 condo units. During the quarter, the partnership received confirmation on approval of its development application. The deep servicing plan was submitted in Q and approval was received subsequent to year-end. The development permit is currently under review and once obtained, the Limited Partnership will proceed to service the site, build a number of show homes and initiate a marketing program. The sales trailer for the project is currently under construction and is expected to open by the end of Q The site will be serviced in phases over a 4-5 year period, with timing dependent on the pace of unit sales. PARTNERSHIP CAPITALIZATION At closing of the Limited Partnership, the Fund committed to advance $4,900,000, or 70% of the total required equity for the Project. In May 2016, the Developer requested to replace $1,000,000 of the Fund s equity with its own. The Fund agreed to the Developer s proposal, which allows the Fund to maintain an equivalent proportion of Project proceeds while reducing exposure to the greater Calgary market. The initial advance was completed in July 2015, and the capitalization of the project as at December 31, 2016 is as follows: Committed Drawn to Date Capital to Draw Slokker, common equity $ 3,100,000 $ 3,100,000 $ - The Fund, common equity $ 3,900,000 $ 3,900,000 $ - Total Capitalization $ 7,000,000 $ 7,000,000 $ - 27

31 PROJECT FINANCING The Limited Partnership has received a commitment for an acquisition, servicing and initial construction loan with Alberta Treasury Branch ( ATB ). Loan proceeds would be used to carry the project through its first phase of construction. Details of the loan are as follows: Lender ATB Loan Amount $ 10,503,000 Balance at Dec.31, 2016 $ 3,983,546 Interest Rate Prime % (blended) Debt Service Interest only Repayment On demand Guarantors Personal and corporate guarantees from the principals of Slokker. Maturity Date May 31, 2018 PROJECT TIMELINE The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q LP funds firm deposit to land vendor Complete Q Submit Site Plan applications Complete Q Close on land Complete Q Development approvals to be received; Complete Q Site servicing to commence; building permits anticipated to be obtained; townhouse construction to commence Q Sale of townhouses completed Q Condo building construction to commence Q Construction of condo building completed Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

32 SUMMARY Project Co-ownership/LP: Development Partner Project: Investment Structure: N/A DCR/Phoenix Development Corporation Ltd. Arlington Square Inc. Development of three rental apartment projects in Ottawa, ON. Participating Debt Original Previous Quarter Current Quarter Harbour Fund Equity $ 2,000,000 $ 2,000,000 $ 2,000,000 Harbour LP Profit $ 1,100,000 $ 1,100,000 $ 1,100,000 Capital Outstanding (Time) 22 months 25 months 25 months Gross Return 55.0% 55.0% 55.0% Annualized Return 30.0% 26.4% % 1 Funding Date July 2015 Substantial Completion Q Q Q Timing was extended by three months due to a delay in commencing construction on the Bradley Terrace project. PROJECT UPDATE The Fund provided participating debt financing for the development of three rental apartment projects in Ottawa, ON as follows: Pointe West: two attached buildings, one 5-storey and one 3-storey, totaling 60 rental units located at 151 Greenbank Road in Nepean, ON. Bradley Terrace: two 3 storey apartment buildings totaling 52 units (26 units each) located at 152 Whispering Winds Way in Orleans, ON; and Fernbank Crossing Rentals: the acquisition of a 25% interest in the development of eight walk-up buildings with 12 units per building in Kanata, ON. Pointe West As at December 31st the project was approximately 68% complete with the structural steel installed up to the roof level, the roof membrane installed, the elevator shaft installed and the corridor wall framing complete up to the fourth floor. Construction fell behind by two months and substantial completion is now scheduled for Q with registration and first occupancy happening in Q Bradley Terrace Bradley Terrace will be comprised of two 3-storey, 26-unit apartment building with outdoor parking. The units will have 8.5 foot ceilings, vinyl floors and arborite kitchen tops. As well, each unit will have its own meter for gas and hydro. City staff approval was obtained in Q and the bulk excavation is complete. In terms of servicing, sanitary and storm sewers, as well as water and electrical, have been brought into the building. The concrete footings and perimeter walls are complete with insulation having been installed under the footings and the waterproofing membrane installed to the perimeter walls. 29

33 Fernbank Crossing Rentals The building design has changed which has delayed the project by an additional six months in order to get City approval on the most recent design. We are currently negotiating with DCR in regards to the remaining $300,000 of undrawn capital. The $300,000 allocated to this project by the Fund will be called when approvals are in place and as required by the Developer. CAPITALIZATION Committed Drawn to Date Capital to Draw The Fund, Preferred Equity $ 2,000,000 $ 1,700,000 $ 300,000 Total Capitalization $ 2,000,000 $ 1,700,000 $ 300,000 Note: Only $1,700,000 has been advanced to date the remaining $300,000 earmarked for the Fernbank Crossing project will be called when and if required by the Developer. PROJECT FINANCING Laurentian Bank will be providing the construction financing on the Pointe West and Bradley Terrace projects. Terms of the construction facilities are as follows: POINTE WEST BRADLEY TERRACE Lender Laurentian Bank Laurentian Bank Loan Amount $ 11,300,000 $ 4,650,000 Balance at Dec.31, 2016 $ 5,719,653 $ - Term 28 months 18 months Interest Rate Prime % Prime % Guarantor Principal of DCR/Phoenix DCR/Phoenix Development Corporation Ltd Ontario Inc. Principal of DCR/Phoenix DCR/Phoenix Development Corporation Ltd Ontario Inc. As at December 31, 2016 no construction financing has been advanced from Laurentian for the Bradley Terrace project. Terms of the participating debt are as follows: Lender Harbour Equity JV II Corp. Loan Amount (Registered) $2,000,000 loan amount & $1,100,000 of profit participation Term 36 Months Maturity July 2018 Profit Participation / Rate (i) Profit Participation of $1,100,000 (ii) On maturity any unpaid Profit Participation shall be capitalized to the loan and accrue at 15% per annum, calculated and compounded monthly Repayment From the excess sale and/or refinancing proceeds upon completion of each project Security Second Mortgage for $3,100,000 cross-collateralized across all three projects 30

34 PROJECT TIMELINE Pointe West is comprised of 2 attached buildings, as described above. The unit mix is comprised of 37 two bedroom units and 23 one bedroom units, which range between 780 1,100 sf and sf respectively. Date Milestone Status Q Demolition and Shoring Complete Q Excavation and Backfill Complete Q Site Servicing Complete Q Concrete Work Structure Complete Q HVAC and gas line installation (complete to 3 rd floor) Complete Q Substantial Completion Q First Occupancy Q Stabilized occupancy Q Refinancing Bradley Terrace is comprised of two wood frame rental apartment buildings on acres of land located in Orleans, Ontario. Each building will be comprised of 26 units with 8 one bedroom units ( sf), 2 one bedroom + den units (840 sf), and 16 two bedroom units (815 sf). The Developer has decided to build the project in phases, one building at a time. Given that the project will be built in phases it will take an additional 12 months to complete. Date Milestone Status Q Commence site grading Complete Q Demolition and Shoring Complete Q Excavation and Backfill In Progress Q Construction Start In Progress Q Framing Q Building Enclosed Q Interior finishes Q Substantial Completion Q Stabilized occupancy 31

35 SUMMARY Project Co-ownership/LP: Development Partner Project: Investment Structure: UV Developments Four Limited Partnership WestStone Properties, o/a Urban Village Limited Partnership ( WestStone ) Construction and sale of a 407-unit condominium tower, as well as an adjoining 3 storey commercial building of approximately 15,000 square feet, in Surrey, BC. Preferred Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 5,500,000 $ 5,500,000 $ 5,500,000 Harbour LP Profit $ 3,666,667 $ 3,666,667 $ 3,666,667 Capital Outstanding (Time) 30 months 30 months 30 months Gross Return 66.7% 66.7% 66.7% Annualized Return 26.7% 26.7% 26.7% Funding Date April 2016 Substantial Completion Q Q Q PROJECT UPDATE The Fund has provided Preferred Equity financing to WestStone for the construction of a 36-storey high-rise tower with 407 condo units as well as an adjoining three-storey commercial building of approximately 15,000 square feet. The Project is known as Evolve. Evolve is the fourth phase of WestStone s 8-phase master-planned community known as West Village in Surrey, BC. WestStone launched pre-sales for Evolve in April of As at Q4 2016, a total of 360 units (89% of the project) have been sold and deposits received from purchasers. This represents approximately $99 million in gross proceeds. Construction is proceeding on schedule and in line with budget. The project has completed the construction of a five-level underground parking garage, and concrete is being prepared for the transfer slab, which will be over five feet thick and the base for the above-grade building. Above-grade building permits were issued in early February PARTNERSHIP CAPITALIZATION The Fund has provided capital as Preferred Equity with a term of 30 months (terms described below). The term of the preferred equity commenced on March 1, Committed Drawn to Date Capital to Draw WestStone, Equity $ 5,500,000 $ 5,500,000 $ - The Fund, Preferred Equity $ 5,500,000 $ 5,500,000 $ - Total Capitalization $ 11,000,000 $ 11,000,000 $ - Term / Maturity 30 Months / September 2018 Profit Participation / Rate (i) Profit Participation of $3,666,667 (ii) On maturity any unpaid Profit Participation shall be capitalized and the entire amount will accrue at 15% per annum, calculated and compounded monthly Repayment Security From the excess sale proceeds upon completion of the Project The principal amount has been guaranteed by the controlling shareholder of WestStone. 32

36 PROJECT FINANCING Laurentian Bank originally provided a commitment letter to provide a $74 million construction loan to the project. Laurentian revised its committed loan amount to $63.5 million citing a number of factors, including the recent foreigner tax instituted in Vancouver and a generally slowing Vancouver market. The difference is being funded by way of additional equity from WestStone, additional insured purchaser deposits and a mortgage facility from Kingsett Capital to replace the bridge loan described below. Funding has occurred subsequent to year-end. Terms of the construction facility are as follows: Lender Laurentian Bank of Canada Loan Amount $ 63,500,000 Balance at Dec.31, 2016 $ 8,172,833 Term 30 months Interest Rate Prime % Guarantor Principal of WestStone The project received a bridge loan from Kingsett Capital to cover costs incurred prior to the first Laurentian construction loan advance. The bridge loan has been converted to a construction loan concurrent with the first advance of the first mortgage construction loan from Laurentian. Terms of the loan are as follows: Lender Kingsett Capital Loan Amount $ 7,500,000 Balance at Dec.31, 2016 $ 5,769,849 Term 24 months Interest Rate 14.00%, paid through an interest reserve of $1,750,000 Guarantor Principal of WestStone In addition to the two loan facilities described above, the project has obtained a mezzanine loan from Kingsett Capital in the amount of $6,000,000, which includes a $1,000,000 interest reserve. $5,000,000 of the loan was drawn concurrently with the Fund s advance of preferred equity. Terms of the mezzanine facility are as follows Lender Kingsett Capital Loan Amount $ 6,000,000 Balance at Dec.31, 2016 $ 5,466,891 Term 30 months Interest Rate 12.50% Guarantor Principal of WestStone PROJECT TIMELINE Date Milestone Status Q Excavation Complete Q Foundations & underground In Progress Q Concrete Structure Completion In Progress Q Substantial Completion Q Occupancy and registration Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

37 SUMMARY Project Co-ownership/LP: Project: Investment Structure: The Developer has requested that their identity not be disclosed Two six-storey student housing rental buildings Debt Original Prior Quarter Current Quarter Harbour Fund Equity $ 3,000,000 $ 3,000,000 $ 3,000,000 Harbour LP Profit $ 1,771,769 $ 1,771,769 $ 1,771,769 Capital Outstanding (Time) 21 months 21 months 21 months Gross Return 59.1% 59.1% 59.1% Annualized Return 33.7% 33.7% 33.7% Funding Date March 2016 Projected Completion Date Q Q Q PROJECT UPDATE The project is a student housing development in the Greater Toronto Area (GTA) that is being undertaken by a successful development team and operator. The development will feature 486 suite-style apartment units (812 beds), as well as ground floor retail and modern amenities. All units, which will range from one to three-bedrooms, will include a private washroom and kitchen. Monthly rent will start from $700/bed for a shared room within a two-bedroom unit. The expected date of substantial completion is in Q and the building is to be operational by Q As of Q both buildings have been fully erected, with exterior cladding and windows substantially completed while insulation, plumbing, electrical and sprinkler system installation in progress. Roofing, drywall installation and interior finishes commenced this past quarter. 164 units have been pre-leased in the fourth quarter, bringing the total number of leases to 171 or 21% of the two buildings. There has been particularly strong interest from upper year undergraduate students, which account for over 75% of the applications received to date. Furthermore, 46% of the applications have been from Canada and the remainder were international students predominantly from China, India and Nigeria. Total Units Prior Quarter Current Quarter % Leased Units Total Leases Total Leases Available % 641 PROJECT CAPITALIZATION The Fund has advanced $3,000,000. The capitalization of the project as at December 31, 2016 is as follows: Total Cost to Date Cost to Complete Total Project Costs $ 94,500,000 $ 56,583,834 $ 37,916,166 Less: Hold Back $ - $ 3,570,564 $ (3,570,564) Net Project Costs $ 94,500,000 $ 53,013,270 $ 41,486,730 34

38 Total Advanced Remaining to Advance Schedule A Bank Construction Loan $ 70,875,000 $ 25,636,826 $ 45,238,174 Private Lender Mezzanine Loan $ 14,175,000 $ 14,175,000 $ - Harbour Loan $ 3,000,000 $ 3,000,000 $ - Developer Equity $ 6,450,000 $ 6,450,000 $ - Total Sources $ 94,500,000 $ 49,261,826 $ 45,238,174 Add: Next Approved Draw (January) $ - $ 3,751,444 $ (3,672,334) Total Sources including Next Draw $ 94,500,000 $ 53,013,270 $ 41,486,730 PROJECT FINANCING The project is being financed through a first mortgage construction loan from a Schedule A Bank and a second mortgage construction loan from a private lender. Terms of the First Mortgage Construction Loan are as follows: Lender Schedule A Bank Loan Amount Lesser of 1. 65% of the appraised value of the completed project 2. An amount such that projected Debt Service Coverage is at least 1.30x on senior debt 3. Authorized loan amount of $75,000,000 Balance at Dec.31,2016 $ 25,636,826 Term N/A due upon maturity Maturity Date June 30, 2018 Interest Rate Prime % per annum Payments Interest only Prepayment At any time, without notice, bonus or penalty Guarantors The Second Mortgage Lender is providing a guarantee on behalf of the developer for 50% of the Loan Terms of the Second Mortgage Construction Loan are as follows: Lender Private Lender Loan Amount $ 14,175,000 Balance at Dec.31, 2016 $ 14,175,000 Term 24 Months (with two 12-month extension options) Maturity Date December 31, 2017 Interest Rate 10% per annum, compounded monthly Payments Interest only Prepayment Closed prior to the initial Maturity Date Guarantors Development team and operator 35

39 PROJECT TIMELINE Construction commenced in January 2016 and completion is expected in September The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q Zoning by-law and official plan amendment approval received Complete Q Retail units fully leased Complete Q Municipal approval of ground lease with York University approved Complete Q Site grading and construction commences In Progress Q Marketing and leasing of units commences In Progress Q Buildings enclosed and interior finishes commence In Progress Q Construction substantially complete Q Occupancy commences Q Refinancing and/or sale of buildings 36

40 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: N/A DCR/Phoenix Development Corporation Acquisition of 52 serviced single family lots in the subdivision known as Fernbank Crossing, Kanata, ON. Participating Debt Original Previous Quarter Current Quarter Harbour Fund Equity 1 $ 1,600,000 $ 1,600,000 $ 1,600,000 Harbour LP Profit $ 909,000 $ 863,000 $ 817,0002 Capital Outstanding (Time) 29 months 25 months 22 months 2 Gross Return 56.8% 53.9% 51.1% 2 Annualized Return 23.5% 25.9% 27.9% 2 Funding Date April 2016 Projected Completion Date Q Q Q The Fund has provided the Developer with Participating Debt as opposed to traditional equity in this transaction; terms of the debt are outlined under Project Financing. 2 Projected profits have been updated to reflect actual sales to-date. Closings will occur earlier than initially anticipated, which results in less absolute profit but a higher annualized return. PROJECT UPDATE The site is part of a 160-acre master-planned subdivision designed for a mix of 700 suburban condominiums, townhomes, bungalows and single-family homes. The participating debt was provided for the acquisition, construction and sale of single family detached houses in Phase 3 of the Fernbank Crossing development project. Upon the sale, construction, and closing of each home Harbour shall be entitled to its proportionate share of equity ($30,770 per lot) plus profit participation, which will depend on the timing and number of homes sold and closed as follows: For the first 24 months Harbour shall earn $13,500 of profit per lot/home After the 24 th month the profit participation will be dependent on the number of homes sold and closed within the first 24 months as follows: $20,000 if less than 10 homes sold and closed $19,750 if homes are sold and closed $19,250 if 15 homes or more are sold and closed Any outstanding principal and profit participation at the end of the 36 th month of the term will crystalize and accrue interest at 18% p.a., calculated and compounded monthly for an additional 12 months. Based on the current sales schedule, the developer expects to have at least 21 homes sold and closed by the 24 th month of the term. 37

41 During the quarter, eight homes were sold and construction has commenced on these sold lots. Subsequent to year-end, an additional six homes were sold. As of December 31, 2016, a total of 21 homes have been sold, with closings expected to occur throughout 2017, summarized in the chart below. Sold and Closed 0 Sold and Under Construction 21 Inventory 31 Total 52 CAPITALIZATION In Q2 2016, an initial advance of $1,476,960 was completed to close on 48 of the 52 lots. The remaining capital of $123,040 was advanced to DCR/Phoenix in September 2016 to close on the final four lots. The capitalization as at December 31, 2016 was as follows: Committed Drawn to Date Capital to Draw The Fund, Principal $ 1,600,000 $ 1,600,000 $ - Total $ 1,600,000 $ 1,600,000 $ - Profit participation on the 52 lots is currently estimated to be $817,000, or approximately $15,712 per lot. This is subject to change depending on the timing of sales and closings. PROJECT FINANCING A First Mortgage land and acquisition loan was provided by Bank of Montreal. Terms of the mortgage are as follows: Lender Bank of Montreal Loan Amount $ 4,705,000 (Registered financing) Interest Rate BMO Prime % - floating Term 24 Months / April 2018 Debt service Interest-only, paid monthly in arrears Guarantor Ontario Inc. and DCR/Phoenix Development Corporation Limited for full loan amount; Principal of DCR/Phoenix for $2,000,000 of land loan plus guarantee to accommodate construction financing Harbour Equity JV Corp., on behalf of the Fund, provided the Developer with participating debt to assist with the acquisition of the lots. Terms of the debt are as follows: Lender Harbour Equity JV Corp. Loan Amount $1,600,000 Term / Maturity 36 Months / April 2019 Profit Participation (i) Profit Participation of $909,000 ($13,500 - $19,250 per lot) (ii) On maturity any unpaid Profit Participation is capitalized to the loan and accrues interest at 18% p.a., calculated and compounded monthly, for an additional 12 months Repayment $44,270 - $50,020 upon closing of each lot/home ($30,770 to principal and $13,500 - $19,250 to the Profit Participation; depending on when sale occurs) Security (i) Collateral Mortgage providing a first fixed charge over the project lands in the amount of the $4,705,000 (ii) Second charge in favour of a Second Mortgage Lender for a maximum amount of $1,344,000 Guarantor Ontario Inc. 38

42 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: Harbour Wellington LP Urban Capital A midrise condominium development in Halifax, Nova Scotia to be developed and sold. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity $ 3,125,000 $ 3,125,000 $ 3,125,000 Harbour LP Profit $ 3,460,473 $ 3,481,398 $ 3,481,398 Capital Outstanding (Time) 37 months 37 months 37 months Gross Return 110.7% 111.4% 111.3% Annualized Return 35.9% 36.1% 36.1% Funding Date April 2016 Projected Completion Date Q Q Q PROJECT UPDATE Located in the South End of Halifax, Gorsebrook Park is a condo project containing approximately 160 units, to be built in two phases. The building will have 10-storeys on the north side and transition to 8-storeys on the south portion. The development is on an assembly of four lots totaling 1 acre, each with a single detached dwelling. The site is currently zoned as residential and allows for the proposed development. The development agreement was officially approved and registered in Q With the completion of the sales center in June 2016, sale of the first phase is now underway. As of the date of this report, 37 condo units (48.7% of the first phase) have been sold at an average price of $550 psf compared to the proforma price of $510 psf. In addition, six townhouses from the second phase has been reserved by purchasers. The co-ownership expects pre-sales to near 60% in the next two quarters and discussions with construction lenders have commenced. Working drawings for the building commenced during the quarter in order to be aligned with Q construction start for the first phase. PARTNERSHIP CAPITALIZATION The capitalization of the project as at December 31, 2016 is as follows: Committed Drawn to Date Capital to Draw The Fund, common equity (50%) $ 3,125,000 $ 2,625,000 $ 500,000 Urban Capital, common equity (50%) $ 3,125,000 $ 2,625,000 $ 500,000 Total Capitalization $ 6,250,000 $ 5,250,000 $ 1,000,000 Subsequent to year-end, the Fund advanced an additional $375,000 to the project. 39

43 PROJECT FINANCING Land acquisition financing has been secured with CIBC with the following terms: Lender CIBC Loan Amount $4,150,000 Term Due once first construction financing advance is made Maturity Date May 2018 Interest Rate Prime % per annum Payments Interest only monthly payment Guarantors Guarantee provided by Urban Capital (Gorsebrook Park) Inc. PROJECT TIMELINE It is expected that 42 to 45 months will be required to complete the project. The Fund has used a 50 month timeframe in the project proforma. The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q Amendment to Halifax Municipal Planning Strategy Complete Q Co-ownership closes on land Complete Q Sales centre to launch Complete Q Development Agreement completed Complete Q Begin Phase 1 construction Q Begin Phase 2 construction Q Complete Phase 1 construction Q Complete Phase 2 construction Q Final release of funds and Letters of Credit Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

44 SUMMARY Project Co-ownership/LP: Development Partner: Project: Investment Structure: Cachet Estate Homes (Bradford) Inc. Cachet Bradford Limited Partnership ( Cachet ) An acre townhouse development in Bradford, Ontario to be rezoned, developed and sold. Joint Venture Equity Original Previous Quarter Current Quarter Harbour Fund Equity 1 $ 1,470,000 $ 1,470,000 $ 1,470,000 Harbour LP Profit $ 2,193,542 $ 2,193,542 $ 2,193,542 Investment Horizon 41 months 41 months 40 months Gross Return 149.2% 149.2% 149.2% Annualized Return 43.7% 43.7% 44.8% 2 Funding Date July 2016 Projected Completion Date Q Q Q This represents 60% of the $2,450,000 committed by the Fund Manager towards the project and the associated projected returns. As this is the final investment in the Fund, the balance of the committed equity amount is provided by Harbour Equity JV Development Fund III. 2 The remaining capital to draw has been pushed out by three months. PROJECT UPDATE In July 2016, the co-ownership acquired three contiguous properties on an acre site in Bradford, Ontario. The proposed development will consist of approximately 80 to 90 freehold three-storey townhouse units averaging 1,800 sf (subject to approvals). The projected return is based on the proposed pricing at the time of closing the co-ownership ($530,000 per unit). The launch of sales is expected to occur in Q The site is currently zoned as Future Development and a Zoning By-Law amendment is required for the development to proceed. The Zoning By-Law Amendment and Subdivision Plan applications were submitted during Q and the project received a formal Notice of Complete from the city subsequent to year-end. The project expects to receive first round of staff comments in Q1 2017, with final approvals by Q PARTNERSHIP CAPITALIZATION The Fund has advanced $1,110,000 as at December 31, The capitalization of the project is as follows: Committed Drawn to Date Capital to Draw Cachet, common equity (30%) $ 1,050,000 $ 1,050,000 $ - The Fund, common equity (15%) $ 525,000 $ 525,000 $ - The Fund, disproportionate equity (27%) $ 945,000 $ 585,000 $ 360,000 JV Fund III (28%) $ 980,000 $ 740,000 $ 240,000 Total Capitalization $ 3,500,000 $ 2,900,000 $ 600,000 41

45 PROJECT FINANCING The two vendors of the properties have provided VTBs on the three lots. Terms of the VTBs are as follows: VTB #1 Loan Amount $1,200,000 Term 36 Months Maturity Date July 2019 Interest Rate 3% per annum; interest-free for the first two years Payments Interest only; paid semi-annually Repayment Repayable at any time VTB #2 Loan Amount $1,500,000 Term 36 Months Maturity Date July 2019 Interest Rate 3% per annum; interest-free for the first two years Payments Interest only; paid semi-annually Repayment Repayable at any time VTB #3 Loan Amount $770,000 Term 36 Months Maturity Date August 2019 Interest Rate 4% per annum Payments Interest only; paid quarterly Repayment Repayable at any time PROJECT TIMELINE The following schedule outlines significant development milestones anticipated for the Project: Date Milestone Status Q Co-ownership closes on land Complete Q Submit rezoning and Draft Plan applications Complete Q Indication of development approvals received, In Progress Unit sales to commence Q Development approvals received Q Servicing to commence Q Subdivision registration completed, Construction to commence Q Initial home closings Attached in Appendix B are the unaudited financial statements for the Co-Ownership as at December 31,

46 Appendix B Project Financial Statements

47 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Financial Statements December 31, 2016 (Unaudited - see Notice to Reader)

48 Notice To Reader On the basis of information provided by management, we have compiled the balance sheet of Your Home Developments (West Hill) Cotenancy as at December 31, 2016 and the statements of loss and co-tenants' equity for the year then ended. We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are cautioned that these statements may not be appropriate for their purposes. Toronto, Ontario March 28, 2017 Chartered Professional Accountants Licensed Public Accountants SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G T: F: MNP.ca

49 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Balance Sheet As at December 31, 2016 (Unaudited - see Notice to Reader) Assets Cash 229, ,260 Taxes recoverable 81,129 84,538 Real estate under development (Note 2) 4,052,173 3,614,455 4,363,026 3,853,253 Liabilities Accounts payable and accrued liabilities 585,474 76,773 Mortgage payable (Note 3) 1,950,000 1,950,000 2,535,474 2,026,773 Co-tenants' equity 1,827,552 1,826,480 Approved on behalf of the Co-tenancy 4,363,026 3,853,253 Co-tenant Co-tenant 1

50 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Statement of Loss For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Revenue Interest Expenses Sales commissions 622,365 14,071 Advertising and promotion 106, ,586 Office and general 27,087 11,734 Administration fees 6,500 3,000 Professional fees 3,150 3,150 Interest and bank charges , ,283 Net loss (765,178) (257,270) 2

51 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Statement of Co-tenants' Equity For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 2015 Contributions Share of net loss 2016 Harbour Morningside Limited Partnership 913, ,125 (416,149) 1,005,216 West Hill Developments Inc. 913, ,125 (349,029) 822,336 1,826, ,250 (765,178) 1,827, Contributions Share of net loss 2015 Harbour Morningside Limited Partnership - 1,041,875 (128,635) 913,240 West Hill Developments Inc. - 1,041,875 (128,635) 913,240-2,083,750 (257,270) 1,826,480 3

52 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 1. General Your Home Developments (West Hill) Co-tenancy (the "Co-tenancy"), is an unincorporated co-tenancy established on April 30, The principal business activities of the Co-tenancy include the acquisition of land, and the development and sale of condominiums and townhouses located in Toronto, Ontario. The co-tenants and their respective interest are as follows: Harbour Morningside Limited Partnership 50% West Hill Developments Inc. 50% Earnings are allocated to the co-tenants based on their respective interests adjusted for preferred returns. Losses are allocated to the co-tenants based on their respective cumulative equity contributions made as at December 31, These financial statements present the financial position and results of operations of the Co-tenancy and accordingly, do not include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in these financial statements for any income taxes as income taxes are recorded by each of the co-tenants. Your Home Developments (West Hill) Inc., the registered owner of the property, is acting only in trust on behalf of the cotenants and does not hold any beneficial interest in the Co-tenancy. Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generally accepted accounting principles and therefore, do not require note disclosures. The notes contained herein are for supplemental information purposes only and as such, no inference should be drawn as to their completeness. 4

53 2. Real estate under development YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Real estate under development, beginning of year 3,614,455 - Development costs 244, ,754 Interest and carrying charges 113,750 24,375 Land acquisition costs 79,822 3,066,326 Real estate under development, end of year 4,052,173 3,614, Mortgages payable Payable to a private lender, bears interest at 5.0% per annum, interest only payable quarterly, matures July 30, 2019 and secured by the properties located in Toronto, Ontario. 1,950,000 1,950,000 1,950,000 1,950,000 5

54 YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 4. Reconciliation of accounting income to income for tax purposes Net loss for accounting purposes $ (765,178) Net loss for income tax purposes $ (765,178) Allocation of net loss for income tax purposes to co-tenants Harbour Morningside Limited Partnership $ (416,149) West Hill Developments Inc. $ (349,029) $ (765,178) 6

55 Financial Statements of DANMOR LIMITED PARTNERSHIP Year ended December 31, 2016 (Unaudited)

56 KPMG LLP Bay Adelaide Centre 333 Bay Street, Suite 4600 Toronto ON M5H 2S5 Canada Tel Fax REVIEW ENGAGEMENT REPORT To the Partners of Danmor Limited Partnership We have reviewed the balance sheet of Danmor Limited Partnership (the "Partnership") as at December 31, 2016 and the statements of operations, partners' capital and cash flows for the year then ended. Our review was made in accordance with Canadian generally accepted standards for review engagements and, accordingly, consisted primarily of enquiry, analytical procedures and discussion related to information supplied to us by the Partnership. A review does not constitute an audit and, consequently, we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with Canadian accounting standards for private enterprises. Chartered Professional Accountants, Licensed Public Accountants March 28, 2017 Toronto, Canada KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity KPMG Canada provides services to KPMG LLP.

57 DANMOR LIMITED PARTNERSHIP Balance Sheet December 31, 2016, with comparative information for 2015 (Unaudited) Assets Cash $ 855,665 $ 473,747 Restricted cash (note 2) 2,246,251 - Deposits and others 78,813 26,957 Capital assets (note 3) 405,087 - Properties under development (note 4) 10,066,803 8,520,030 Liabilities and Partners' Capital $ 13,652,619 $ 9,020,734 Liabilities: Accounts payable and accrued liabilities $ 395,651 $ 46,626 Purchasers' deposits 2,245,776 - Credit facility (note 5) 4,987,067 4,974,098 7,628,494 5,020,724 Partners' capital 6,024,125 4,000,010 Contingency (note 8) $ 13,652,619 $ 9,020,734 See accompanying notes to financial statements. On behalf of the Partnership: Partner Partner 1

58 DANMOR LIMITED PARTNERSHIP Statement of Operations Year ended December 31, 2016, with comparative information for the period from June 4, 2015 (date of formation) to December 31, 2015 (Unaudited) Expenses: Selling and marketing $ 683,345 $ - Amortization of capital assets 231,205 - Office and general 61, ,885 - Net loss $ (975,885) $ - See accompanying notes to financial statements. 2

59 DANMOR LIMITED PARTNERSHIP Statement of Partners' Capital Year ended December 31, 2016, with comparative information for the period from June 4, 2015 (date of formation) to December 31, 2015 (Unaudited) Number of LP units outstanding Partners' capital, beginning of year Contributions by partners Net loss Partners' capital, end of year Limited partners: Harbour Equity JV Development Fund II 500 $ 2,000,000 $ 3,000,000 $ (487,938) $ 4,512,062 Marlin Spring Investments Limited 375 1,000,000 - (365,953) 634,047 Kubo Danmor Inc ,000,000 - (121,984) 878,016 General partner: Danmor GP Limited (10) - $ 4,000,010 $ 3,000,000 $ (975,885) $ 6,024, $ - $ 4,000,010 $ - $ 4,000,010 See accompanying notes to financial statements. 3

60 DANMOR LIMITED PARTNERSHIP Statement of Cash Flows Year ended December 31, 2016, with comparative information for the period from June 4, 2015 (date of formation) to December 31, 2015 (Unaudited) Cash provided by (used in): Operations: Net loss $ (975,885) $ - Amortization of capital assets, which does not involve cash 231,205 - Properties under development (1,533,804) (8,512,178) Restricted cash (2,246,251) - Deposits and others (51,856) (26,947) Accounts payable and accrued liabilities 349,025 46,626 Purchasers' deposits 2,245,776 - (1,981,790) (8,492,499) Financing: Credit facility - 5,000,000 Partners' contributions 3,000,000 4,000,000 Deferred financing costs - (33,754) 3,000,000 8,966,246 Investing: Capital assets (636,292) - Increase in cash 381, ,747 Cash, beginning of year 473,747 - Cash, end of year $ 855,665 $ 473,747 Supplemental disclosure of non-cash operating and investing activities: Amortization of deferred financing cost has been capitalized to properties under development $ 12,969 $ 7,852 See accompanying notes to financial statements. 4

61 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements Year ended December 31, 2016 (Unaudited) Nature of operations: Danmor Limited Partnership (the "Partnership") was formed on June 4, 2015 under the Limited Partnership Act (Ontario) pursuant to a limited partnership agreement. The address of the Partnership's registered office is 2828 Bathurst Street, Suite 300, M6B 3A7, Toronto, Ontario. The Partnership was formed to develop two pieces of land (the "Properties") and construct condominium units and sell. The properties are located at 2301 and 2315 Danforth Avenue, Toronto, Ontario. 1. Significant accounting policies: These financial statements are prepared in accordance with Canadian accounting standards for private enterprises ("ASPE"). The Partnership s significant accounting policies are as follows: (a) Basis of presentation: These financial statements pertain to an unincorporated partnership. Accordingly, they do not include other assets, liabilities, revenue and expenses of the partners and do not provide for any interest capital or for income taxes of the partners. In accordance with the limited partnership agreement, the net income earned by the Partnership is allocated and distributed to certain partners in priority order until such distributions result in the partners having received a specified internal rate of return as described in note 4. Following the distributions that result in the partners having received a specified internal rate of return, a portion of the net income is allocated to the partners on a pro rata basis in accordance with specified percentages as defined in note 4. Furthermore, in accordance with the limited partnership agreement, any net loss arising from the Partnership shall be allocated to the partners in their respective proportionate share. (b) Properties under development: Properties under development are recorded at the lower of cost and net realizable value ("NRV"). Cost includes the original cost of the property plus development costs and applicable carrying costs, including interest less net rental income earned during development. Properties under development are reviewed at least annually for impairment or whenever events or changes in circumstances indicate the carrying value may exceed NRV. An impairment loss is recognized in the statement of income when the carrying value exceeds its NRV. NRV is the estimated selling price in the ordinary course of the business at the balance sheet date, less costs to complete and estimated selling costs. In the event that previously written down to NRV property recovers in value, the carrying value of the property is increased to the extent of the recovery until the write-down is fully recovered. 5

62 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements (continued) Year ended December 31, 2016 (Unaudited) 1. Significant accounting policies (continued): (c) Revenue recognition: Revenue from the sale of condominium units is recognized when the purchaser has paid all the amounts due on interim closing, has the right to occupy the unit and has agreed to pay or assume a mortgage for the balance due on final closing. (d) Capital assets: Capital asset is stated at cost less accumulated amortization. Amortization is provided for over the estimated useful lives of approximately of 1 year using the straight-line method. (e) Financial instruments: Financial instruments are recorded at fair value on initial recognition. Freestanding derivative instruments that are not in a qualifying hedging relationship and equity instruments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method. Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, the Partnership determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount the Partnership expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future year, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value. 6

63 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements (continued) Year ended December 31, 2016 (Unaudited) 1. Significant accounting policies (continued): (f) Use of estimates: The preparation of the financial statements in conformity with ASPE 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 year. Significant items subject to such estimates and assumptions include the carrying amounts of properties under development. Actual results could differ from those estimates. 2. Restricted cash: Restricted cash represents funds, which are not available for general corporate purposes. At December 31, 2016, $2,246,251 was held in lawyer's trust account. 3. Capital assets: Cost Accumulated amortization Net book Net book value value Sales office $ 636,292 $ 231,205 $ 405,087 $ - 4. Properties under development: The properties under development consist of approximately 0.35 and 0.30 acres of land located at 2301 Danforth Avenue and 2315 Danforth Avenue, Toronto, Ontario. The properties were acquired on June 4, 2015 (date of adjustments) Land $ 7,698,899 $ 7,698,899 Development costs 1,037, ,754 Carrying costs (note 12 ) 1,330, ,377 $ 10,066,803 $ 8,520,030 Properties under development includes capitalized Interest in the amount of $198,476 ( $103,876) included in carrying cost. 7

64 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements (continued) Year ended December 31, 2016 (Unaudited) 5. Credit facility: The Partnership has a non-revolving credit facility of $5,000,000 which bears interest at the bank prime rate plus 1% per annum and is repayable on demand, sale and or refinancing of the project, but no later than December 30, At December 31, 2016, $5,000,000 was outstanding. This credit facility has general security in the form of a demand debenture in the amount of $45,000,000 secured by a first charge over the properties under development and construction for sale, corporate guarantee by Lindifrim Inc. and Betovan Construction Limited. and a general security agreement Credit facility $ 5,000,000 $ 5,000,000 Less deferred financing costs, net of accumulated amortization of $20,821 (2015 -$7,852) (12,933) (25,902) The Partnership is subject to certain financial and non-financial covenants. $ 4,987,067 $ 4,974, Partners' capital: Type of LP units Number of LP Number of LP units units outstanding outstanding Limited partners: Marlin Spring Investments Limited Class A Harbour Equity JV Development Fund II Class B Kubo Danmor Inc. Class C General partner: Danmor GP Limited GP unit 1 1 8

65 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements (continued) Year ended December 31, 2016 (Unaudited) 6. Partners' capital (continued): Pursuant to the Section 8.1 of the Limited Partnership Agreement, distributions to the Limited Partners will be made by the Partnership in the following order of priority: (a) (b) (c) (d) (e) first, to the Limited Partners, until they have been paid a cumulative preferred return equal to 8% per annum on excess capital; second, to the Limited Partners, in accordance with their respective proportionate shares, an amount equal to the excess capital as defined in the limited partnership agreement; third, to Harbour, a cumulative preferred return equal to 8% per annum calculated and compounded annually on the amount of the disproportionate capital as defined in the limited partnership agreement, calculated from the date on which each contribution of disproportionate capital was made to the Partnership to the date on which such contribution of disproportionate capital is repaid to Harbour; fourth, to Harbour, an amount equal to the disproportionate capital; and thereafter, 50% to Harbour and 50% to Marlin Spring and Kubo as specified the order of priority further defined in limited partnership agreement. 7. Related party transactions: The Partnership entered into a Development Management Services Agreement with Marlin Spring Management Limited and Nojak Inc., which are entities over which two of the limited partners have the ability to exercise significant influence or control. The agreement governs development of the property and vests the responsibilities of the day-to-day operations in connection with the development of the properties. The following transactions and balances were incurred in relation to this agreement along with other related party transactions during the period: Development management fee capitalized in carrying cost $ 322,050 $ 183,915 Guarantee fee capitalized in carrying cost - 75,000 Bookkeeping fee capitalized in carrying cost - 13,733 Bookkeeping fee expensed 33,000 - Reimbursable costs 28,701 9,775 Accounts payable and accrued liabilities 60,608 1,726 9

66 DANMOR LIMITED PARTNERSHIP Notes to Financial Statements (continued) Year ended December 31, 2016 (Unaudited) 8. Contingency: Purchaser deposits released from a lawyer's trust account, to a maximum of $5,201,000, and a bond issued to Tarion Warranty Corporation, to a maximum of $3,120,000, are secured by a second collateral mortgage of $9,000,000 on the subject project and property. At December 31, 2016, no amount has been released from the lawyer's trust account under the Tarion bond. 9. Risk management: (a) Market risk: The Partnership s revenue is primarily derived from the sale of property, which is affected by general economic trends. A decline in economic conditions could impact the Partnership's operations negatively. (b) Liquidity risk: Liquidity risk is the risk that the Partnership will be unable to fulfill its obligations on a timely basis or at a reasonable cost. The Partnership manages its liquidity risk by monitoring its operating requirements. The Partnership prepares budget and cash forecasts to ensure it has sufficient funds to fulfill its obligations. (c) Interest rate risk: The Partnership s long-term debt has a variable interest rate based on the bank prime rate plus 1%. As a result, the Partnership is exposed to interest rate risk due to fluctuations in the bank prime rate. 10. Capital risk management: The Partnership considers its capital to be the partners' capital. As at December 31, 2016, the Partnership's capital was determined to be $7,000,010. The Partnership's objectives in managing capital are to safeguard its ability to meet any debt service obligations and capital expenditure requirements, and to safeguard the Partnership's ability to continue as a going concern so that it can provide returns to its partners. The Partnership considers its capital structure on an ongoing basis and adjusts its capital structure in response to cash flow considerations, potential business opportunities and general economic conditions. 11. Comparative information: The financial statements have been reclassified, where applicable, to conform to the presentation used in the current year. The changes do not affect prior year earnings. 10

67 DANMOR LIMITED PARTNERSHIP Note 12- Carrying Costs Year ended December 31, 2016, with comparative information for 2015 (Unaudited) Balance, beginning of year $ 475,377 $ - Development management fee 322, ,915 Loan interest 185,507 96,024 Guarantee fee - 75,000 Professional fee 115,546 54,819 Realty taxes 92,422 54,060 Bookkeeping fee - 13,733 General 17,800 8,615 Insurance 19,168 8,557 Amortization of deferred financing costs 12,969 7,852 Utilities 9, Bank charges Interest earned (501) (650) Rent and miscellaneous revenue (12,486) (27,820) Commissions 92, , ,377 Balance, end of year $ 1,330,010 $ 475,377 11

68 WINDSOR APARTMENTS FORT SASK CO-TENANCY Financial Statements December 31, 2016 (Unaudited - see Notice to Reader)

69 Notice To Reader On the basis of information provided by management, we have compiled the balance sheet of Windsor Apartments Fort Sask Cotenancy as at December 31, 2016 and the statements of earnings and co-tenants' equity for the year then ended. We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are cautioned that these statements may not be appropriate for their purposes. Toronto, Ontario March 30, 2017 Chartered Professional Accountants Licensed Public Accountants SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G T: F: MNP.ca

70 WINDSOR APARTMENTS FORT SASK CO-TENANCY Balance Sheet As at December 31, 2016 (Unaudited - see Notice to Reader) Assets Cash 96,891 88,169 Accounts receivable 7,345 - Tenant deposits in trust 136,954 - Prepaid expenses and deposits 170, ,185 Taxes recoverable 4, ,714 Real estate under development (Note 2) 1,435,945 10,801,025 Real estate held for sale (Note 3) 20,690,011 4,535,771 Deferred financing costs 268, ,956 22,809,910 16,285,820 Liabilities Accounts payable and accrued liabilities 41,861 1,429,661 Holdbacks payable 33, ,929 Tenant deposits 139,159 - Loans payable (Note 4) 22,416,827 11,717,752 22,631,260 13,277,342 Co-tenants' equity 178,650 3,008,478 Approved on behalf of the Co-tenancy 22,809,910 16,285,820 Co-tenant Co-tenant 1

71 WINDSOR APARTMENTS FORT SASK CO-TENANCY Statement of Earnings For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Revenue Rental 1,431, ,259 Interest ,431, ,517 Expenses Property taxes 114,512 - Professional fees 102,932 6,515 Utilities 92,812 8,978 Office and general 59,018 36,535 Salaries and benefits 52,999 12,065 Repairs and maintenance 49,456 - Insurance 37,550 - Advertising and promotion 16,986 7,256 Adminstration fees 13,350 4,894 Interest and bank charges 3,674 3,307 Security ,516 79,550 Income before the undernoted items 888,014 37,967 Interest on loan payable 637,491 - Amortization on deferred financing costs 89,489 89,489 Net earnings (loss) 161,034 (51,522) 2

72 WINDSOR APARTMENTS FORT SASK CO-TENANCY Statement of Co-tenants' Equity For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 2015 Contributions Distributions Share of net earnings 2016 Harbour Fort Sask Limited Partnership 2,516,897 - (2,581,552) 153,980 89,325 P.K. Developments Construction Corp. 491, ,000 (609,310) 7,054 89,325 3,008, ,000 (3,190,862) 161, , Contributions Distributions Share of net loss 2015 Harbour Fort Sask Limited Partnership - 2,560,000 - (43,103) 2,516,897 P.K. Developments Construction Corp ,000 - (8,419) 491,581-3,060,000 - (51,522) 3,008,478 3

73 WINDSOR APARTMENTS FORT SASK CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 1. General Windsor Apartment Fort Sask Co-tenancy (the "Co-tenancy"), is an unincorporated co-tenancy established on June 16, The principal business activities of the Co-tenancy include the acquisition, construction and sale of apartment buildings located in Fort Saskatchewan, Alberta. The co-tenants and their respective interest are as follows: Harbour Fort Sask Limited Partnership 50% P.K. Developments Construction Corp. 50% Earnings are allocated to the co-tenants based on their respective interests adjusted for preferred returns. Losses are allocated to the co-tenants based on their respective cumulative equity contributions made as at December 31, These financial statements present the financial position and results of operations of the Co-tenancy and accordingly, do not include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in these financial statements for income taxes as income taxes are recorded by each of the co-tenant. Windsor Apartments Fort Sask. Inc., the registered owner of the property, is acting only in trust on behalf of the co-tenants and does not hold any beneficial interest in the Co-tenancy. Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generally accepted accounting principles and therefore, do not require note disclosures. The notes contained herein are for supplemental information purposes only and as such, no inference should be drawn as to their completeness. 4

74 2. Real estate under development WINDSOR APARTMENTS FORT SASK CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Real estate under development, beginning of year 10,801,025 - Land acquisition costs 1,400,000 3,408,834 Development costs 5,353,215 11,574,834 Interest and carrying charges 35, ,128 Real estate transferred to real estate held for sale (16,154,240) (4,535,771) Real estate under development, end of year 1,435,945 10,801, Real estate held for sale Land 2,105, ,325 Building 18,585,011 3,786,446 20,690,011 4,535, Loans payable As at December 31, 2016 the Co-tenancy had available credit facilities totalling $22,480,000 as follows: Payable to Severus Credit Union 14,446,827 11,717,752 $14,510,000 demand loan facility, principal and interest payable monthly at 3.2% per annum, matures October 1, This facility is secured, inter alia, as follows: 1. A first charge mortgage on phase one of the project lands in the amount of $14,520,000; 2. General security agreement over all property of phase one of the borrower; 3. Guarantee and postponement of claims by a private individual and corporation; and 4. Property and liability insurance of not less than $2,000,000. 5

75 WINDSOR APARTMENTS FORT SASK CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 4. Loans payable (Continued from previous page) Payable to the Royal Bank of Canada 7,060,000 - $7,060,000 loan facility, principal and interest payable monthly at 2.98% per annum, matures January 1, This loan is secured, inter alia, as follows: 1. A first charge mortgage on phase two of the project lands in the amount of $7,060,000; 2. General security agreement over all property of phase two of the borrower; 3. First assignments of rents and leases from phase two of the project lands; and 4. Joint and several unconditional guarantees from a priviate individual and corporation. Payable to the Laurentian Bank of Canada 910,000 - $910,000 land loan facility, interest payable monthly at the greater of the Prime rate plus 1.25% per annum or 3.95% per annum; principal payable upon maturity on June 1, $5,300,000 construction loan facility, interest only payable monthly at great of the Prime rate plus 1.0% per annum or 3.7% per annum; repaid in full during the year. These facilities are secured, inter alia, as follows: 1. A first charge mortgage on phase three of the project lands in the amount of $6,210,000; 2. General security agreement over all property of phase three of the borrower; 3. First assignments of rents and leases from phase three of the project lands; and 4. Joint and several unconditional guarantees from a priviate individual and corporation. Payable to Canada ICI - 11,717,752 Bore interest at the greater of 5.45% per annum or Prime plus 2.75% per annum, interest only payable monthly, guaranteed by a principal of P.K. Developments Construction Corp., and secured by the property located in Fort Saskatchewan, Alberta. The loan was repaid in full during ,416,827 23,435,504 6

76 5. Reconciliation of accounting income to income for tax purposes WINDSOR APARTMENTS FORT SASK CO-TENANCY Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Net income for accounting purposes $ 161,034 Net income for income tax purposes $ 161,034 Allocation of net income for income tax purposes to co-tenants Harbour Fort Sask Limited Partnership $ 153,980 P.K. Developments Construction Corp. $ 7,054 $ 161,034 7

77 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Financial Statements December 31, 2016 (Unaudited - see Notice to Reader)

78 Notice To Reader On the basis of information provided by management, we have compiled the balance sheet of Townhomes of Canals Limited Partnership as at December 31, 2016 and the statements of loss and partners' equity for the year then ended. We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are cautioned that these statements may not be appropriate for their purposes. Toronto, Ontario March 28, 2017 Chartered Professional Accountants Licensed Public Accountants SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G T: F: MNP.ca

79 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Balance Sheet As at December 31, 2016 (Unaudited - see Notice to Reader) Assets Cash 21, ,125 Accounts receivable Taxes recoverable 15,005 5,710 Security deposits 1,575 - Real estate under development (Note 2) 11,107,289 1,141,876 11,145,778 1,284,811 Liabilities Accounts payable and accrued liabilities 130,087 6,761 Loans payable (Note 3) 4,051,595-4,181,682 6,761 Partners' equity 6,964,096 1,278,050 Approved on behalf of the Partnership 11,145,778 1,284,811 Partner Partner 1

80 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Statement of Loss For the year ended December 31, 2016 (Unaudited - see Notice to Reader) Expenses Advertising and promotion 27,989 - Professional fees 3,690 3,150 Interest and bank charges Office and general Net loss (32,854) (3,150) 2

81 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Statement of Partners' Equity For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 2015 Contributions Share of net loss 2016 Harbour Equity JV Development Fund II Limited 888,909 3,008,900 (18,304) 3,879,505 Partnership SCW Canals LP 389,141 2,710,000 (14,550) 3,084,591 Slokker Projects GP Inc Townhomes of Canals GP Ltd., as the general partner ,278,050 5,718,900 (32,854) 6,964, Contributions Share of net loss 2015 Harbour Equity JV Development Fund II Limited - 891,100 (2,191) 888,909 Partnership SCW Canals LP - 390,100 (959) 389,141 Slokker Projects GP Inc Townhomes of Canals GP Ltd., as the general partner ,281,200 (3,150) 1,278,050 3

82 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 1. General Townhomes of Canals Limited Partnership (the "Partnership") was formed on July 15, 2015 as a Limited Partnership under the laws of Alberta, Canada. The principal business activities of the Partnership include the acquisition of land, and the development and sale of townhouses located in Airdrie, Alberta. As a result of an amendment to the limited partnership agreement effective April 15, 2016, the partners and their respective interest have been amended and are as follows: Harbour Equity JV Development Fund II Limited Partnership % SCW Canals LP % Slokker Projects GP Inc % Townhomes of Canals GP Ltd., as the general partner % Earnings are allocated to the partners based on their respective interests adjusted for preferred returns. Losses are allocated to the partners based on their respective cumulative equity contributions made as at December 31, These financial statements present the financial position and results of operations of the Partnership and accordingly, do not include all the assets, liabilities, revenue and expenses of the partners. No provision has been made in these financial statements for any income taxes as income taxes are recorded by each of the partners. Townhomes of Canals GP Ltd., the registered owner of the property, is acting only in trust on behalf of the Partnership and does not have any beneficial interest in the Partnership. Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generally accepted accounting principles and therefore, do not require note disclosures. The notes contained herein are for supplemental information purposes only and as such, no inference should be drawn as to their completeness. 4

83 TOWNHOMES OF CANALS LIMITED PARTNERSHIP Notes to the Financial Statements For the year ended December 31, 2016 (Unaudited - see Notice to Reader) 2. Real estate under development Real estate under development, beginning of year 1,141,876 - Land acquisition costs 9,127,000 1,023,000 Development costs 502, ,876 Interest and carrying charges 335,416 - Real estate under development, end of year 11,107,289 1,141, Loans payable Payable to Alberta Treasury Branches As at December 31, 2016, the Partnership had available credit facilities totaling $11,053,000 as follows: Facility #1: $3,750,000 non-revolving demand loan facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 2.0% per annum. Facility #2: $2,753,000 non-revolving demand loan facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.5% per annum. Facility #3: $4,000,000 line of credit facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.25% per annum. Facility #4: $550,000 letter of credit facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.5% per annum. 3,750, , The facilities are secured, inter alia, as follows: 1. General security interest in all personal property of the borrower; 2. Mortgage from the Partnership in the amount of $15,000,000 constituting a first fixed charge on the Townhomes of Canals (the "Project Lands"); 3. General assignment of construction contracts and sales agreements; and 4. Postponement and assignment of claims by the limited partners. 4,051,595-5

84 Financial Statements of UV DEVELOPMENTS FOUR LIMITED PARTNERSHIP Year ended December 31, 2016 (Unaudited - see Notice to Reader)

85 KPMG LLP 3rd Floor th Street Langley BC V2Y 0M1 Canada Tel (604) Fax (604) NOTICE TO READER On the basis of information provided by management, we have compiled the balance sheet of UV Developments Four Limited Partnership as at December 31, 2016 and the statements of earnings and partners' equity for the year then ended. We have not performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are cautioned that these financial statements may not be appropriate for their purposes. KPMG LLP Chartered Professional Accountants March 30, 2017 Langley, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

86 UV DEVELOPMENTS FOUR LIMITED PARTNERSHIP Balance Sheet December 31, 2016, with comparative information for 2015 (Unaudited - see Notice to Reader) Assets Current assets: Cash $ 2,249,058 $ - Government agencies receivable 140, ,675 Funds held in trust - 184,837 Deposit 10,000 20,000 Mortgage interest reserve 2,263, ,591 Recoverable costs 818,313 41,609 Work in progress 34,422,417 14,552,966 39,903,778 15,205,678 Deposits held in trust 12,665,653 - Due from partners (note 1) Leasehold improvements (note 2) 1,266,674 1,266,674 Liabilities and Partners' Equity (Deficiency) $ 53,836,115 $ 16,472,362 Current liabilities: Bank indebtedness $ - $ 23,894 Accounts payable and accrued liabilities 7,449, ,708 Management fee payable 1,810,683 1,810,683 9,260,232 2,405,285 Deposits held in trust 12,665,653 - Due to Urban Village Limited Partnership 3,892,836 7,829,057 Long term debt 22,519,374 6,240,000 39,077,863 14,069,057 48,338,095 16,474,342 Partners' equity (deficiency) 5,498,020 (1,980) $ 53,836,115 $ 16,472,362 See accompanying notes to financial statements. 1

87 UV DEVELOPMENTS FOUR LIMITED PARTNERSHIP Statement of Earnings Year ended December 31, 2016, with comparative information for 2015 (Unaudited - see Notice to Reader) Revenue $ - $ - Expenses - - Net earnings $ - $ - See accompanying notes to financial statements. 2

88 UV DEVELOPMENTS FOUR LIMITED PARTNERSHIP Statement of Partners' Equity Year ended December 31, 2016, with comparative information for 2015 (Unaudited - see Notice to Reader) Balance, beginning of year Contributions Drawings Net earnings Balance, end of year B.C. Ltd. $ (1,990) $ - $ - $ - $ (1,990) Urban Village Limited Partnership Harbour Equity - 5,500, ,500,000 $ (1,980) $ 5,500,000 $ - $ - $ 5,498, $ (1,980) $ - $ - $ - $ (1,980) See accompanying notes to financial statements. 3

89 UV DEVELOPMENTS FOUR LIMITED PARTNERSHIP Notes to Financial Statements Year ended December 31, 2016 (Unaudited - see Notice to Reader) Basic of presentation: The recognition, measurement, presentation and disclosure principles in these financial statements may not be in accordance with the requirements of any of the financial reporting frameworks in the CPA Canada Handbook Accounting. 1. Due from partners : B.C. Ltd. $ 10 $ Leasehold improvements: Cost Accumulated amortization Net book Net book value value Building $ 1,266,674 $ - $ 1,266,674 $ 1,266,674 4

90 Gorsebrook Park Co-tenancy Financial Statements December 31, 2016 (Unaudited)

91 Review Engagement Report To the Co-tenants of Gorsebrook Park Co-tenancy: We have reviewed the balance sheet of Gorsebrook Park Co-tenancy as at December 31, 2016 and the statements of loss, co-tenants' equity and cash flows for the period from establishment on April 25, 2016 to December 31, Our review was made in accordance with Canadian generally accepted standards for review engagements and, accordingly, consisted primarily of inquiry, analytical procedures and discussion related to information supplied to us by the Co-tenancy. A review does not constitute an audit and, consequently, we do not express an audit opinion on these financial statements. Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material respects, in accordance with Canadian accounting standards for private enterprises. Toronto, Ontario March 28, 2017 Chartered Professional Accountants Licensed Public Accountants SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G T: F: MNP.ca

92 Gorsebrook Park Co-tenancy Balance Sheet As at December 31, 2016 (Unaudited) Assets Cash 98,482 Taxes recoverable 77,392 Deposits in trust 4,113 Real estate under development (Note 3) 9,039, ,219,742 Liabilities Accounts payable and accrued liabilities 3,150 Loan payable (Note 4) 4,150,000 Commitments (Note 6) 4,153,150 Co-tenants' equity 5,066,592 Approved on behalf of the Co-tenancy 9,219,742 Co-tenant Co-tenant The accompanying notes are an integral part of these financial statements 1

93 Gorsebrook Park Co-tenancy Statement of Loss For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) Revenue Interest 1,079 Expenses Advertising and promotion 144,151 Professional fees 26,922 Office and general 13, ,487 Net loss (183,408) The accompanying notes are an integral part of these financial statements 2

94 Gorsebrook Park Co-tenancy Statement of Co-tenants' Equity For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) Contributions Share of net loss 2016 Harbour Wellington Limited Partnership 2,625,000 (91,704) 2,533,296 Urban Capital (Gorsebrook Park) Inc. 2,625,000 (91,704) 2,533,296 5,250,000 (183,408) 5,066,592 The accompanying notes are an integral part of these financial statements 3

95 Gorsebrook Park Co-tenancy Statement of Cash Flows For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) 2016 Cash provided by (used for) the following activities Operating activities Net loss (183,408) (183,408) Changes in working capital accounts Accounts receivable (77,392) Deposits in trust (4,113) Accounts payable and accrued liabilities 3,150 (261,763) Financing activities Advances of loan payable 4,150,000 Contributions from co-tenants 5,250,000 9,400,000 Investing activities Real estate under development (9,039,755) Increase in cash 98,482 Cash, beginning of period - Cash, end of period 98,482 The accompanying notes are an integral part of these financial statements 4

96 Gorsebrook Park Co-tenancy Notes to the Financial Statements For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) 1. General Gorsebrook Park Co-tenancy (the "Co-tenancy") is an unincorporated co-tenancy that was established on April 25, The principal business activities of the Co-tenancy include the acquisition of land and development and sale of condominium units in Halifax, Nova Scotia (the "Project"). The co-tenants and their respective interests are as follows: Harbour Wellington Limited Partnership 50% Urban Capital (Gorsebrook Park) Inc. 50% Earnings are allocated to the co-tenants in accordance with distributions received. Losses are allocated to the co-tenants based on their respective cumulative equity contributions made as at December 31, Distributions are paid as a 10% preferred return prior to the return of common equity. The balance of distributions, if any, will be distributed to the co-tenants on a pari passu basis as follows: Harbour Wellington Limited Partnership 35% Urban Capital (Gorsebrook Park) Inc. 65% Gorsebrook Park Inc., the registered owner of the property, is acting only in trust on behalf of the co-tenants and does not have any beneficial interest in the Co-tenancy. 2. Significant accounting policies The financial statements have been prepared in accordance with Canadian accounting standards for private enterprises and include the following significant accounting policies: Basis of presentation These financial statements present the financial position and the results of operations of the Co-tenancy and accordingly, do not include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in these financial statements for any income taxes as income taxes are recorded by each of the co-tenants. Real estate under development Real estate under development comprises of land, development costs and capitalized interest and carrying charges. Real estate under development is recorded at the lower of cost and net realizable value. Selling, general and administration costs such as marketing sales staff and adminstration overhead are expensed. Revenue recognition Revenue from the sale of real estate properties is recognized once all significant conditions have been met and collection of the proceeds from sale is reasonably assured. Financial instruments The Co-tenancy recognizes its financial instruments when the Co-tenancy becomes party to the contractual provisions of the financial instrument. All financial instruments are initially recorded at their fair value, including financial assets and liabilities originated and issued in a related party transaction with management. Financial assets and liabilities originated and issued in all other related party transactions are initially measured at their carrying or exchange amount in accordance with Section 3840 Related Party Transactions. At initial recognition, the Co-tenancy may irrevocably elect to subsequently measure any financial instrument at fair value. The Co-tenancy has not made such an election during the period. All financial assets are subsequently measured at amortized cost. Transaction costs and financing fees are added to the carrying amount for those financial instruments subsequently measured at cost or amortized cost. 5

97 Gorsebrook Park Co-tenancy Notes to the Financial Statements For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) 2. Significant accounting policies (Continued from previous page) Financial asset impairment: The Co-tenancy assesses impairment of all its financial assets measured at cost or amortized cost. The Co-tenancy reduces the carrying amount of any impaired financial assets to the highest of: the present value of cash flows expected to be generated by holding the assets; the amount that could be realized by selling the assets; and the amount expected to be realized by exercising any rights to collateral held against those assets. Any impairment, which is not considered temporary, is included in current period net loss. The Co-tenancy reverses impairment losses on financial assets when there is a decrease in impairment and the decrease can be objectively related to an event occurring after the impairment loss was recognized. The amount of the reversal is recognized in net loss in the period the reversal occurs. Measurement uncertainty The preparation of financial statements in conformity with Canadian accounting standards for private enterprises 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. Management's significant estimates relates to the valuation of real estate under development. These estimates and assumptions are reviewed periodically and, as adjustments become necessary they are reported in net loss in the year in which they become known. 3. Real estate under development 2016 Land acquisition costs 8,300,000 Development costs 429,609 Interest and carrying charges 310,146 9,039, Loan payable 2016 Payable to the Canadian Imperial Bank of Commerce 4,150,000 $4,150,000 demand loan facility, matures on April 28, 2018; interest is payable monthly at the Prime rate plus 1.5% per annum. The loan is secured, inter alia, as follows: 1. A first ranking mortgage in the amount of $4,150,000 over the Project Lands located in Halifax, Nova Scotia; 2. A general security agreement over all property of the borrower; and 3. Guarantees from Urban Capital (Gorsebrook Park) Inc., DMW Developments Inc., and two additional private corporations for the aggregate amount of $8,305,000. 4,150,000 6

98 Gorsebrook Park Co-tenancy Notes to the Financial Statements For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) 5. Financial instruments The Co-tenancy, as part of its operations, carries a number of financial instruments. It is management's opinion that the Cotenancy is not exposed to significant interest, currency, credit, liquidity or other price risks arising from these financial instruments except as otherwise disclosed. Liquidity risk Liquidity risk is the risk that the Co-tenancy will encounter difficulty in meeting obligations associated with financial liabilities. The Co-tenancy is exposed to liquidity risk arising from accounts payable and accrued liabilities and loan payable. The co-tenancy manages this risk by closely monitoring its budgeted and projected operating results and cash requirements. Interest rate risk Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets and liabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk. The Co-tenancy is exposed to interest rate cash flow risk with respect to its loan payable, which carries a floating interest rate. 6. Related party transactions and commitments The Co-tenancy has entered into a Development Management Agreement with DMW Developments Inc. (the "Manager") for development and property management services. The Co-tenants are committed to pay a development management fee in the amount of 2.5% of gross revenue to a maximum of $1,394,000 upon the sale of condominium units. DMW Developments Inc. is related to Urban Capital (Gorsebrook Park) Inc. through common control. The Co-tenancy has entered into negotiations with Marco Maritime Limited for construction management services. 7

99 7. Reconciliation of accounting income to income for tax purposes Gorsebrook Park Co-tenancy Notes to the Financial Statements For the period from establishment on April 25, 2016 to December 31, 2016 (Unaudited) Net loss for accounting purposes $ (183,408) Net loss for income tax purposes $ (183,408) Allocation of net loss for income tax purposes to co-tenants Harbour Wellington Limited Partnership $ (91,704) Urban Capital (Gorsebrook Park) Inc. $ (91,704) $ (183,408) 8

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